Taiwanese insurer Cathay Life will invest NT$100 billion ($3 billion) of its newly expanded cash holdings into foreign bonds, which outperformed overseas equities in its portfolio in the first quarter of this year (by 4.8% to 3.8%, before hedging).
Cathay Life – the country’s biggest life insurer, with NT$4.69 trillion of investable assets – saw its cash holding increase by NT$98.7 billion to NT$159.8 billion in the first quarter of 2016, accounting for 3.4% of its total investable assets, up from 1.3% the quarter before.
Cathay Life will reportedly invest the extra cash from the end of the second quarter, said Abel Lin, executive vice president at the firm, quoted in local media.
Lin said several factors drove the rise in cash holdings: a growth in premiums, the maturing of some bonds and the insurer’s adoption of a wait-and-see stance towards the volatile equity market in the first three months of the year.
Asked which types of foreign bonds the insurer planned to buy more of, the spokesman said all types – corporate and government, investment- and non-investment-grade, emerging- and developed-market debt – were possible, “as long as they can pass our risk-adjusted yield assessment”.
The portfolio includes Chinese bonds, mostly those issued by state-owned enterprises and the four big domestic banks, due to their relatively high ratings, size and liquidity.
Non-investment-grade debt will remain a small portion of the overall portfolio due to regulatory constraints, added the spokesman. As of end-March, about 95% of its offshore bonds were investment-grade and 5% non-investment-grade.
Lee Chang-Ken, president of Cathay Financial Holdings, Cathay life’s parent, reportedly said this week that the holding company expected a better investment environment in the second half than the first.
But the company will continue to favour offshore bonds in its overall asset allocation, Cathay Life’s spokesman told AsianInvestor.
As of the first quarter, the firm’s foreign bond allocation stood at NT$2.35 trillion, accounting for 50.2% of its portfolio and nearly 90% of its offshore assets. The other 10% of foreign exposure was in equities and real estate. Foreign investments accounted for 56% of its overall portfolio.
As of end-March, 91% of Cathay Life’s offshore bonds were denominated in US dollars, 5% in offshore renminbi, 1% each in euro, Australian dollar and Korean won, with the remaining 1% in currencies fully hedged to US dollars.
Of Cathay Life’s debt portfolio, 44% of bonds were issued in North America, 24% in Asia Pacific, 19% in Europe and 13% in other regions.
Cathay Life, along with other institutional investors in Taiwan and elsewhere in Asia, has been seeking riskier assets in recent years with a view to boosting returns.
The insurer has extended its investment scope from government bonds to corporate bonds and mortgage-backed securities, and in the process accepted a fall in the credit rating of some of its assets from AAA to AA, said Sophia Cheng, Cathay Financial Holding’s chief investment officer, in March.
Generally Cathay Life prefers assets with stable, recurring yields, she added, such as treasuries, high-quality corporate bonds and blue-chip stocks that offer long-term and stable dividends, such as those in the utility and telecoms sectors.