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Insurance companies set to profit from China route

Insurance companies are poised to experience further premium growth and to penetrate insurance markets in China, Moody's Investors Service said in its first report on the nation's insurance industry.

The insurance industry has experienced severe difficulties in recent years due to the effects of deregulation, the impact of the low interest-rate environment on some guaranteed investment products and a succession of natural catastrophes in the late 1990s.

More recently, reinsurance capacity, which is much relied on by insurers, has shrunk.

"Taken together, these forces have inflicted significant losses on Taiwan insurers, falling particularly hard on the industry's weaker players," said Donovan North, Moody's Taiwan insurance analyst and author of the report.

The Department of Insurance under the Ministry of Finance has responded to these challenges by introducing a number of new regulations that are designed to stabilize the market.

Among these reforms are a reduction in the Special Claims Reserve requirement, a regulation governing the amount of reserves insurers must keep on hand, and the introduction of a tariff-based system into the non-life insurance industry with a view to eventual liberalization.

New legislation allowing banks, securities houses and insurance companies to combine into financial holding companies could lead to greater opportunities for cross-selling, Moody's said, adding that this will also help open up a new distribution channel via banks.

The report noted that China appears to hold a great deal of potential for foreign insurers, and Taiwan players are pitching themselves into this market.

In August last year, the government allowed local insurers that already had a representative office in China to set up branches there.

"China represents a significant opportunity for Taiwan insurers to expand their operations beyond their narrow geographic base in Taiwan," North said.
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