Governments throughout the Asia-Pacific region are faced with many challenges when it comes to the role of infrastructure investment and sustainable growth, as well as questions of how to finance new infrastructure projects and how to incorporate private capital. Insurance companies form one of the largest infrastructure investor groups in the region, and are therefore greatly affected by regulation within the industry. Insurance companies in India, for example, are barred from investing outside of India, while their peers in South Korea and Japan can incorporate regional and international infrastructure assets into their portfolios.
Preqin’s online platform currently tracks 92 Asia-based insurance companies that are actively or considering investing in the asset class, with $7.7tn in aggregate assets under management. Insurance companies account for 17% of infrastructure investors in the region and have an average allocation to the asset class of 4.9% of total assets. As institutions responsible for consumer funds, insurance companies are highly regulated to ensure their financial solvency. This blog seeks to provide insight into the influence of regulation on the geographic preferences of Asia-based insurers investing in infrastructure.
South Korea and India are together home to almost half (48%) of Asia-based insurance companies active in the infrastructure asset class. China- and Japan-based insurers make up a further 15% each, followed by Taiwan (9%) and Hong Kong (5%). ASEAN countries – Singapore, Thailand, Indonesia, the Philippines and Malaysia – account for the remainder.
As shown in the chart above, India-based insurance companies are barred from making any investments outside India. In contrast, insurance companies from South Korea are the most likely to target infrastructure assets outside Asia, as practiced by 96%, followed by their Japan-based counterparts (92%). Low interest rates in both countries drive insurers to pursue higher-yielding assets throughout the regions where more relaxed regulation exists. Furthermore, South Korea’s Financial Supervisory Service halved the reserve requirements for offshore infrastructure investments in 2017.
Interestingly, equal proportions of insurance companies located in both South Korea (96%) and Taiwan (88%) are interested in Asia and non-Asia investments. While the Financial Supervisory Commission in Taiwan loosened constraints on non-Taiwan investment in March 2016, insurance companies are also urged by the government to play a greater role in funding public infrastructure domestically.
Notably, less than half (42%) of China-based insurers seek infrastructure investments outside the region. This is likely due to the Belt and Road initiative, run by the China Insurance Regulatory Commission, which encourages Chinese insurance companies to focus on domestic infrastructure investment. Similarly, the ASEAN Insurance Council has also called for insurance companies in ASEAN to fund critical infrastructure .
Going forward, insurance companies and other private investors throughout Asia will continue to play a role in funding infrastructure projects. As shown throughout this blog, governments in each country will have a say in where these projects occur and how much private capital is allowed.