Sun Life Philippines backs structured notes, private credit
Editor's note: This interview was done before the US interest rate cut decision this week.
Sun Life Philippines believes selective bets on private credit and structured notes have helped its hunt for yield in the past few years, a trend it expects will continue in 2024, according to a senior company executive.
“We have been very active in the structured products space in the past couple of years,” Ivan Corcuera, head of investments at Sun Life Philippines, told AsianInvestor.
“Primary issuances in the Philippines have been even more scarce versus recent years. To weather this drought, we have been very keen on adding bank-issued structured notes to back our insurance products,” he noted.
A structured noted is a hybrid security that combines multiple payoffs from multiple securities, usually a bond and a derivative.
Structured notes can be equity-linked, credit-linked, commodity-linked and interest-rate linked among others.
PRIVATE CREDIT PUSH
Local private credit continues to be an opportunity for Sun Life Philippines, Corcuera added.
“We continue to participate very selectively in companies and deals that allow us to meet our duration and yield objectives.”
Private credit has been the darling of institutional investors across Asia in the past 12 months.
Several insurers have told AsianInvestor in recent months that they are adding private credit allocations, including AIA, Chubb Life, Income Insurance and Sequis Life.
Sun Life Philippines is the top life insurance company in the country, with $5.5 billion in total assets in 2023, according to Insurance Commission’s annual report for the year.
Its total premium income came to about $1 billion in 2023. Sun Life is also the first and long-standing life insurance company in the Philippines.
BEYOND LOCAL MARKETS
The Philippines-based insurer is also recommending its clients look beyond domestic assets to enhance returns.
“As returns on local equities have been very dismal (as it has been for the past decade), we have been actively recommending our clients to diversify away from local exposure and direct their investments to offshore outlets,” Corcuera said.
The Philippines PSEi index – a widely tracked equity index – has declined close to 8% in the past five years, although the index is up about 11% year to date.
On balance, he believes financial markets are primed to deliver modest returns for the year.
Corcuera is also optimistic about a recent draft circular from the Insurance Commission that aims to widen the investment universe of insurance companies.
The circular letter, issued is the second quarter of this year, aims to enhance the investment adaptability of insurance and professional reinsurance companies, mutual benefit associations and other Insurance Commission regulated entities to help them respond to constantly evolving market conditions.
“This is definitely a welcome development for the industry as this allows us to provide more innovative solutions to our clients,” he added.
ESG EMPHASIS
Sun Life had previously told AsianInvestor that it was in the midst of revamping ESG (environment, social and governance) framework for its investments.
“Sun Life aims to maximise our positive impact and ensure that we invest in stable and sustainable companies,” said Corcuera.
“We share our parent company’s goal towards a net zero target by committing to invest sustainability, embed ESG considerations in our investment processes, and provide our clients access to sustainability-linked investments,” he said, although he did not provide further details.
Like several other global insurers, the Canadian parent plans to achieve net-zero by 2050 for investments in its general account, which holds funds from insurance policy premiums.
The initial focus for target-setting is on asset classes where there is industry guidance, which means listed corporate bonds, directly managed listed equities and commercial real estate, according to its global climate journey report issued in March 2024.
Sun Life also has a goal of investing $20 billion in new sustainable investments by 2025 in assets and businesses that support the transition to a low-carbon and more inclusive economy.