Local life insurers might see a slowdown in business next year, with total written premiums likely to grow a modest 2.5 to 3 percent following tightening requirements governing the sales of savings-type insurance policies, Taiwan Ratings Corp (中華信評) said yesterday.
The projection is significantly lower than the 5 to 10 percent increases seen between 2015 and 2017, the local Standard & Poor’s Global Ratings unit said.
The agency projection follows the Financial Supervisory Commission’s announcement that it would cut discount rates on savings-type insurance policies, making them more expensive to purchase, but less of a burden for insurers.
“The insurance industry has seen business momentum weakening since 2016 following stiffer regulatory controls on commission payouts and sales of savings-type insurance policies,” financial analyst Serene Hsieh (謝雅媖) said.
Despite regulatory tightening, savings-type and unit-linked investment policies remain the mainstream products, underpinning sales, she said.
Protection policies would prove a hard sell, as the low interest rate environment would raise their costs, she added.
Discount rates are used by insurance companies to evaluate their liabilities and a rate cut would increase their liabilities, which would require a higher reserve and insurers would have to raise premiums for new policies to ease the effects on their bottom line.
The commission is to announce new rates this month so they can take effect in January.
Profitability at local insurers showed modest improvement in the first half of this year from the same period last year, attributable mainly to a recovery in the capital market and value increases in US dollar-based assets, but chances of investment gains would increasingly fall, as the US Federal Reserve lowered borrowing costs and other central banks adopted similar moves, Hsieh said.
As of June 30, foreign currency assets constituted 40 percent of insurers’ investment portfolios not including foreign currency-based policies, she said.
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