Cathay Life Insurance Co (國泰人壽), Taiwan's biggest insurer, cut the interest rate it offers on some life insurance policies on expectations the nation's central bank will this week cut rates for the sixth time this year.
The insurer cut the annual return it offers on certain policies to 4 percent from 4.5 percent, Chairman Tsai Hung-tu (
"It's a positive trend for the industry," said Frank Su, an analyst with SG Securities in Taipei. "This will gradually decrease their average funding cost." The central bank is trying to boost an economy that grew at 1.1 percent in the first quarter from a year earlier, the slowest rate in a quarter century. The central bank board will meet tomorrow and is expected to cut rates, especially if the US Federal Reserve decided to lower borrowing costs at its meeting yesterday.
"Falling interest rates are making it difficult for insurers to maintain high-yield products," Tsai said. "The trend will continue as the central bank is likely to follow the expected Fed rate cut this week." Cathay Life is finding it difficult to buy assets which yield enough to cover the cost of policies that offer a fixed return to policyholders. The stock market has fallen more than 40 percent in the last year and the lower interest rates mean that bonds are offering a lower yield to the company, which has more than NT$1 trillion (US$29 billion) of assets.
Cathay, the flagship of Taiwan's wealthiest and largest business group Lin-Yuan (
The Legislative Yuan is reviewing six financial bills, including the Financial Holding Company Law and a revision to the Insurance Law.
Under current law, financial institutions cannot share client information with other companies. Revised legislation will allow Cathay to sell its policies through Lin-Yuan Group's Cathay United Bank (
Revisions to the Insurance Law may also benefit Cathay by removing or reducing restrictions on the size of the stake it may hold in other companies, Tsai said.
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