Some Taiwanese life insurance companies have lowered the guaranteed interest rates for their New Taiwan dollar-denominated policies to comply with new accounting standards and regulatory measures.
While higher guaranteed rates mean higher returns for policyholders, they leave insurance companies vulnerable to foreign-exchange risks, as most of their investments are overseas, the Financial Supervisory Commission has said.
China Life Insurance Co (中國人壽) on Monday posted an announcement on its Web site that it would trim the guaranteed rates for five NT dollar-denominated policies from 2.7 percent to 2.6 percent.
The move came after Cathay Life Insurance Co (國泰人壽) announced on Saturday last week that it would reduce the rates by 10 basis points to 2.55 percent for eight of its NT dollar-denominated interest-sensitive insurance policies, and cut 11 basis points from another policy to 2.55 percent.
It is Cathay Life’s second rate cut for its NT dollar-denominated policies since April, but the latest cut was bigger, executive vice president Winnie Fan (范千惠) told the Taipei Times by telephone yesterday.
In a bid to comply with the International Financial Reporting Standards 17 (IFRS 17), which Taiwanese insurance companies have to adopt by 2025, a Cathay Life manager surnamed Au (歐) said the company needs to strengthen review of policy profitability to avoid selling products that will have a negative profit margin.
Given that 10-year Taiwan Treasury rates have been declining since the end of last year — which indicates that the rate of return on domestic investment is also falling — Cathay has decided to cut the guaranteed rates for its NT dollar-denominated products to maintain profitability, Au said.
“Those NT dollar policies would not necessarily report a negative profit margin if their guaranteed rates remain unchanged, given that the calculation method under IFRS 17 has not been finalized, but it is a safer choice for insurers,” Au said.
Cathay said it does not expect the rate cuts to scare away investors, as local banks’ savings interest rates are even lower.
Fubon Life Insurance Co (富邦人壽) earlier last week said it would lower its guaranteed rates for some policies in the second half of the year.
However, on Saturday last week it said that it would reduce the rates by 20 basis points to 2.5 percent for about 60 NT dollar-denominated insurance policies.
Most insurance companies are keeping the guaranteed interest rates for their US dollar-denominated policies unchanged for the time being, as they are still in the process of deciding if the return rates on overseas investment would go up or down amid uncertainties due to the US-China trade dispute.
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