The Executive Yuan’s Economic Development Committee last week held its first meeting, which yielded several concrete resolutions, including a plan to invest trillions in national development. The committee’s initial objective is to attract NT$3 trillion to NT$4 trillion (US$91 billion to NT$122 billion) of domestic and foreign capital to invest in major infrastructure and important industries.
The committee is targeting funds from insurance companies, who have about NT$22 trillion in overseas investments and could direct approximately NT$3.27 trillion back home, National Development Council Minister Paul Liu (劉鏡清) said at a news conference.
The government’s goal is to use that NT$3.27 trillion to generate an economic impact of NT$10 trillion, Liu said.
Taiwan’s insurance companies sitting on ample funds have long invested abroad to achieve higher returns.
The insurance industry had about NT$32 trillion in available funds as of the end of last year, of which overseas investment accounted for as much as 70 percent, data compiled by the Financial Supervisory Commission showed.
However, insurers have encountered unstable overseas investments and climbing hedging costs due to widening interest rate spreads and large exchange rate fluctuations. As a result, they have been opting for safer investment targets domestically, while the government is also looking at them to help support national infrastructure projects such as transportation, water supply, green energy, digital transformation, urban and rural development, childcare and social housing.
Insurers’ huge asset allocations to overseas investments have also attracted attention from some lawmakers, who have called on regulators to lower the overseas investment cap for local insurance companies from 45 percent to 25 percent of their working capital.
The Financial Supervisory Commission has raised concerns about lawmakers’ proposal of cutting insurers’ overseas investment cap, but the move underlies issues faced by insurers, such as their increasing exposure to currency, interest rate and reinvestment risks abroad, the lack of investment targets with stable and better returns at home, and a local financial market that fails to live up to insurers’ expectations.
Insurance companies focus on long-term asset allocation and risk management, and pay attention to their commitments to the insured and beneficiaries. As insurers particularly emphasize stable cash flows and prefer investments that can achieve stable returns, they tend to invest in fixed-income securities and real estate.
Instead of encouraging insurance companies to invest in public infrastructure projects directly or participate in the projects’ operations — which tends to increase business risks due to policy changes, environmental concerns and longer completion time — a pragmatic way to attract insurers’ funds back to Taiwan is to create fixed-income products targeting public infrastructure.
It is therefore welcome news that Liu last week said the committee would first work to establish a one-stop service window to facilitate regulatory compliance related to the investment plan and develop an inter-ministerial investment promotion platform to accelerate the construction of national infrastructure.
It is hoped the committee’s investment plan could create a win-win situation — reducing the government’s financial burden while providing good investment targets for insurers. Moreover, insurance companies would have a place to park their funds and the local financial market would see an equal development of direct and indirect finance, creating an environment that is conducive to the insurance industry’s capital management needs.
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