Thai insurers push for wider alternatives choice
Life insurers in Thailand are trying to persuade their local watchdog to allow a wider range of alternative assets amid the prevailing low-yield environment, but it is a slow process. Private market investment firms will nonetheless be taking note.
The Office of Insurance Commission (OIC) allows private equity and real estate to a limited extent, but firms want to invest in assets such as foreign private debt and infrastructure. Bangkok-based Muang Thai Life, for instance, has been working with the regulator to this end.
Moreover, Paul Carrett, group chief investment officer of Hong Kong-based insurer FWD Group, told AsianInvestor: “[Our Thai unit would] probably deploy more overseas if we had more options to invest in property or private equity.”
Likewise, Krungthai Axa Life, a joint venture between French insurer Axa and Bangkok-based Krung Thai Bank, is eyeing alternative assets beyond real estate investment trusts (Reits).
FWD Thailand, Krungthai Axa Life and Muang Thai Life are all likely to make substantial changes to their allocations once new risk-based capital rules (RBC2) are finalised.
The OIC is open to discussing allowing access to more alternatives, said industry participants, but is very cautious about approving new types of investment. As a result, it is likely to be at least two years before local insurers get access to a broader range, with more domestic alternatives likely to come first, insurance executives told AsianInvestor.
Talks under way
Prapapas Kulpawaropas, an official at the OIC, confirmed the watchdog was in talks with the industry about amending the regulations to allow include new asset classes such as offshore infrastructure funds. No conclusion has been reached, and further discussion will be needed, she added.
Such talks have been taking place as the industry awaits RBC2, which is expected to be finalised early this year and will be phased in over several years. They will introduce higher risk charges for holding certain assets.
Ultimately, Thai life insurers are typically very conservative and fixed income-heavy, but local high-grade bonds are not providing the needed returns now. The domestic benchmark interest rate has been at a near-record low of 1.5% since 2015.
Hence insurance firms are turning to higher-yielding fixed income instruments, equities and, to the extent possible, alternative and foreign assets.
Reit appeal
Real estate investment trusts (Reits) have been growing in popularity thanks to their attractive yields. Krungthai Axa Life Insurance has almost doubled its allocation to local Reits to nearly 4% in the past few years, said chief investment officer Parin Pattarapol, while also upping its offshore exposure generally.
“We have nothing in other alternatives at present, but are looking at other assets under our feasibility study,” he noted. “We would like to have more options to do that.”
Other insurers echo this view. FWD’s Carrett said: “Private equity, direct property, hedge funds—all these would be interesting [for FWD Thailand] with the right level of RBC charge.
Moreover, offshore infrastructure funds and syndicated loans for infrastructure projects are well suited to the long-dated portfolio needs of insurers, said Sutee Mokkhavesa, head of risk, strategy and unit-linked investments at Muang Thai Life.
Banks could take on the greenfield risk and finance the first few years of a power plant, he added, while insurance firms could finance the rest.
Risk charge concern
However, there remains a long-standing issue in respect of infrastructure, property funds and Reits, said Mayura Tinthanasan a fixed income fund manager at Bangkok-based SCB Asset Management, who used to work on the investment team at SCB Life.
Life insurers want the OIC to take into account such investments’ long duration and predictable returns. These assets have a cashflow pattern similar to that of bonds—meaning they should attract a relatively low risk charge—but the regulator does not take that into account at present, she noted.
Indeed, there are not yet any risk charges specifically set for alternative assets, as the OIC seeks to categorise them as being like equities or fixed income when it comes to RBC2, Mayura of SCB AM told AsianInvestor.
Still, local players are planning moves into new areas, dependent on the new RBC rules. FWD Thailand is looking at investing directly in local property, said Peamphanyapa Phanyapavee, the firm’s executive vice president of investment.
The risk charge for own-use property is 4%, but 16% for investment purposes, she noted. Under RBC2 it will jump to 9.5% for own use and 19% for investment. “We will have to study hard on that before we make a decision [on how much to allocate],” she said.
An extended, in-depth feature about how Thai insurers are rethinking their asset allocations appears in the December/January issue of AsianInvestor magazine.
In addition, AsianInvestor will be hosting its fifth Insurance Investment Forum in Hong Kong on March 1. For more details, contact Terry Rayner via email or on +852 3175 1963.