Income Insurance commits more than $780mn to private credit in 18 months

Singapore insurer Income Insurance committed $778 million to private credit in 2023, and anticipates new commitments of a similar magnitude this year, spread among existing managers and others, either hired earlier this year or with whom arrangements are being finalised.

Jeffrey Tan, general manager, financial management at Income Insurance told AsianInvestor that the insurer had invested more than $1 billion into the asset class in the 18 months to the end of June 2024.

Jeffrey Tan
Income Insurance

“We are continuing to increase our allocation on the basis of the opportunities we see in the sector,” he said.

A deal for German insurer Allianz to buy 51% of Income Insurance was announced in July, subject to regulatory approval.

Also Read: Allianz-Income deal followed talks on all-Singaporean tie-up

Tan led a three-day intensive investment review session on-site in March.

During this time, the company conducted investment due diligence on several candidate managers and held strategic reviews with existing managers.

Income Insurance—ranked as the fourth largest insurer in Singapore by assets as of December 2023 according to the Singapore Business Review's Insurance Rankings—used this session to evaluate both potential and current investment partners.

“We’ve reached a place where we’re quite clear on our selections: we have appointed or are in the midst of appointing managers for this year. Diversification of general partners (GPs) is important to us and there was a large number of excellent candidates, but our internal bandwidth and resources limit the number we can employ," said Tan.

“To me, understanding the people, and their investment and risk approach to the sector, is at the heart of the due diligence process,” he added.

Income’s allocations are concentrated in the US, where the private credit market is far more developed, although also includes exposure to Europe.

CORE APPEAL

Tan noted that private credit is not a panacea for insurers, and that other APAC insurers likely face investment, asset-liability and risk management challenges that differ from those of Income. 

However, he added that insurers who had not considered the asset class faced “a huge missed opportunity.”

“Adding this to your portfolio doesn’t solve all problems but it is a real advantage. Not just in terms of diversification across asset classes and an increase in yield, but for augmenting product development which in turn improves our products’ profitability whilst maintaining our capital efficiencies. Today, in Singapore, the risk charges attached to this type of instrument by the regulator is also supportive,” said Tan.

Tan has spearheaded the allocation to private credit, since he was hired by Income in early 2022. Previously he had worked at insurance group Ageas in Hong Kong, where he was regional investment director.

The strategy dates from July 2022, following the US Fed’s second successive monthly interest rate increase (the June increase had been the first since 2018) and the first from the European Central Bank, since 2016. Prior to Tan joining Income, the allocation to private credit was a small fraction of 1% of the portfolio – “no more than a rounding error,” he said.

With banks moving out of lending, significant opportunities have opened up in private credit for non-bank lenders.

Tan began the process of targeting the “safer spectrum of the capital structure”, with an initial focus on companies with EBITDA (earnings before interest, taxes, depreciation and amortisation) between $30 million and $100 million. 

STRONG PIVOT

This required a lengthy process of approval from the investment committee, risk management committee and then the board.

“It was a new thing for the company to make such a strong pivot into this space and it took quite a bit of time to get the various stakeholders and platforms on board, to build a team and so on,” he said. 

The allocation has allowed Tan to add valuable new products to the insurer’s range, in addition to providing valuable exposure for the participating fund.

“Assets backing the insurance liability [product] were heavily skewed to private credit first, generating meaningful returns we could share with policyholders,” he said.

A measure of the success of the new products comes from the head of a particular distribution channel who Tan often encounters in the firm's Singapore office.

“Every time I run into him, he says ‘Hey, could you build another tranche,” said Tan.

Editor's note: This article has been updated.