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Taiwanese insurers to invest in offshore RMB products

06 Jul 2011

The country’s financial regulator has proposed allowing the island’s domestic insurance companies to invest in offshore renminbi products with an aggregate investment quota of up to TWD400 billion (US$13.9 billion), in hopes of boosting investment returns.

Taiwanese insurers will soon be allowed to invest an aggregate investment quota of up to TWD400 billion (US$13.9 billion) in offshore renminbi products, which include dim sum bonds, renminbi-denominated stock, stock funds and exchange-traded funds, Taiwan’s Financial Supervisory Commission (FSC) said in an announcement posted on its website on Wednesday (July 6).

The liberalisation will allow domestic insurance firms to capitalize on the benefits associated with the renminbi appreciation, boost their overall investment returns and diversify their portfolios.

FSC agreed to allow local insurers to invest in offshore renminbi products, but such investments will be capped at 10% of their overseas investment quotas.

With the aggregate quota for foreign investments by domestic life insurance firms reaching TWD3.83 trillion as of the end of the first quarter, the island’s insurers will be able to invest up to TWD400 billion in offshore renminbi products.

Cathay Life Insurance looks likely to be the biggest investor due to its market dominance. However the return requirements of it and other insurance companies are likely to limit their interest in offshore renminbi products, say observers.

“Insurance companies require an investment return of at least 4% after hedge, and the offshore renminbi products currently offer a relatively low absolute yield, plus there aren’t many choices out there, so I do not expect them putting huge amount of money in these products initially,” said a fixed income analyst based in Taipei.

“The biggest attraction, however, is the appreciation of renminbi,” he added.

Offshore renminbi bonds in Hong Kong, otherwise dubbed as dim sum bonds, are mostly issued by Chinese and foreign corporations with shorter tenors. On average they pay a coupon of around 3% per annum, compared with 2% for New Taiwan dollar-denominated corporate bonds.

06 Jul 2011