Taiwan Ratings Corp forecasts stable outlook for nonlife insurance sector

The outlook for the country's nonlife insurance sector is stable, reflecting moderate economic growth and industry risks despite intense competition in the sector and looser market discipline as a result of deregulation three years ago, Taiwan Ratings Corp (中華信評) said yesterday.

"Regulatory changes and consolidation have been gradually reshaping the industry landscape, creating opportunities and challengess for participants," said Susan Chu (朱素徵), a director and team leader of financial services ratings.

Taiwan Ratings and its parent company, Standard & Poor's Ratings Services, yesterday jointly issued a report titled "Nonlife Insurance Industry Risk Analysis: Taiwan."

Deregulation is increasing operating flexibility and consolidation should allow some companies to benefit from better economies of scale in the competitive market, Chu said, adding that the industry is likely to see further consolidation.

Leading players

There are currently 22 nonlife insurers in the market,with the five leading players accounting for about 52 percent of direct premiums written last year, up from 48 percent in 2000, according to Taiwan Ratings.

Fubon Insurance Co (富邦產險) is the nation's largest nonlife insurance company, accounting for NT$25.43 billion (US$776 million) of premiums and a market share of 20.1 percent last year, the ratings service provider said.

Mingtai Fire and Marine Insurance Co (明台產險) claimed the second spot with a 9 percent market share, followed by Union Insurance Co's (友聯產險) 8.2 percent, Shin Kong Insurance Co's (新光產險) 7.8 percent and Cathay Century Insurance Co's (國泰世紀產險) 7 percent, the ratings firm's data showed.

In principle, the industry's operating performance is satisfact-ory, Taiwan Ratings' analyst Steven Chen (陳智誠) said, citing the industry's combined ratio which ranged between 94 percent and 101 percent from 2001 to last year with variations over that period smoothed in part by reinsurance agreements.

Profitability

Looking at investments, the industry reported satisfactory profitability over the same period, with an average annual return on revenue of 13 percent, Chen said.

The sector's underwriting performance is expected to remain good over the next few years with its combined ratio expected to range between 96 percent and 100 percent, the analyst said.

However, "operating volatility is expected to increase because of the combined effects of fierce competition, increased retention risk, riskier investments and catastrophe risk," Chen warned.