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Two more local insurers have been given the go-ahead to divert more of their assets offshore. These are AIGÆs Taiwan insurance joint venture, Nan Shan Life, as well as the local China Life Insurance û a pure Taiwanese business with no relation to the $125 billion insurance monolith in mainland China that bears the same name.
The two companies will now be able to allocate up to 40% of their assets to overseas markets.
The highest limit allowed by TaiwanÆs insurance regulations stands at 45% of total assets. Before March this year, insurance companies had varying limits of 35% to 40%. The FSC says the higher limits are intended to help raise capital efficiency and improve flexibility for asset allocations among the local insurance industry.
As of the latest quarter, China Life had $9.7 million in assets. About 31% of its usable capital is now allocated offshore, leaving it with room for some 9% more. Meanwhile, Nan Shan now runs a $46 billion balance sheet on the island. It is allocating similarly 30.4% of its investable balance on overseas instruments.
With the latest push to invest overseas assets, China LifeÆs vice director Guo Yu-lin notes the insurer is ready to step into the ôage of asset managementö. It plans to work with external fund management companies and securities brokerages to come up with wealth management products that will provide ôtotal wealth managementö. It will be a business expansion for China Life, in addition to its traditional business model of pure insurance.
Since the FSCÆs announcement to revise the insurance regulations in March, a total of four insurance companies have received approvals to divest overseas. Earlier recipients include Cathay Life and Shin Kong Insurance, which as of the latest quarter, say they are allotting a 34% and 32.1% overseas allocation, respectively, because of the poor investment outlook.
Cathay Life and Shin Kong are the islandÆs two leading local insurers. CathayÆs total asset size is at $75 billion, while Shin KongÆs is at $40.72 billion.
The financial regulator allows insurers to invest in overseas securities, including equities, ETFs, fixed income instruments, structured products, and real estate.
Lee Shyan Yan, a former commissioner who recently left the FSC, told AsianInvestor at an offshore investment forum that there will be further plans to include alternative asset classes such as private equity and infrastructure assets.
With a perennial over-supply of liquidity on the island and consistent high saving rates among the local public, yields have been dampened for long-term local instruments available to Taiwanese insurers on the island. Insurers have bled funds with asset liability mismatches that have forced them to seek higher returns and better yielding structured products since the early 2000s.
While it is laudable the regulator is allowing more insurers to seek these yields offshore, insurers have complained that the FSC still has a tight fist on requirements on the keeping of risk-based capital, which still restricts the possible asset allocation models insurers can use.
Insurers filing applications to the regulator for higher limits need to detail their investment strategies, risk allocations, on-going staff training, internal risk control measures, management structures, cash flows and analysis to their portfolioÆs VaRs. And those with over 35% actual allocation, face more scrutiny on processes of risk management, capital adequately, spectrum of credit rating selections and internal control mechanisms by law.
The FSCÆs spokesman notes it is ensuring the local insurance marketÆs sustainability for the long-term. Developments in market expansion and risk are being monitored on an on-going basis.
As of end-2007, the FSC notes Taiwan's insurance industry invests about $72.69 billion in foreign securities. The average percentage of overseas allocation is about 31.05%.
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