2022 was not a good year for insurance companies, which hold majorly fixed income products across various asset spectrum, bearing strong headwind of Fed’s harsh interest rate increase. The go for IFRS 17 also sends pressure to insurance companies implying assets in general shall be evaluated by current interest rate level even reclassification of financial assets is held somehow giving the industry a little breath. The expectation of the year ahead, is still chaotic.
At the end of September 2022, seven Taiwan life insurance companies' net asset value (NAV) ratios had fallen below the statutory threshold of 3%. Among them, the NAV ratio of Nan Shan Life Insurance turned negative and was only -0.59%, while the ratio for the other struggling six life insurance companies were Cathay Life (2.64%,) Hontai Life (2.2%,) Mercuries Life Insurance(2.1%), Prudential Life (1.5%,) Allianz Life (1.13%) and First Life (2.03%).
Abovementioned headache is not surprisingly hit the deployment of alternative investment for insurance companies, that essentially up to 3% of all investable capital by regulatory limitation, where I have to say, very little room to play. Furthermore, given almost investments in public markets, bonds and equities, were suffered in significant extent from 20% to 30%, the space for alternative investments is further depressed. Even market to market value of private market products on the other hand sent good returns for insurance companies, we saw it’s the first time over at least the past five years that Taiwan insurance companies sold large bucket of private equity positions to eagerly collecting cash back and realize returns. (It was noted Cathay sold nearly USD 700 million private market funds in 2022, while Taiwan Life made selling transaction around USD 500 million in the year)
The total subscription for private market products for insurance companies in Taiwan is illustrated in below, where almost companies sending beneath average investment in comparison to 2021, the year we were pleased to see LPs throwing dry powders to the market and glorious scenery was expected to come…however, we are seeing cloudy scene coming soon.
Exhibit 1: Investments of private market products of Taiwan lifer LPs
As of 2022, the new investment landscape of the major LPs is shown to below. Fubon turns as the biggest subscriber in the industry while it’s basically the other giant, Cathay Life, had its the investment shrinking to its one-third of 2021 level. Fubon itself also committed only half volumes in comparison to that last year.
Exhibit 2: Percentage of new investment/commitment of Taiwan Lifer LPs in 2022
Considering the misty outlook of alternative investment in Taiwan, along with challenging evaluation of private performance for the year ahead, how many private market IRs would like to land on the island frequently as before and put extreme resources staying around patiently before the industry being recovered? Probably not. You must look around people on site to watch out the investor sentiment and source opportunities and… it perhaps the perfect time to think introspectively if a qualified and legalized private placement agent in the area is worthy in this long-term waiting? In general, most of private market IRs were not selling their products in the country legally. That’s so-called cross-boarding selling, which we must believe several large private equity fund houses are urged its sales team to comply with local regulation. Though it’s sometimes private equity fund house would like to sit together to discuss this problem and make its sales actives legalized while there is no driver to push this done. After all, the qualified LPs most of time do not aware the people selling offshore funds, definitely good products though, are selling in illegal form…, according to local regulation.
Nevertheless, we are cross fingers to wait for the glooming time turning back and Navigate team is in the long-term echo alternative investment specifically in its good diversifier and drawdown protection against general market. Welcome to consult with us. We have much to share.