Cathay Life has launched its first insurance-wrapped, onshore structured product, which was manufactured by UBS Taipei branch, catering to the demands of conservative investors, according to a product manager from the insurance company.

Cathay Life has launched a seven-year, Australian dollar-denominated insurance wrapped structured product on May 19, linked to the Kospi 200 and floored at 2.7% pa. In contrast to other insurance-wrapped structured products launched offshore by investment banks outside of Taiwan, this product is embedded with a structured product manufactured locally by UBS Taipei branch.

“UBS has acquired the licence and set up a branch in Taiwan to run the banking business such as manufacturing products,” said the product manager. “We think this provides more protection to investors as the manufacturer is within Taiwan and under a stricter onshore regulation of the Financial Supervisory Commission (FSC) compared with offshore products.”

The product will have a lower return due to  tax differences, but there is still demand from conservative investors. “This product will attract onshore taxation and therefore a 10% tax on their gains,” said the manager. “For example, the minimum return on the products is 3.07% pa before tax and 2.76% pa after tax. Although the yield is not as attractive as in previous deals, in an uncertain market for equities and commodities as well as a relatively lower exchange rate risk for the Australian dollar against the New Taiwanese dollar, there is still demand from investors for long-term and prudent investment.”

The FSC released an announcement in April categorising insurance wrapped structured products as highly-risky investment products which need board approval before sale. Cathay Life is not worried about the restriction on such products, according to the product manager. “We offer this insurance-wrapped structured product with 100% capital protection and less than 3% of the capital to be invested in option; our target clients are the ones seeking capital preservation rather than extra returns. With such a conservative structure, this product has been exempted from the high-risk product line.”

This product features dispersion payoffs, which at maturity will return 100% of the initial capital plus a coupon in New Taiwanese dollars at an amount equal to the predetermined participation rate of 30%, multiplied by the smallest absolute value of the annual growth of the underlying compared with previous year.

Cathay Life launched one insurance wrapped structured product in February and one last year. The contact mentioned that the company will continue to launch similar products according to market needs.

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