The Thai arm of Hong Kong-based insurer FWD is working to diversify its portfolio with its first moves into offshore equities and local property, in part of a broader investment shift in Thailand's life insurance industry.

Having nearly doubled its assets under management to $3 billion from $1.68 billion at end-2014, FWD Thailand increased its investment team by two this year, raising the headcount to seven and taking portfolio in-house for the time being.

Peamphanyapa Phanyapavee, executive vice president of investment at the firm, told AsianInvestor: “We will start investing in offshore equity next year. At this stage it’s just about diversifying—we will keep it very vanilla.”

The firm is likely to make its first moves into foreign stocks through global equity exchange-traded funds (ETFs), she said.

FWD Thailand also expects to increase its allocation to foreign bonds in 2018 and is mulling its first direct investments into local repo agreements and domestic real estate, among other alternatives. It already has 3% of its portfolio in local real estate investment trusts (Reits) and “will have to study hard” whether to go into physical property, Peamphanyapa said. 

Only 4% of its total assets under management is in overseas assets. That will rise over time, although by how much has yet to be determined, Peamphanyapa said. The current regulatory limit is 15%, although some insurers are working with the regulator, the Office of Insurance Commission (OIC), to raise this to 20% or even 25%.

“It’s hard to say how high we will raise our overseas allocation; it comes down to relative value and how the [risk-based capital] rules might evolve,” Paul Carrett, Hong Kong-based group chief investment officer at FWD, told AsianInvestor, alluding to the Thai regulatory overhaul that is in the works. 

Thai insurers are awaiting the implementation of a second generation of risk-based capital rules (known as RBC2), which will increase the amount of capital insurers must hold when investing in certain risk assets. 

FWD's  Thai unit would likely deploy more funds overseas if it had more options to invest in property or private equity, Carrett added. “[FWD as a group is] already active in private equity and property in Hong Kong, while in Thailand private equity needs approval from regulator.”

Changing habits 

Another domestic player, Muang Thai Life, is also considering boosting its equity exposure. It is working with the country's regulator to broaden its range of permitted investments to include asset types such as syndicated loans and infrastructure funds.

Thai insurers, which are largely barred from investing in alternatives, are being driven by the low-rate environment to change their habits by investing more in stocks, higher-yielding bonds and other assets. The domestic benchmark interest rate has been at a near-record low of 1.5% since 2015.

Insurers are hoping the risk charges imposed by the OIC as part of RBC2 will not be overly high for listed equities, among other things. The charge is set to rise eventually from 16% to 35% over the next five years.

“If the charges are too high, insurers may have to reduce their exposure to the equity market,” Peamphanyapa said. This is a point of concern that the Thai Life Assurance Association has raised with the OIC this year, among others, industry participants said.

Meanwhile, FWD Thailand’s decision to run its portfolio in-house was a strategic one based on the firm achieving greater economies of scale and taking the view that it would be more efficient for assets and liabilities to be managed internally, Peamphanyapa said.

Will it further increase the team? The current headcount is sufficient for now, Carrett said. “It’s a pretty scalable business. As we do more hedging and add different asset classes, however, we might need to add more internal resources to help with that. That said, we also get material leverage from the broader FWD Group.”

AsianInvestor is hosting its fifth Insurance Investment Forum in Hong Kong on March 1. For more details, contact Terry Rayner via email or on (+852) 31751963.