Thu, Sep 17, 2015 - Page 13 News List

Insurance group boss says firms ready for Fed hike

By Ted Chen  /  Staff reporter

Local insurers are fully prepared to cope with the US Federal Reserve’s much-anticipated interest rate increase, Life Insurance Association of the Republic of China (壽險公會) chairman Paul Hsu (許舒博) said yesterday.

“Whether the interest rate increase is implemented this month or delayed until December, insurers have been making adjustments based on the assumption that the change would take effect this month,” Hsu said at a Bloomberg LP forum in Taipei.

Insurers have begun reassessing the weighting of bonds of different classifications, such as active and inactive bonds, and are considering slashing their preferred bond maturity with yields greater than 5 percent from 30 years to 20 years, he said.

Insurers are very aware of the impact of international factors because about half of their investments are allocated overseas, Hsu said.

“Although the value of insurers’ debt investment may be impacted in the short term, the rate hike is considered a boon for the industry from a long-term perspective, as their investments in long-term debts, which were acquired with the intent of holding them until maturity, would be less affected,” he said.

Hsu added that a weakening yuan would not necessarily be detrimental to insurers, as the depreciation of the New Taiwan dollar has been keeping pace with the recent volatility.

Hsu said Chinese banks have reportedly raised deposit rates to 4 percent, which he said was indicative of Beijing’s confidence in its economy, which is expected to grow between 5 and 7 percent, compared with Taiwan, which is struggling to achieve 2 to 3 percent growth.

However, Hsu remains concerned about the lack of appropriate outflow channels for the 300 billion yuan to 400 billion yuan deposits in Taiwan.

“The People’s Bank of China still exerts a high level of influence over the strength of the yuan and continues to rake in massive gains from foreign exchange rate arbitrage,” Hsu said, adding that he hoped to see more yuan outflow channels apart from going through Hong Kong, such as provisions for qualified institutional investor and renminbi qualified institutional investor quotas.

As for pursuing mergers and acquisitions to tap into Asia’s vast markets, Hsu said that consolidation must fulfill both investment and strategic objectives, and not be conducted solely to expand operational scale.

There are also other factors to consider, such as overcoming differences in corporate cultures and achieving synergy, he said.

“For example, recent acquisitions of insurers by Taiwanese financial holding companies are aimed at adding another profit driver for banks,” Hsu said.

Despite Taiwan’s mature and highly saturated insurance market, there is still a lot of room for growth for premiums with the anticipated launch of long-term care insurance policies, he said.

Long-term care insurance policies have a large addressable market, and the NT$24,000 annual tax deduction for insurance payments could boost sales, he said.

The windfall from premium collections, should it be better utilized, would lead to greater gains for the sector, he added.

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