Taiwan Ratings Corp (中華信評) yesterday maintained a negative credit outlook on the local life insurance sector despite the industry turning a profit last year.
“The sector’s return to profit last year does not reflect a change in the credit risks plaguing life insurance companies,” Taiwan Ratings credit analyst Patty Wang (王珮齡) said.
The industry’s low returns on average assets (ROAA) and volatile capitalization will continue to slow improvement in the overall credit profile, despite improved profitability last year after years of net losses or small profits since 2008, according to the agency.
Taiwan life insurers’ ROAA remained thin at 0.3 percent last year, lower than the range of 0.4 percent to 0.7 percent before the global financial crisis and it lags behind its Asian peers, the agency said.
“The prolonged low earnings are beyond our original expectations, and may remain stagnant under the prevailing low interest rates, sluggish economic growth and global capital market volatility,” Wang said.
The capital buffer of Taiwanese life insurers also remains weak as a result of investment volatility, in comparison with major regional or global peers.
The sector’s capitalization has yet to return to the pre-crisis level during 2006 and 2007, despite a pickup since 2008, while equity-to-asset ratio was standing at 3.6 percent at the end of October last year, weaker than the 5 percent to 6 percent range during the 2006 to 2007 period, the agency said.
The sector’s total assets have increased, but its total equity has failed to grow at a similar pace, Wang said.