Krungthai Axa Life Insurance, like several of its Thai peers, is looking to diversify its portfolio, and investing more offshore is a key part of its strategy. The firm, a joint venture between French group Axa and local firm Krung Thai Bank, is also considering moving into alternative assets beyond real estate investment trusts (Reits).

The insurer, which has Bt220 billion ($6.8 billion) in assets under management, might almost double its 8% overseas allocation in the next two years, chief investment officer Pattarapol Parin told AsianInvestor.

“You can see Thai insurers steadily increasing their offshore exposure and we will keep raising our overseas allocation,” he said, while adding that Krungthai Axa could hit the current 15% limit in the next two years.

“We’re doing this for diversification as well as higher returns,” Pattarapol said. “Axa Group has concentration limits that are stricter than the [domestic Thai] rules, so we need to diversify.”

To this end, he noted, Krungthai Axa is open to widening its use of external fund houses if these can show better levels of performance than its own in-house managers. At the moment it only uses Krung Thai Asset Management and Axa Investment Managers.

The insurer has already built up its allocation to corporate bonds, both onshore and offshore, to around one-third of overall AUM, from 20% or less a few years ago.

Other local life insurers are taking a similar view. Hong Kong-based FWD’s Thai business expects to increase its 4% offshore allocation, Peamphanyapa Phanyapavee, the firm's executive vice president of investment, told AsianInvestor. It will start investing in foreign equities next year, initially via exchange-traded funds, she said.

Moreover, the Thai Life Assurance Association (TLAA) has proposed that the local regulator, the Office of Insurance Commission (OIC), raise the offshore limit to at least 20% from 15%, Krungthai Axa's Pattarapol said.

The industry needs to get the ball rolling early because it could take a long time for the regulator to lift the cap, he added.

Hungry for returns

Returns on Thai bonds are harder to come by these days, pushing local institutions into higher-yielding local investments such as Reits and collateralised loans, as well as overseas assets. Thailand’s benchmark interest rate stands at a near record low of 1.5%, where it has been since 2015.

Krungthai Axa has raised its local Reit allocation to almost 4% from 2% over the past few years, said Pattarapol. They currently offer a stable dividend return of around 5% to 6%, he added, while the local equity dividend is expected to be around 3% and would be more volatile.

The firm has nothing else in alternatives at present but is looking at such assets as part of a feasibility study. “We would like to have more options to do that,” Pattarapol said.

Other domestic insurers echoed this view. Muang Thai Life, for instance, is working with the OIC to gain approval to invest in assets such as syndicated infrastructure loans and infrastructure funds, said Sutee Mokkhavesa, the firm’s head of risk, strategy and unit-linked investments.

He added that if the regulator were to ease restrictions on private market assets, his firm would outsource more for such strategies, both offshore and onshore.

According to its group chief investment officer, Paul Carrett, FWD would likely also invest more offshore if there were more options available to invest in assets such as private equity and property. 

However, insurers are generally keeping their allocations stable for now as they wait for the OIC to finalise the risk charges for holding different asset types under the incoming new risk-based capital framework (RBC2). 

RBC2 is due to be phased in over the next five years, and insurers expect the regulator to announce the details of the new regime by early next year.

An extended, in-depth feature about how Thai insurers are rethinking their asset allocations will appear in the forthcoming December/January issue of AsianInvestor magazine.

In addition, 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 3175 1963.