At the end of May 2021, Taiwan Central Bank issued a report on domestic life insurance company's total overseas investments. It revealed that the industry in 2020 only maintained mediocre growth, yet profits hit a record high and the average capital adequacy ratio increased. Total foreign investment continues to expand, with growth reaching TWD$18.66tn, equivalent to USD $668.49bn, where 90% of the position is in U.S. dollars. Pursuant to the Regulations Governing Foreign Investments by Insurance Companies, total investment amount of hedge fund and privately offered funds that expose private equity, private debt and real estate shall not exceed 2% of the insurer’s total asset. As for qualified insurance companies got approval from competent authority to exceed 40% of their approved investment limit in offshore investment, total investment of hedge fund and private offered funds may approach up to 3%. As such, Alternative Investments account for only a relatively small portion of a lifer’s total investment exposure. However, the overall scale is still large enough for any foreign asset manager to eye covetously.
Opportunities across big players are dynamic
According to our proprietary database—collected sources from Market Observation Post System (MOPS) and industry intelligence—there are merely 8 of 22 total lifers continuously investing in Alternatives. Cathay Life has been the largest investor for 3 of the last 4 years, with Fubon Life taking the top spot 2019. Taiwan Life has been a stable, perennial third. China Life entered the market comparatively late, but it has revealed investment growth. Similarly, with investments comparatively small through, TransGlobe Life continues to show investments. Nanshan Life has been a major player, but it has been selling positions since 2019. These changes are clearly illustrated for reference on the chart below.
Exhibit 1: Ranking of Taiwan insurance company invested in Alternatives
Source: NIC proprietary Alternative Investment database
What type of Alternative Investment funds are chased by investors?
Now let’s take a closer look (chart below) at how Alternative Investments are distributed among lifers. In 2020 total Alternative Investment was USD $3.81bn, comparing to USD $5.12bn in 2019— a tremendous drop of 25.7%. Real estate and private credit categories traditionally make up only a small portion of investments, while hedge funds have never really peaked lifer’s interest. Life insurance companies are allured by private equity (PE) and infrastructure. Particularly PE accounts for the major consideration.
Exhibit 2: Subscription type of Alternative Investments by Taiwan insurance companies
Source: NIC proprietary Alternative Investment database, in million USD
Since August 2017, Taiwan FSC (Financial Supervisory Commission) has allowed Securities Investment Trust Enterprises (SITEs) which establish wholly-owned subsidiaries to issue private equity funds, are able to directly participate in the management of PE funds. Cathay SITE is the first player in this field. The National Development Council (Taiwan) also released a report, “Guidelines for Promoting Private Equity Funds,” encouraging domestic PE funds to invest in vital, innovative domestic industries, core or forward-looking infrastructure related companies, public construction firms, and so in June 2021. However, it is in Taiwan’s long-term economic interest to provide a clear and predictable regulatory framework. It is vital to foster domestic markets and public attitudes that would support the return of the international PE industry. The interests so far are on offshore PE’s side.
Big tickets sometimes happen. PE and infrastructure funds are still most favored
Compliant to Regulations Governing Foreign Investments by Insurance Companies, the total investment in a single fund shall not exceed 10% of the total amount of the shares issued by such fund, in addition to risk control considerations, lifers are restricted to investing in a single fund averagely 2% fund’s asset. Practically, infrastructure funds allow more opportunity for big exposure. In 2020, there are totally 11 big investments by lifers with amount over USD 100mn. The largest single investment was to an infrastructure fund, by Fubon Life. This year, as of May, the 2 largest subscriptions of alternative investments are both from Cathay Life, with each at USD $250mn for PE funds.
Although the total investment on Alternatives is dropping, Taiwan life insurance industry is aggressively exploring and implementing diversified and profitable investment strategies. NIC well understand their product selection preferences and investment decision-making timelines. For fund houses who have not yet learned of Taiwan’s domestic lifers’ Alternative tendency, it is essential to learn the key contacts and where the opportunities lie. Especially poignant during this international pandemic, business development seems to be restricted. Moreover, cross-border sales are not allowed internationally and domestically.
NIC offers local support and insight for overseas managers to find opportunities. Welcome to contact us for discussion.