Shin Kong Life Insurance Co (新光人壽) has approved a plan to invest in quality real estate in Taiwan, especially in the Taipei metropolitan area, as the company adjusts its investment strategy to seek satisfactory investment returns for shareholders.
The nation’s second-largest life insurer made the announcement in a filing with the Taiwan Stock Exchange on Thursday, following a board meeting earlier in the day.
On the same day, the insurer posted a loss of NT$14.75 billion in the first nine months of the year because of declines in the value of assets linked to Lehman Brothers Holdings Inc and other equity investments.
Shin Kong Life said it authorized its chairman, Eugene Wu (吳東進), and its management team to negotiate terms and proceed with the planned real estate purchase with a maximum investment of NT$20 billion (US$616.6 million), the stock exchange filing showed.
The life insurer currently holds 6 percent of its working capital in real estate investment. Adding another NT$20 billion will increase the ratio to around 8 percent and the main investment targets would be office buildings in Neihu (內湖), Xinyi (信義) and Nangang (南港) districts, the company said.
Shin Kong Life’s latest announcement of more real estate investment, along with the NT$10.14 billion sale of two plots of land near Da-an Forest Park in Taipei over the summer, indicate the company has changed its investment strategy to focus more on the real estate sector and less on slumping equity markets.
On Wednesday, Shin Kong Life’s stronger local rival, Cathay Life Insurance Co (國泰人壽), said its board approved a plan to purchase real estate in the Zhongshan District (中山) of Taipei for investment purposes. The company didn’t elaborate on the planned investment in a stock exchange filing released that day.
Owing to concerns about the US financial crisis and the lingering impact on global economic growth, the Taiwanese main bourse’s finance and insurance sub-index has dropped 39.22 percent this year so far.
Shares of Shin Kong Financial Holding Co (新光金控), parent company of Shin Kong Life, have sunk 64.35 percent since the beginning of the year and closed at NT$7.95 on Thursday, while Cathay Financial Holding Co (國泰金控), parent company of Cathay Life, has seen its shares lose 44.38 percent over the same period to NT$37.6.
The nation’s financial markets were closed yesterday for the national day holiday.
During the first nine months of the year, Shin Kong Financial reported NT$15.36 billion in losses, or a NT$2.79 loss per share, which the company said was attributable to declines in global stock markets and a total of NT$1.4 billion in investment writedowns linked to the failure of Lehman Brothers, a stock exchange filing issued on Thursday said.
In comparison, Cathay Financial reported NT$3.84 billion in profits, or NT$0.4 per share, for the first nine months of this year.
This figure, however, was down 88 percent from a year earlier, mainly because of Cathay Life’s losses in securities investments worldwide amid the fallout of the US subprime crisis, the company said in a filing on Wednesday.
With declining profits, Taiwan’s life insurance sector had its rating outlook cut to “negative” from “stable” by Standard & Poor’s (S&P) Ratings Services on Thursday to reflect the combined effects of investment market volatility and less-optimistic business prospects.
During its recent review of five insurance markets in Asia, only Taiwan and Singapore had their outlooks revised downward, S&P said in a report, titled Asia’s Insurance Industry Can Shake Off The Negative Effects Of The Recent Market Turmoil.
“The negative outlook on Taiwan’s life insurance market reflects our expectation of heightened uncertainties over life insurers’ operating performances and capitalization, which are likely to remain under pressure if the turmoil in the global capital markets and the slowdown in global economies persist,” S&P credit analyst Connie Wong (黃如白), wrote in the report.
Wong said the volatility in capital markets was also likely to constrain the growth momentum for investment-linked operations and further undercut local life insurers’ potential profits.
S&P said Taiwan’s major life insurers still have good liquidity and financial flexibility to withstand the current financial turmoil.
But if market conditions deteriorate, “the credit profiles of smaller or weaker life insurers without adequate capitalization and financial flexibility are likely to weaken,” Wong warned in the report.
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