Taiwanese life insurance firms' hefty appetite for global synthetic CDOs is approaching its end, as foreign investment quotas are being reached. Insurers have a limit of 35% of investment assets in overseas products, regardless of whether they are hedged in local currency, and credit officials noted the party appears to be coming to an end.
"Most life insurers are hitting their limits for foreign asset holdings," said Charles Chang, director of structured credit at Fitch Ratings in Hong Kong. Following the opening of the sector to synthetic CDO deals in the summer of 2004 by regulators, bankers have been racing to close dozens of deals in what has been a hotspot for the region (DW, 6/13/04).
As a result, the vacuum will likely be partially filled by domestic securitization deals, which have been growing in recent years, such as CLOs. Chang noted however that it will take at least a year or so for local synthetic CDO deals to gain traction, given the lack of liquidity in the domestic credit-default swap market.
