Bolstered by enhanced asset and liability management and capital strength, Taiwan's life and nonlife insurance sectors both have a stable outlook, according to a report issued by Standard & Poor's Ratings Services yesterday.
In the latest Asia-Pacific Insurance Outlook 2006-2007 report, the rating firm said the industry risk of Taiwan's life insurance market has improved to moderate from moderately high, bringing it level with Malaysia New Zealand, and Japan.
Negative spreads are expected to challenge some of the insurers, the report said.
Additionally, growing operational flexibility in new product development and pricing and asset allocation associated with deregulation required more disciplined and sophisticated management, it said.
"Stronger companies will benefit from a deregulating environment, while most small and weak companies will struggle to compete," the report said.
Last year's statistics showed that Taiwan has a concentrated but competitive market, with the top five companies taking 64 percent of total premiums. Fourteen out of the 29 total life insurers are foreign firms, contributing about one-third of total premiums last year.
The market has relied on insurance products offering guaranteed rates, which are subject to high interest rate risks, but investment-linked products and variable rate products have recently become more prevalent, together accounting for 59 percent of new business last year, S&P said.
Meanwhile, the bank channel gradually played a more important role given the launch of new products amid a low interest rate environment. Last year bancassurance accounted for 38 percent of new business S&P said.
Insurer risk control capability on overseas investments, which accounted for about 30 percent of total investments last year, remains critical if companies are to maintain their profitability, especially given the effects of foreign exchange risks, S&P warned.
On the nonlife insurance front, price competition is an issue that S&P worries could counterbalance the sector's satisfactory profitability and capital strength.