財經觀察 1902 --- Greater China insurers raise exposure to real asse

Greater China insurers raise exposure to real assets By Liz Mak  |  2 April 2009   As regulators and industry practioners cast a worrying eye over potential runaway inflation in a post-stimulus world, opening access to real asset classes becomes key.

Great minds think alike. As the signing date for the widely anticipated memorandum of understanding that formalises financial ties between China and Taiwan draws nearer, several regulators and industry heavyweights have been spotted across the strait and in Hong Kong attending seminars and lining up deals that involve sharing ideas. This month, the China Insurance Regulatory Commission (CIRC) and Taiwan's Insurance Bureau under the Financial Supervisory Commission (FSC) have issued new policies that will give insurers unprecedented access to real asset classes in their domestic markets. Market sources say that aside from yield considerations, the policies are being formulated to ease the impact of possible runaway inflation caused by the stimulus measures being implemented by governments around the world. Insurers will need to reposition their portfolios and be invested in real assets before they are swamped with tight real yields in the coming years of monetary expansion. In Taipei, the FSC has just issued a new memo relaxing the capital regime for real estate investments. Meanwhile, in Beijing, market talk suggests that the CIRC is prepping the final details on an infrastructure investments project for insurers in the mainland. Both measures are expected to release significant liquidity from the insurance industry to help boost the local economy. In China's case, this means insurers, after years of industry lobbying, will finally be able to access debt instruments with long duration. And in Taiwan, the local market is looking to insurance capital to give the slow-going real estate market a boost. Under current rules in Taiwan, insurers are allowed to invest up to 30% of their portfolios in real estate assets. But the restrictions on how insurers can qualify for such investments have been tight, partly because the authorities have wanted to prevent insurers from speculating in the residential property market. As a result, only about NT$400 billion of the industry's total AUM of NT$8.2 trillion has ever been deployed in real estate investments. This is despite the seemingly large concentration of land ownership by insurers in the local market. After the latest announcement, insurers will qualify for investments so long as their target project meets the FSC's criteria of providing a minimum projected yield at the equivalent of a two-year fixed deposit rate with Taiwan Post, and that the project has a minimum occupancy rate of 60%. For projects undergoing development or redevelopment, the FSC will grant permission to invest on a case-by-case basis. Cathay Life, as one of Taipei's leading landlords, has already announced plans to double allocation to real estate investments to 10%, from its present 5.7% level. As of end 2008, its real estate investments totalled NT$121 billion. Meanwhile, Victor Kung, president at the island's number two insurer Fubon, which has recently acquired the insurance unit of ING, also told press that the company will increase its property investments from 2.9% to between 5% and 10% in the near future, which translates to a capital outlay of NT$18 billion to NT$63.5 billion. Smaller player Taiwan Life has announced plans to raise its stake in real estate from NT$7.5 billion to NT$66 billion, while Chao Teng-hsiung, chairman at FarGlory Life (owner of Zurich Life since 2004), is talking up new releases at the Farglory Dome (also known as The Big Egg in Taipei) and his firm's significant interest in new projects such as Taoyuan City Airport (Taiwan's plan to unseat Hong Kong as a major transit hub in the region). Shin Kong Insurance, which has been hit by the subprime turmoil and has recently recapitalised by selling stakes to Japan's Dai-Ichi Life, is in the process of selling off some of its real estate interests. Its investment in Shin Kong Misukoshi A11 Building, which is soon to be released, is now attracting bids from Cathay, Fubon, and Taiwan Life; while its sale of Shin Kong Chung Shan Building yesterday has also attracted top dollars from the sector, raising eyebrows within the FSC. Bill Chang, a commissioner at the FSC, says the regulator understands the tough environment in which most insurers are now operating in. After real estate, another potential area which the regulator will work on further opening will be overseas investments. In China, as its test pilot project involving the asset management companies of China Life, Ping An, China Pacific and PICC draw to a satisfactory end, the CIRC is said to have already issued its updated guidance notices on investments in infrastructure project financing, credit risk management, more diverse fixed-income products and equity investments standards. Provided that insurers meet the CIRC's minimum requirement of 120% statutory capital for two consistent years and are able to demonstrate that they have the capability and the dedicated teams to invest in infrastructure, life companies will be allowed to allocate up to 6% of their portfolios to these projects, while property insurers can allocate up to 4%. Insurers will be given the flexibility to choose the structures in which they invest. The debt component of these projects must be rated double-A or above. As of end February, the Chinese insurance industry's investment portfolios totalled Rmb2.2 trillion ($322.28 billion).