Wed, Nov 20, 2019 - Page 12 News List

Discount rates for life insurers to be cut next year: FSC

MARKET RATES:The Financial Supervisory Commission said that it is lowering the discount rates to keep them in line with changes in the market

By Kao Shih-ching  /  Staff reporter

The Financial Supervisory Commission (FSC) yesterday said that it would next year lower life insurance companies’ liability reserve interest rates on all policies denominated in the New Taiwan dollar, US dollar and Chinese yuan by 25 basis points.

Liability reserve interest rates are also known as discount rates, which insurance companies use to estimate their liabilities, the Insurance Bureau said.

The bureau reviews and adjusts the discount rates on an annual basis, with the rates varying on different currencies, periods of premium payment and liability duration.

For NT dollar-denominated policies with payment periods of at least six years — the most popular product on the market — the discount rate would be trimmed by 25 basis points to 1 percent for those with a liability duration of less than six years; 1.25 percent for those between six and 10 years; 1.5 percent for those between 10 and 20 years; and 1.75 percent for those longer than 20 years, it said.

For US dollar and yuan-denominated policies with payment periods of at least six years, discount rates would be reduced from between 1.75 percent and 2.5 percent to between 1.5 percent and 2.25 percent, it said.

The commission decided to lower the rates as 10-year US Treasury bond yields have continued to decline this year, while yields on Taiwan’s 10-year bonds and China’s 10-year bonds have also fallen, Insurance Bureau Deputy Director-General Chang Yu-hui (張玉輝) said.

As many life insurers are investing the funds generated from foreign currency-denominated policies overseas, it is important for discount rates to remain in line with changes in market rates, he said.

The commission would also cut the discount rates on Australian dollar-denominated policies by between 25 basis points and 50 basis points, as well as those for some euro-denominated products by 25 basis points, Chang said.

The new discount rates would take effect in January, he said.

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