Taiwan Ratings Corp (中華信評) said yesterday that life insurers were not likely to see improved profitability for several quarters because of weak macro-economic conditions and increased competition.
Taiwan Ratings, a local arm of Standard & Poor’s Ratings Service, said local life insurers saw significant losses from sizable realized and unrealized investment losses last year.
“The situation is unlikely to improve over the next one to two years,” Andy Chang (張書評), a financial analyst at Taiwan Ratings, wrote in a report.
The report said an unfavorable investment environment, including negative spread, the recession and the addition of new players and new products, extended downward pressure on existing players, cutting into the market shares of Cathay Life Insurance Co (國泰人壽), Nan Shan Life Insurance Co (南山人壽), Shin Kong Life Insurance Co (新光人壽), Fubon Life Assurance Co (富邦人壽) and Chunghwa Post Co (中華郵政).
The collective market share of these firms in terms of total premiums fell from 79 percent at the end of 2000 to 60 percent at the end of last year, the report said.
Life insurance’s return on average assets dropped to minus 1.36 percent last year, down from an average of 0.51 percent growth during the 2003 to 2007 period, the report said.
Taiwan Ratings was among the latest analysts and market watchers to issue a warning on local life insurers because of the companies’ risky investment portfolios.
On Monday, Bradford Ti (鄭溫煌), an analyst at Citigroup Global Markets, said in a client note that life insurers would continue to face “structural issues” that would be aggravated by a “tough operating environment.”
Although banking and insurance shares have soared in the past few weeks, buoyed by expectations that a cross-strait financial supervisory memorandum of understanding will be signed soon, “We would suggest trimming [positions of] life insurers Cathay and Shin Kong. Until a recovery is imminent, investment losses and capital sufficiency remain a core risk,” Ti wrote.
Moody’s offered a “negative” rating last month on local life insurers, reflecting an expectation of persistent pressure on their profitability and capitalization over the next 12 to 18 months.
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