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Taiwan insurers may push into infrastructure investments as regulator loosens grip

Taiwan renewable energy
By Hui Ching-hoo   
September 23, 2020

Taiwanese life insurers may become more aggressive in seeking out infrastructure investments as the island’s financial regulator moves to ease controls over their investments in such projects.

Last month, Tien-Mu Huang, the new chairman of the Financial Supervisory Commission (FSC), told a meeting of insurers that the regulator plans to introduce several measures to facilitate their investments in domestic infrastructure projects, including elimination of board representation limits in investee firms.

At present, no more than one-third of the board of directors of a company developing an infrastructure project can be representatives of an investing insurer. This may be scrapped as early as the end of the year, Mr. Huang told the annual meeting of the Life Insurance Association in late August, according to a statement posted on the FSC’s website.

Mr. Huang, who was appointed in May to head the FSC by Taiwan President Tsai Ing-wen, said the regulator is encouraging insurers to participate in domestic infrastructure projects, especially in six major emerging industries, including renewable energy.

The government aims to increase renewable energy usage to 20% of total electricity supply by 2025, from just 5% in 2017.

The FSC’s moves are expected to be supportive for insurers’ alternative investments, given their low allocations to infrastructure and the growing demand for financing for green energy projects, according to Ee Fai Ka, head of Asia operations at data provider Preqin.

He says Taiwanese insurers allocate only around 2% of total assets on average to infrastructure, compared to as much as 10% by their South Korean counterparts, and 7% by Asia Pacific insurers.

“The draw for infrastructure investments will be even higher if the government has other specific measures, such as grants and co-funding schemes,” Mr. Ka tells Asia Asset Management (AAM). “This indicates that there is room for growth in the portfolios of Taiwanese insurers for infrastructure.”

But portfolio rebalancing among Taiwanese life insurers has been minimal so they likely won’t make significant changes any time soon.

According to Anthony Lam, associate director for insurance at Fitch Ratings, the insurers haven’t rebalanced more than 0.3% of their assets since 2015.

“While the new initiatives ease certain administrative and management restriction on the life insurance industry’s investment in this [infrastructure] segment, whether they will drive any meaningful reallocation to this area is dependent on factors such as the availability of projects, regulatory capital treatment, risk appetite, and individual life insurers’ risk appetite,” Mr. Lam tells AAM.

FSC figures show that Taiwanese insurers invested over NT$423 billion (US$14.5 billion) in infrastructure assets as of June 2020, or 1.4% of the insurance industry’s NT$29.77 trillion of combined assets as of December 2019.