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Local insurers might avoid impact of crisis

"We are seeing greater opportunities in under-developed countries like China, India and Vietnam because of low penetration rate and good economic fundamentals."

Paul Clarkson, Standard & Poor's senior insurance analyst

Taiwanese insurers and most Asian peers may not be seriously impacted on by the US subprime mortgage crisis due to relatively low exposure to US asset-backed financial products, international rating agency Standard and Poor's Rating Services said yesterday.

"Basically, we think the impact [on Asia-Pacific insurers] is quite limited ... and manageable," Standard & Poor's credit analyst Connie Wong (黃如白) told a teleconference.

Due to the constraints of the region's regulators, insurance companies in Taiwan and other Asian countries have purchased a limited amount of US asset-backed products, Wong said.

In August, the Financial Supervisory Commission said nine Taiwanese insurance companies had invested a total of NT$30.2 billion (US$926.4 million) in home loans linked to the US subprime mortgage products as of the end of June.

Most subprime-related collateralized debt obligations (CDOs) held by Taiwanese insurers are generally highly rated, and only Taiwan Life Insurance Co (台灣人壽) and property insurance firm Mingtai Fire and Marine Insurance Co (明台產險) have so far booked losses totalling NT$449 million, making up a mere 0.0225 percent of the NT$2 trillion overseas investments made by local companies.

The Hong Kong-based analyst said yesterday that Standard & Poor's reaffirmed its stable outlook on most insurance companies in the region.

But greater-than-expected volatility in the investment market dragged by the credit crisis would heighten the risk for life insurers as they have heavily invested in equities for returns, Wong said.

"If the market continues to drop, the impact will be magnified," she said.

The rating agency said the region's insurance industry, excluding Japan, would have a higher growth rate than global rivals.

"The Asia-Pacific insurance industry will have strong growth with expanding economies and higher incomes," Standard & Poor's senior insurance analyst Paul Clarkson said in the same teleconference. He gave no further details.

"We are seeing greater opportunities in under-developed countries like China, India and Vietnam because of low penetration rates and good economic fundamentals," Clarkson said.

Commenting further on the life insurance industry in China, Wong said it was a fast-growing market, but price competition was also stiff.

She said China's insurance industry may strengthen its fundamentals and profitability as a result of government reform and infrastructure buildup in recent years.

Local financial service providers are keen to tap into the burgeoning insurance market in China, but only a few companies such as Cathay Financial Holding Co (國泰金控) have received approval from Beijing to operate insurance businesses there.

In spite of an anticipated faster growth pace, Asia-Pacific insurance companies as a whole face challenges from regulatory reforms in this region, the rating agency said in a statement.

"Greater risk-management awareness, additional disclosure and increased corporate governance requirements as a result of the increasing regulator and accounting convergence are affecting the development of the insurance industry," the statement read.

Faced with more sophisticated and risk-based capital measurement by regulatory regimes, well-established insurers in the region will continue to outperform their smaller peers, Wong said in the statement.
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