APAC market ‘very healthy’; regulatory shifts ease capital pressures: Fitch

The insurance market across the Asia-Pacific region remains resilient, partly buoyed by what has been a robust period for insurers raising capital by issuing bonds. In some countries, such as Taiwan, this has been aided by favourable regulatory developments, according to Ka Yee Chan, senior director at Fitch Ratings.

Chan told EAIC Today that 2024 has been an active year for insurance-related bond issuances. “The market is very healthy,” she said, noting that many insurers are issuing senior and capital instruments regularly, driven by regulatory and market conditions. Fitch rates nearly 130 insurance companies across Asia-Pacific.

Taiwan, in particular, has experienced very healthy levels of bond issuance. “In Taiwan we’ve seen a rise in issuances over the past two years, largely driven by regulatory requirements,” Chan explained. 

“Life insurance companies, since about 2023, have raised Taiwan dollars in subordinated debt to replenish their solvency positions.”

A significant development occurred in March 2024 when Taiwan’s Financial Supervisory Commission (FSC) moved to allow insurers to issue bonds that count towards capital through the setting up of special purpose vehicles (SPVs) overseas, enabling them to issue bonds in foreign jurisdictions. The move was designed to diversify their capital-raising channels.

“This change is particularly important as insurers prepare for stricter capital requirements.”

Fitch Ratings views this regulatory change as credit-positive for Taiwanese insurers. The ability to access international capital markets broadens their investor base and potentially lowers the cost of capital. 

“This helps diversify their capital-raising options, given the more limited capacity in the domestic bond market,” Chan added.

This change is particularly important as insurers prepare for stricter capital requirements. “From our perspective, this regulatory change may ease capital pressure on insurers as the more stringent requirements under Taiwan’s localised insurance capital standards come into effect from 2026,” she noted.

A good move

Fitch said that the move will reduce insurers’ reliance on Taiwan’s capital markets and be particularly beneficial in times of domestic market stress.

“Cathay Life has issued US dollar subordinated bonds, and Nan Shan Life Insurance has made its $700 million debut offshore bond offering,” Chan pointed out.

Cathay Life was the first to take advantage of this change, announcing its plans to establish an SPV in Singapore in March. Nan Shan Life Insurance followed suit, issuing its offshore bond on September 11, 2024. This marked the largest single US dollar bond issuance by a financial institution in Taiwan, with the proceeds set to strengthen its financial structure and risk-based capital adequacy.

The significance of that deal was acknowledged at the time by Clifford Chance, which advised on it. “We are honoured to have advised Nan Shan Life Insurance on this landmark transaction,” David Tsai, lead partner, said at the time. 

“As one of the first wave of Taiwanese life insurance companies to seek regulatory capital from the offshore bond market, Nan Shan Life Insurance has set a significant precedent by utilising the revised regulations issued by Taiwan’s FSC. 

“The strong support received for this US $700 million issuance underscores the confidence investors have in Nan Shan Life Insurance’s robust financial structure and strategic vision.”

Regulatory shifts open up new opportunities, but they also bring risks. Cross-border financing structures introduce foreign exchange risk, compliance challenges with international regulations, and complexities in managing overseas operations. Fitch noted that robust risk management will be crucial to mitigate these issues.

Fitch noted in March that the FSC has been supporting the insurance sector to ensure a smooth transition to a new solvency framework over a 15-year phase-in period by reducing the capital charges on several asset categories, and including adjustments and transitional measures for interest rate risk in 2023. 

“We think life insurers’ ability to keep net asset growth stable in 2024 remains to be tested, as it is susceptible to interest rate and capital market movements,” it said at the time.

Turning to China, Chan observed a different dynamic. “In China we expect the insurance market to continue growing, but issuance will remain very regulatory-driven,” she stated.

“Over the past couple of years, Chinese insurers have been relatively quiet on the offshore issuance front—we’ve seen only a handful of offshore issuances,” Chan said, citing examples such as Taiping and China Life Overseas.

“Onshore insurance companies coming offshore have been somewhat constrained,” she concluded.

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