The prevailing low interest rates and intense competition could constrain earnings growth for Taiwan’s insurance companies this year after an unprecedented premium decline last year amid product adjustments, Taiwan Ratings Corp (中華信評) said yesterday.
Life insurers could face further difficulties growing their premiums once the policy of lower assumed rates — the interest rates on insurers’ required reserves — takes effect in July, raising costs on some insurance policies, Serene Hsieh (謝雅瑛), a credit analyst at the local arm of Standard & Poor’s, said by telephone.
The life insurance sector’s overall premiums contracted for the first time last year by nearly 10 percent as companies reduced sales of interest-sensitive annuity products as required by the Financial Supervisory Commission.
The commission has since late 2010 asked life insurers to place more emphasis on longer-tenor insurance products to avoid a potential mass liquidity drain once the central bank reverses its monetary policy, leading customers to terminate shorter-tenor policies.
Taiwanese tend to use shorter-tenor insurance products as savings tools, because they offer higher interest yields than banks’ savings accounts.
Interest-sensitive annuity products accounted for NT$113 billion (US$3.83 billion) of first-year premiums last year, slumping 70 percent from NT$370 billion in 2010, the ratings agency’s report showed.
The sector’s increasing emphasis on profitability over market share also contributed to the decline of interest-sensitive annuity products because they generate a low profit margin, Hsieh said.
“The product adjustment is positive for the industry, but it will take some time for the benefit to become evident,” she said.
While Taiwan Ratings does not expect a repeat of a premium decline this year, a strong recovery is unlikely as lingering concerns over global economic uncertainty will limit insurers’ ability to expand their premium bases, Hsieh said.
The central bank is widely expected to keep interest rates at their current low levels through the year, making protection insurance products less attractive to buyers, the analyst said.
The trend is set to deepen after the implementation of lower assumed rates in July, but rush sales beforehand might help cushion some of the negative impact, Hsieh said.
Furthermore, low protection coverage and strong demand among Taiwanese for savings products mean there is still satisfactory room for growth in certain insurance products, the analyst said.
Despite the lackluster earnings outlook, Taiwan Ratings does not expect the credit profile of its rated insurers to weaken in the coming year.
“We believe local life insurers’ sufficient liquidity, continued new business flows and adequate investment asset quality will help protect their credit profiles from modest volatility,” Hsieh said.
EXTRATERRITORIAL REACH: China extended its legal jurisdiction to ban some dual-use goods of Chinese origin from being sold to the US, even by third countries Beijing has set out to extend its domestic laws across international borders with a ban on selling some goods to the US that applies to companies both inside and outside China. The new export control rules are China’s first attempt to replicate the extraterritorial reach of US and European sanctions by covering Chinese products or goods with Chinese parts in them. In an announcement this week, China declared it is banning the sale of dual-use items to the US military and also the export to the US of materials such as gallium and germanium. Companies and people overseas would be subject to
DOLLAR CHALLENGE: BRICS countries’ growing share of global GDP threatens the US dollar’s dominance, which some member states seek to displace for world trade US president-elect Donald Trump on Saturday threatened 100 percent tariffs against a bloc of nine nations if they act to undermine the US dollar. His threat was directed at countries in the so-called BRICS alliance, which consists of Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran and the United Arab Emirates. Turkey, Azerbaijan and Malaysia have applied to become members and several other countries have expressed interest in joining. While the US dollar is by far the most-used currency in global business and has survived past challenges to its preeminence, members of the alliance and other developing nations say they are fed
TECH COMPETITION: The US restricted sales of two dozen types of manufacturing equipment and three software tools, and blacklisted 140 more Chinese entities US President Joe Biden’s administration unveiled new restrictions on China’s access to vital components for chips and artificial intelligence (AI), escalating a campaign to contain Beijing’s technological ambitions. The US Department of Commerce slapped additional curbs on the sale of high-bandwidth memory (HBM) and chipmaking gear, including that produced by US firms at foreign facilities. It also blacklisted 140 more Chinese entities that it accused of acting on Beijing’s behalf, although it did not name them in an initial statement. Full details on the new sanctions and Entity List additions were to be published later yesterday, a US official said. The US “will
COLLABORATION: The operations center shows the close partnership between Taiwan and Japan in the field of semiconductors, Minister of Economic Affairs J.W. Kuo said Tokyo Electron Ltd, Asia’s biggest semiconductor equipment supplier, yesterday launched a NT$2 billion (US$61.5 million) operations center in Tainan as it aims to expand capacity and meet growing demand. Its new Taiwan Operations Center is expected to help customers release their products faster, boost production efficiency and shorten equipment repair time in a cost-effective way, the company said. The center is about a five-minute drive from the factories of its major customers such as Taiwan Semiconductor Manufacturing Co’s (TSMC, 台積電) advanced 3-nanometer and 2-nanometer fabs. The operations center would have about 1,000 employees when it is fully utilized, the company
RSS