Taiwan Life Insurance, with over USD2.1 billion in assets, is considering purchasing structured products such as structured notes, synthetic CDOs and equity-linked notes. Jenny Chen, financial products fund manager in Taipei, said the insurer is now considering structured products to obtain enhanced yield. She continued the insurer is submitting an application to the Ministry of Finance, as insurers are currently not allowed to invest in products such as CDOs. Johnson Lai, head of finance in Taipei, believes the MoF will likely acquiesce as insurers and several international investment banks are lobbying it, and Taiwan Life will be able to invest in these within six months. Calls to the MoF were not returned. One market official in Hong Kong said that although his bank is not directly speaking to the MoF, he knows of several insurance companies in Taiwan that are in talks, adding the rules could change within two or three months.
Chen continued that the firm regularly uses currency swaps to hedge currency risk on foreign-denominated investments, such as U.S. dollar-denominated bonds. Chen added that the firm is also considering investing USD10 - 20 million in several structured notes. For example, it might invest in a note that is based on U.S. LIBOR rates, where the bank would gain if LIBOR is above or below a designated level. Chen said the bank would first need approval from the MoF but will likely hold off until it has a clearer picture of where U.S. interest rates are heading.
Credit Suisse First Boston and Merrill Lynch are among the potential counterparties for structured products, according to Chen. Decisions on investment would take into consideration relationships and pricing.R.G. Rosso, spokesman at Merrill Lynch in Hong Kong, and Josephine Lee, spokeswoman at CSFB in Hong Kong, declined comment.
