Asian insurers are expected to raise their exposure to alternatives over the next three years, with Korean insurers leading the drive, a report by research and consulting firm Cerulli Associates found.
Findings from The Cerulli Report: Asian Insurance Industry 2016 show that alternatives made up 5 percent of the life insurance AUM of managers surveyed by the firm last year, up from 0.5 percent in 2015.
Korean insurers are the most active in alternatives, allocating a single-digit percentage of their portfolios in 2014 and 2015.
In February this year, the $262 billion Samsung Life Insurance said it plans to invest a total of KRW 300 billion ($265 million; €240 million) in private equity in in 2017, mainly in US funds with buyout, mezzanine and secondaries strategies. Similarly, the $25 billion Hyundai Marine & Fire Insurance said it is planning to invest in three to five private equity funds this year, favouring the North American and European markets. Meanwhile in July last year, the $70 billion Kyobo Life Insurance said it is targeting investments of between $20 million to $50 million each in three buyout or venture capital funds, PEI data show.
Samsung Life and the $155 billion Hanwha Life are also active investors in overseas real estate, mostly through direct investments.
Chinese insurers are also stepping up their alternatives investments, although investments are mainly domestic. According to the report, of the 13.4 trillion yuan ($2 trillion; €1.8 trillion) in general account investments recorded in 2016, “other investments” – which mainly consists of alternative investments – made up 36 percent and surpassed investments in bonds (32.2 percent) for the first time. Local media reports show that Chinese insurers’ private equity fund commitments reached 150 billion yuan, while direct equity investments totalled around 500 billion yuan in end-2015.
Chinese insurers such as Ping An Insurance, Anbang Insurance and China Life Insurance also have a preference for overseas real estate investments, snapping up properties in Australia, US and the UK in recent years.
Meanwhile, Taiwanese insurers are less aggressive than their Korean counterparts because under current regulations they can only invest up to 2 percent of their investable capital in alternatives. Cathay Life Insurance, which has about $140 billion of assets, told PEI last year it was planning to increase its private equity exposure by another $1 billion, while media reports indicate that the $35 billion Taiwan Life will double its exposure to alternatives.
Two factors are causing this shift to alternatives, according to the report. Asian insures are on the hunt for yield given the persistent low interest rates and rising liabilities. Regulators are also trying to help insurers address these issues with changes to expand their asset classes. For example, since 2015, insurers in Korea have been allowed to invest in domestic private equity funds denominated in foreign currencies, the report said.