Insurance firms are finding it tough to fund their liabilities in the current low-interest-rate, low-yield environment, but one way they are tackling the issue is by boosting their alternatives exposure.

Singapore’s NTUC Income, for example, has raised its combined property and private equity exposure to 15%, from 10% of its portfolio over the past three years. It aims to raise this allocation further at the expense of its equities holdings.

The firm, with $19.3 billion in AUM, is also seeking more international infrastructure exposure, but most of the increase will be in real estate, says chief investment officer Peter Heng.

It helps NTUC Income that the asset-liability problem – compounded by the fact that many insurers wrote policies when interest rates were a lot higher – is not as acute in Singapore as in, say, South Korea or Taiwan.

“Interest rates have fallen in Singapore, but they have been low for quite a long time – so they are not such an issue for insurers in Singapore as perhaps for others,” says Heng

Moreover, the company does not write a lot of guaranteed investment products, he adds. And the ones it does write tend not to be fully guaranteed and relatively short-term (five years or shorter), due to both yield levels and the lack of long-term bonds.

But Heng concedes that if rates remain low, that will affect a firm’s ability to price competitively.

Illiquid assets such as property and private equity don’t entail the same issues as equities when it comes to mark-to-market volatility under risk-based capital regimes, which are increasingly being introduced in Asia.

That is one reason why the Singaporean firm has been increasingly moving into infrastructure, PE and real estate – including foreign assets – at the expense of equities in the past year, says Heng.

Yet one must always bear in mind the relatively high risk charge on foreign-currency-denominated investments. This is a particular issue now in view of relatively high FX volatility, he adds.

Another way insurers are trying to tackle the asset-liability matching (ALM) issue is by selling more investment- or unit-linked products, which shift investment risk to the client. 

NTUC Income wants to boost unit-linked sales. Heng says these have not returned to their 2007 peak. Other insurers point out that such products are a far harder sell now than before the financial crisis in 2008.


See the forthcoming September issue of AsianInvestor for a feature on how Asia-based insurance firms are dealing with this ALM challenge.