beyondbrics

It’s never been easy for Taiwan’s insurers to generate meaningful returns, a reality that has earned the industry the dubious reputation of having the lowest average profitability in the industry globally.

There are plenty of reasons: Taiwan’s insurance market is saturated, local competition is intense, and a low interest rate environment over the last two years has held insurers back from greater investment opportunities.

So a decision by Taiwan’s financial regulator this week to open the gates for Taiwanese insurers to invest in previously restricted Chinese stocks and bonds was met with a sigh of relief from the industry.The new regulations will allow Taiwanese insurers to invest up to 10 per cent of their overseas investment limit in stocks and up to 5 per cent of the limit in bonds. They are also now allowed to invest in host of other Chinese financial instruments including treasury bills and exchange-traded funds.

Taiwanese insurers currently have about $31.2bn in total funds, with 40 per cent of that invested overseas. Should the insurers choose to take advantage of the new rules, most of the initial investment would likely go to Hong Kong, as China’s capital controls mean that the Taiwanese insurers would still need approval to achieve “Qualified Foreign Institutional Investor” status to start putting money into the Shanghai or Shenzhen stock exchanges.

This long overdue relaxation is welcomed and clearly part of the benefits of closer economic ties between China and Taiwan as a result of improving cross-Strait relations. But with the lackluster performance of both the Hang Seng Index – basically flat from the beginning of the year – and the Shanghai Composite – down nearly 20 per cent year-to-date, the new relaxation on Taiwanese investment may have come a little too late. Certainly, investments in China are unlikely to offer any short term relief for Taiwan’s troubled insurers.