Mercuries Life Insurance Co (三商美邦人壽保險) said yesterday it aims to narrow the negative interest spread that is plaguing most domestic life insurers, but said there is no quick solution in turning around the interest-rate environment.
The medium-sized life insurer, a unit of Mercuries Group (三商企業), whose business interests include securities brokerage, asset management, retailing, food distribution and multimedia, made the statement during an investors conference ahead of its primary listing on the stock exchange slated for Dec. 18.
The initial public offering price is tentatively set at NT$18 per share with the insurer’s net worth about NT$15 per share, the company’s report showed.
Photo courtesy of Mercuries Life Insurance
“Established 20 years ago, the company has accumulated a smaller burden from negative interest spread, compared with older and larger peers,” Mercuries Life president and chief executive officer Roy Meng (孟嘉仁) said.
Life insurance policies sold a decade ago carry significantly higher assumed interest rates and pose heavy financial burdens on insurers, Meng said.
Borrowing costs became stuck around 2 percent after 2003 and dropped below that following the global financial crisis in 2008.
“Mercuries Life aims to tackle the issue, but there is no immediate fix short of a reverse in the low-interest rate environment,” Meng said.
Currently, the company is seeking to curb the spread through mortality and expense savings while pursuing higher yields, with negative spread standing between 80 to 100 basis points a year, he said.
The insurer posted NT$2.26 billion (US$77.53 million) in net profit for the first three quarters of the year, or earnings of NT$2.09 per share, up 26 percent from last year and ranking fourth among local peers, the report said.
The company may grow its net worth by NT$8.3 billion next month from its current NT$16.89 billion after its board approves plans to realize investment gains by shifting hold-to-maturity assets to available-for-sale accounts, Mercuries Life chief financial officer Winston Yang (楊棋材) said.
The insurer’s embedded value was sized at NT$48.97 billion as of last year, or NT$45.5 per share, next only to Cathay Life Insurance Co (國泰人壽) and Fubon Life Insurance Co (富邦人壽), Yang said.
With 13,015 employees, 91.1 percent of them sales agents, the company will focus on the sale of traditional protective insurance policies while short-term annuity products are more popular with the bancasurance channel, Meng said.
Mercuries Life has 2 million policyholders with over 3 million policies and commands a market share of 3.9 percent by assets, the report said.
The company is also interested in expanding in China and is in talks with potential Chinese partners on technology exports, chairman Danny Liu (劉中興) said.
Taiwan Ratings Corp (中華信評), the local arm of Standard & Poor’s, yesterday assigned a “twA+” rating to Mercuries Life with a stable outlook to reflect the company’s good liquidity and satisfactory mortality and loading surpluses.
The credit agency, however, raised concerns about the insurer’s moderate capitalization and ability to grow higher-margin products in Taiwan’s difficult operating environment.
A stock analyst at a leading local brokerage echoed the reservation, saying Mercuries Life will have to inject new capital if equities markets fall further and put pressure on its capital adequacy.
Tightened property investment requirements will further curtail the insurer’s asset allocation flexibility, the analyst said, giving a neutral rating to the company’s shares.
Shares in Mercuries Life ended down 0.57 percent to NT$17.4 on the smaller Emerging Stock Market yesterday, data showed.
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