Fubon Life Insurance Co (富邦人壽) yesterday forecast that first-year premiums would likely fall in the second half of this year, as the company lowers declared interest rates for some policies to comply with new international accounting standards and local regulatory measures.
The declared interest rates for some of Fubon Life’s New Taiwan dollar-denominated policies has been set at 2.7 percent, company vice president Chao Tsai-ling (董采苓) said at an investors’ conference in Taipei.
Higher rates would give policyholders higher returns, but at a time when hedging costs for investments are increasing, the insurer must lower the declared interest rate to maintain profitability, Chao said.
To comply with the International Financial Reporting Standards 17, which are designed to prevent life insurance companies from selling products that have a negative profit margin, Fubon Life plans to reduce declared interest rates in the second half of this year, she said.
“We will gradually trim the rates. It is possible that the rates will be less than 2 percent if hedging costs continue to be high,” Chao said.
“Local life insurers were previously engaged in a vicious competition, raising declared interest rates to an unrealistically high level. Now that insurers are considering cutting rates, it is healthier,” she said.
The company said it does not expect the cut in declared interest rates to scare away investors, as savings interest rates are even lower at local banks — at about 1 percent at most lenders.
Declared interest rates for Fubon’s US dollar-denominated policies are to remain unchanged, as the company does not have hedging costs for policies in foreign currencies, Chao said.
Later this year, the company aims to promote protection policies, such as injury insurance and policies that target older consumers, in a bid to comply with the Financial Supervisory Commission’s new measures, Chao said.
“However, we all know that such policies are less popular with consumers, because they offer lower returns,” Chao added.
Fubon Life’s first-year premiums grew 34.3 percent year-on-year to NT$64.6 billion (US$2.05 billion) in the first quarter — ranking first among local insurers — as people bought more single-premium life insurance with declared interest rates of 2.97 percent before the company stopped selling them in the middle of January, she said.
Premiums increased 13.5 percent year-on-year to NT$160.4 billion in the first three months of this year compared with the same period last year, company data showed.
Although first-year premiums are expected to fall in the second half of this year, the total this year is still likely to report a single-digit percentage growth, the company said.
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