Investment risk issues highlighted by Taiwan Ratings

19 March 2015

Taipei 101, TaiwanTaiwanese life insurers need to assess the risks of their overseas investments, according to Taiwan Ratings.

The company, which is a subsidiary of Standard & Poor's, said that the lure of higher returns and longer tenor securities has resulted in Taiwanese life insurers diverting their investments away from Taiwan. According to Taiwan Ratings the ratio of insurers' overseas investments to their combined portfolio went from 44% in 2013 to 50% in 2014, raising foreign exchange risk and investment sector concentration and weakening credit profiles.

The rating agency added that insurers' investment concentration in the financial sector has grown as a result of increased investments in foreign currency denominated bonds issued in Taiwan by foreign financial institutions.

"We believe that the majority of life insurers have an intermediate risk position, which represents manageable investment risks," Patty Wang, credit analyst at Taiwan Ratings, said in a statement. "Nonetheless, credit profiles are under increasing pressure particularly in terms of insurers' rising unhedged positions and investment concentration in financial institutions."

As a result Taiwan Ratings warned that weaker insurers that fail to manage their risks correctly could face rating downgrades if rating triggers are breached. However, it added that adequate risk management and increasing risk awareness amongst life insurers should help to offset the risks involved.