Wed, Jan 12, 2000 - Page 18 News List

1999 a bad year for finance sector

LOSSES Competition, the 921 earthquake and new rules requiring insurance companies to carry larger liability reserves combined to give the industry a tough year

By Stanley Chou  /  STAFF REPORTER

Operating results of the first three quarters of last year show that nearly 75 percent of all life insurers in Taiwan lost money.

In addition, more than two dozens financial institutions, mostly banks, lost money in the first ten months last year.

Analysts said excessive competition has been the fundamental reason, and that a consolidation of the financial industry will be necessary before most insurance or banking companies are again able to make profit in the over-crowded market.

Among the nation's 31 life insurance companies, as many as 23 companies had pre-tax losses in the first three quarters in 1999, with only eight companies having pre-tax earnings.

Analysts attribute the losses partly to a decline in interest rates and also to an extension of the liability reserve (責任準備金) from 20 years to 25 years, which was stipulated last year.

Among the 16 domestic life insurance companies, only six made a profit in the period.

The highest pretax earnings were Cathay Life Insurance's (國泰人壽) NT$13.7 billion and Shin Kong Life Insurance's (新光人壽) NT$4.5 billion. Nan Shan Life Insurance (南山人壽) made NT$2.3 billion.

The Life Insurance Department of the Central Trust of China (中央人壽) and China Life Insurance (中國人壽) made NT$800 and NT$400 million, respectively. The lowest earnings were for Kuo Hua Life Insurance (國華人壽) at NT$80 million.

Among the 15 foreign life insurance companies in Taiwan, only two companies made money, with 13 incurring losses in the period.

The two profit-making life insurance companies were Transamerica Occidental Life Insurance (美商全美人壽) and Connection General Life Insurance (美商康健人壽), both with pretax earning of less than NT$100 million. Aetna Life Insurance (美商安泰人壽) and Life Insurance Co of Georgia (美商喬治亞人壽) earned a profit in 1998, but both lost money in the first three quarters of last year.

Aetna Life Insurance lost NT$780 million in the first three quarters of 1999, it's first loss since the company turned a profit in 1996.

"Due to the claims of the 921 earthquake and the increase of liability reserve [from 20 years originally to 25 years], we expect a pretax loss in 1999," said Lee Huei-yuan (李回源), vice president of the company.

"Since the liability reserve and commission expenditures have been higher than usual for first year premiums [FYP], the higher growth of FYP would generally create higher losses on the same year," Aetna's Lee explained.

The first year premium revenue of Aetna Life Insurance last year was about NT$12 billion, marking a 50 percent growth rate which was the highest growth rate among the top five life insurers in Taiwan.

"In 1998, Nan Shan Life Insurance generated NT$10.5 billion in pretax earnings from its NT$3 billion special reserve.

"But last year we raised the liability reserve and without any special reserve, therefore the pretax earnings of the first three quarters of 1999 was only about 20 percent in 1998," said an executive of Nan Shan Life Insurance.

Meanwhile, eight domestic commercial banks and 18 foreign banks have reported pretax losses in the first ten months of operations last year, according to the Ministry of Finance (財政部).

Since the ministry has asked the banking industry to write off non-performing loans generated from the financial crisis in 1998, it is expected that more banks and other financial institutions would lose money in 1999.

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