Taiwanese life insurers, traditionally some of the world’s busiest limited partners, are pulling back from private equity ahead of a new regulatory capital regime.
Over the past decade, Taiwanese insurers have represented a major source of capital for international private equity managers – according to Private Equity International data, these institutions have pumped at least $17.8 billion into the asset class since 2015. Cathay Life and Fubon Life, the two most active, manage portfolios replete with brand names such as Hellman & Friedman, KKR, TPG, EQT, Blackstone and Vista Equity Partners.
However, some of these institutions have drastically reduced their deployment over the past two years. Taiwanese insurers committed just $1.27 billion to 2023 vintages – down 42 percent from 2022 levels and 61 percent from 2021, PEI data shows. The number of funds backed also halved between 2021-23 from 64 to 30.
Cathay disclosed only $666.4 million of commitments to 2023 vintages, compared with $1.08 billion and $1.81 billion respectively for the two prior vintages. Similarly, Fubon committed $488.8 million to 2023 vintages, down from $883.8 million and $869.5 million for 2022 and 2021.
Insurers have also been actively shedding LP interests. KGI Life – formerly China Life Taiwan – sold $272 million of private equity fund stakes in May last year to a consortium of buyers including HarbourVest Partners and Sturbridge, according to regulatory filings. The transaction involved stakes in 15 private equity funds, including Ardian Buyout Fund VII.
That deal followed the January 2023 sale of 22 private equity and hedge fund stakes by Fubon, valued at around $420 million.
Weighting around
The decline in private equity activity precedes the introduction of a new capital regime in January 2026, known as the localised Insurance Capital Standards (TWICS).
Capital regimes assign risk weightings to different asset classes that determine the amount of capital that financial institutions must hold to guard against potential losses. Though TWICS risk charges are not yet fully disclosed, the regime is expected to increase the capital requirements and risk charge for different asset classes, including private equity.
“For the past few years, in response to the global market turbulence and regulatory changes, dynamically [rebalancing] our portfolio to the optimal scale and allocation is one of our main investment strategies towards [the] private market,” a Cathay Life spokesperson tells Private Equity International.
“Meanwhile, Cathay Life still continues to closely explore good opportunities by committing to new private equity funds and re-ups [with] existing fund managers. We do believe private equity funds are still an essential asset class for insurers who are looking for long-term investments after TWICS adoption.”
Fubon Life and KGI Life had not returned a request for comment by the time of publication.
TWICS compounds an already challenging environment for life insurers that have significant exposure to private markets. Under the current regime – known as risk-based capital (RBC) – weightings for individual asset classes are reviewed every six months. Private equity had already seen its RBC figure climb in recent years.
“For example, in 2022, the [public] equity risk charge was actually lower because the equity market dropped quite a lot,” says Judy Chen, a Hong Kong-based director at Fitch Ratings. “But for private equity, the regulator actually increased the risk charge from 28.13 percent to 33.75 percent, reflecting the underlying risk.”
A roughly 11 percent slump in the value of the new Taiwan dollar against the US dollar between January 2022 and February 2024 has inflated the value of insurers’ overseas private equity holdings relative to the broader portfolio. Private equity investments held in overseas currencies are subject to an additional 6.61 percent exchange rate risk charge.
The currency dynamic was likely exacerbated by a decline in the value of fixed income holdings globally, in essence creating a simultaneous numerator-denominator effect.
“Some insurers also have a lot of exposure to fixed income, the value of which has come down over the past two years, so it’s a combination of factors,” notes Bin Han, a Hong Kong-based partner at APAC-focused placement firm TransPacific Group. “Some insurers have now reached that [regulatory] cap and are in selling mode, so they’re not very active in deploying.”
Also at play under the current RBC is a net worth ratio that requires an insurer’s net assets (or shareholders’ equity) divided by total assets to remain above 3 percent; a decline in the value of certain investment holdings could lower this ratio. Some parent companies issued corporate bonds last year to shore up the equity of certain insurers as a result.
Laura Liao, senior wealth consultant at Mercer Asia, says: “The NAV ratios rule has negatively impacted the deployment of alternative investment for insurance companies, as essentially up to 3 percent of all investable capital limited by regulation has left them with very little room to play.
“We observed that Taiwan insurance companies have sold large buckets of private equity positions to eagerly collect cashback and realise their returns. Moving forward, Taiwan insurers are expected to continue raising their capital through equity and subordinated debt, as well as cut down on investment risks.”
Moving goalposts
The upcoming TWICS rules are designed to indicate how well an insurer can absorb potential volatility from the investment side. “At the end of the day, the regulator wants to make sure the insurance companies invested in those more volatile assets have enough capital buffer,” says Stella Ng, senior director at Fitch. “I wouldn’t say it’s just purely private equity, but in general, I would say it’s stocks or equity funds or equity-type investments that is decreasing, in preparing for the adoption of TWICS.”
All this isn’t to say that Taiwan’s life insurers are pulling back from private markets altogether. Since the start of December, for example, Cathay Life has disclosed $60 million commitments to both the Jordan Company’s Resolute Fund VI and Clearlake Capital Partners VIII, and $40 million to Providence Strategic Growth VI. Fubon Life, for its part, committed $70 million each to New Mountain Partners VII and Platinum Equity Capital Partners VI.
“There are still pockets of capital among insurers and other Taiwanese LPs for high-quality managers and those who fit with the existing mature portfolios,” says TransPacific’s Han. “Now more than ever, investors are flocking to quality managers and funds.”
And these institutions aren’t alone in becoming more selective. A quarter of insurers globally plan to decrease their allocation to private equity over the next 12 to 24 months – more than any other asset class, according to BlackRock’s 2023 Global Insurance Report. Only 27 percent plan to increase their allocation – less than any other asset class.
More Asia-based insurers are bearish on private equity than their peers in other regions, with 27 percent plotting a reduction. This group also has a disproportionately high appetite for private credit: 38 percent are planning to increase their allocations, compared with just 28 percent of those in EMEA and 33 percent in North America.
That may not be the case in Taiwan, however. Under the latest RBC update, private credit has the same risk weighting as private equity; such a dynamic could incentivise insurers to prioritise the higher-returning of the two.
In December 2022, Cathay Life sold at least $300 million’s worth of interests in eight private credit funds – including Ares Capital Europe IV – to a consortium that included Apollo S3 Management, Coller Capital and StepStone, per a regulatory filing at the time.
However, precisely how TWICS will reshape portfolios in the long-term is not yet clear. “The TWICS targets are to be implemented on 1 January 2026, as of now,” says Fitch’s Ng. “The regulator wants to have a smooth transition, if you will, so they would probably still carry on adjusting some of the risk charges and maybe come up with revised measures. I wouldn’t rule out that the regulator would have further adjustments.”
– Katrina Lau contributed to this report.