Giant Taiwan Insurers Seen Stepping Up Purchases of Dollar Bonds

(Bloomberg) -- The slump in U.S. corporate bonds is likely to spur bargain hunting by Taiwan life insurers.

The largest insurer by assets in Taiwan, Cathay Life Insurance, has already stepped into the market.

“We have bought U.S. investment grade long-tenor corporate bonds on dips in March, as credit spreads widened a lot,” said Abel Lin, managing senior executive vice president at Cathay Life. “We will continue to add such bonds.”

Cash at local insurers had grown following a wave of redemptions and as the firms held their firepower amid plunging yields before the coronavirus outbreak hammered assets worldwide. Taiwanese life insurers had NT$785 billion ($26 billion) of bank deposits at the end of January, the most since 2012, according to data compiled by Bloomberg.

Giant Taiwan Insurers Seen Stepping Up Purchases of Dollar Bonds

Cathay Life adopted a de-risking strategy over the past year, according to an earnings call last month.

Cash positions at Taiwan’s life insurers may be “temporarily higher as of end of first quarter after they took profit earlier this year,” according to Patty Wang, an analyst at Taiwan Ratings.

Any dry powder would still be just a fraction of the NT$29.8 trillion -- the better part of $1 trillion -- in life insurers’ assets as of the end of February, according to data from the Financial Supervisory Commission.

But Taiwanese buying could help bolster broader confidence in dollar credit. The Federal Reserve’s historic foray into the corporate-bond market was “reassuring” investors, said Cathay Life’s Lin.

Giant Taiwan Insurers Seen Stepping Up Purchases of Dollar Bonds

As part of its latest round of stimulus measures, the Fed said on April 9 it will fund the purchases of some types of high-yield bonds, collateralized loan obligations and commercial mortgage-backed securities.

“If stock markets stabilize with risk appetite recovering, Taiwan’s life insurers will first add investment-grade corporate bonds on dips,” said Ryan Chang, fund manager at CTBC Investments Co. “Investment-grade corporate bonds may bottom out after the U.S. Fed provided liquidity to the market -- which may prompt the insurers to buy more.”

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