Taiwan's insurers drove a surge in issuance of foreign debt, as an easing of ownership curbs allowed them to seek higher returns on US$580 billion of assets. Corporates have sold 4.3 billion yuan (HK$5.4 billion) of yuan-denominated Formosa notes since the rule change in May, against 1.5 billion yuan in the previous four months. Dollar debt offerings also picked up, climbing to US$4.8 billion as Morgan Stanley raised US$950 million in Taiwan's largest such sale. All of the dollar securities were bought by insurers, as were 40 per cent of Formosa bonds with maturities of three and five years, according to CTBC Bank. Insurers' premium income more than doubled in the past decade as increasingly wealthy Taiwanese prepared for retirement, swelling demand for bonds and pushing down yields on local-currency debt. The 10-year sovereign Taiwan dollar yield fell to an average 1.59 per cent this year from 2.66 per cent in 2004. Formosa notes "fulfil the need of insurers to raise returns", said Huang Yuanchun, a fund manager at Fuh Hwa Securities Investment Trust. "Government bonds, or other Taiwan dollar investment-grade bonds, have low yields. Insurers also don't have to really worry about credit risks as many yuan bond issuers are systemically important financial institutions." Taiwanese insurers' annual premium income grew to NT$2.7 trillion (HK$698 billion) last year from NT$1.2 trillion in 2003, according to Financial Supervisory Commission data. The industry’s problems have been about where the cash can be invested PAUL HSU, LIFE INSURANCE ASSOCIATION Premiums collected equalled 17.6 per cent of gross domestic product last year, the world's highest penetration rate, Swiss Re said in a report. Returns on local investments have suffered with the central bank maintaining the benchmark rate at 1.875 per cent for the past 12 quarters. The insurance sector's 3.8 per cent weighted average liability cost was significantly higher than its recurring investment yield of 2.8 per cent last year, according to the financial regulator. "Over the past few years, most of the industry's problems have been about where the cash can be invested," said Paul Hsu, the chairman of the Life Insurance Association. "When one pool fills up, we need to look for the next one." CTBC, Taiwan's fourth-largest listed financial firm by market capitalisation, sold Taiwan's first yuan bonds in February last year after a currency-clearing pact with the mainland paved the way for domestic banks to start taking such deposits. Issuance remained slow as higher yields on similar notes in Hong Kong, called dim sum bonds, drew investors. Trading volume is low, with only four of the 19 outstanding Formosa bonds changing hands last month, according to GreTai Securities data. The 5.8 billion yuan of Formosa issuance this year made up only 2 per cent of the offshore yuan debt market. Louis Mao, a money manager at Yuanta Securities Investment Trust, said he had not bought any yuan issues in the past three months. "Mutual funds also look at liquidity, or else when we need to exchange bonds, we may not find anyone to trade them," Mao said. Taiwan has a cap on issuance by mainland banks, which was raised to 25 billion yuan last month from 15 billion yuan. The May amendment excluded locally issued foreign-currency debt from a 45 per cent overseas investment limit imposed on insurers to keep yields low. Insurance is the most popular wealth-management tool for Taiwanese, followed by stocks and time deposits, according to a CTBC survey. People 65 years or older will make up 14.6 per cent of the population in 2018 and 20 per cent in 2025, compared with 12 per cent now, according to a study by the National Development Council. Taiwan's yuan savings grew at a record slow pace of 0.1 per cent last month to 293 billion yuan as the currency fell and banks with few investment options lowered deposit rates.