Taiwanese life insurers have been investing in higher-risk assets for better yields, leaving their capitalisation vulnerable to unfavourable capital and currency market movements. according to Fitch Ratings.
Fitch reports that Taiwanese life insurers have increased overseas investments (mostly fixed-income) since the early 2000s, and have shifted their portfolio from treasuries and agency bonds issued by developed countries to the corporate bonds, financial debentures and sovereign bonds of emerging markets.
Overseas investments accounted for 52.9% of invested assets at the end of May 2015 (37.7% at end-2011). Domestic equities and property investments also increased to 7.3% and 6.4% of invested assets from 6.2% and 4.7% at end-2011, respectively.
Non-life insurers have adequate capital buffers to withstand investment volatility and potential catastrophe losses, with an aggregate equity-to-assets ratio of 33% at the end of April 2015. They have increased the retention of profitable product lines to sustain premium growth and profitability, with the sector's return on assets at 2%-4% in 2011-2014.
In March, Taiwan Ratings, owned by Standard & Poor's, also sounded a warning on Taiwan's life insurers and their overseas investments (IAR, 19 March 2015).
The country's life insurers have also been active in real estate and other direct investments abroad. In May, Fubon Life paid £332.5m ($509m) for the freehold of the building in Marylebone, London, that houses the Madame Tussauds waxwork museum.
Also in May, Cathay Life bought its second major London building within a year (IAR, 14 May 2015).
Cathay last year bought US-based insurance asset manager Conning from Aquiline Capital Partners for up to $240m (IAR, 12 November 2014).