Mon, Mar 12, 2018 - Page 16 News List

FSC warns over insurers’ fixed-income assets

By Ted Chen  /  Staff reporter

Life insurance companies’ positions in fixed-income assets have fallen to alarmingly low levels compared with their peers abroad, the Financial Supervisory Commission (FSC) said, adding that regulators would work toward deregulation to revive local fixed-income investors’ — mainly insurers’ — appetite for structured-finance products.

Fixed-income assets make up less than 20 percent of local life insurers’ total investments, while they make up between 80 and 90 percent of the portfolios of their peers abroad, FSC Vice Chairman Cheng Cheng-mount (鄭貞茂) said on the sidelines of a forum on economic trends and the bond market outlook in Taipei on Friday.

Local life insurers have trimmed their government bond holdings to 8 percent at the end of last year from a historical average of 10 percent, Cheng said.

While foreign life insurers usually make the bulk of their investments in government debt issued in their home markets, many local life insurers have increased their overseas investments to levels close to the regulatory ceiling, he said.

“We are concerned about the decline in bond investments by local insurers, as the trend suggests that the domestic market is lacking viable fixed-income products,” Cheng said.

At the same time, life insurers’ exposure to real-estate investments has been stable at about 4 percent of their total investments, which is significantly higher than those of their global peers, Cheng added.

To address the issue, the commission is mulling easing regulations to stimulate investors’ interest in domestic real-estate investment trusts (REITs), which have been neglected in recent years due to lower expected returns, Cheng said.

REITs are corporations or trust funds that use pooled capital to purchase and manage income, property or mortgages for investors.

REITs are traded on major exchanges just like stocks and offer several benefits over traditional real-estate investments in that they are highly liquid and have a high level of transparency for investors.

However, due to stringent listing requirements in Taiwan, local REITs are mostly issued by life insurers to investors seeking a portion of rent income, Cheng said.

As these REITs are designed as held-to-maturity securities, capital gains are low, he said.

The commission is considering easing listing requirements for REITs to encourage the participation of real-estate companies, Cheng said, adding that the scope of the instrument would also be broadened to include “green” energy investments, such as wind farms.

The FSC is also considering raising the amount of funds that may be directed into property development projects by private placement REITs from 30 to 100 percent, he said.

The FSC plans to streamline the approval process for new investments made by REITs to improve operating efficiency, Cheng said.

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