Slowing earnings by insurers have continued to drag on the nation’s top financial companies, while earnings by banks have remained resilient, results from last quarter showed.
As the US Federal Open Market Committee (FOMC) grows more sympathetic to views of dimmed long-term economic prospects, it is likely to slow the pace of planned rate hikes from four times to twice this year, Daiwa Capital Markets said.
“A more dovish [US Federal Reserve] Fed implies an upward shift of the yield curve becoming less likely in the near term. As a result, domestic insurers will be compelled to increase their positions in riskier assets in an effort to sustain their investment yields,” Daiwa analyst Christie Chien (簡民惠) said in a note last month.
Riskier assets include equities and bonds with lower ratings, Chien said.
Although higher capital gains could be realized by insurers as global financial markets stabilize, Chien said that these short-term windfalls should not be seen as a fundamental improvement.
“The FOMC will eventually need to normalize its monetary policy. Therefore, the anticipated macro tailwinds for insurers still exist, but it could take more time to materialize,” Chien said.
Apart from volatile global markets, rising upfront fees have dampened insurers’ earnings as policy product sales expand.
Leading its domestic peers, Fubon Financial Holding Co (富邦金控) reported that its net income last quarter fell 55.52 percent annually to NT$8.91 billion (US$275.10 million), while Fubon Life Insurance Co (富邦人壽), the company’s primary life insurance subsidiary and most profitable unit, saw its earnings drop 88.31 percent annually to NT$2.73 billion.
Cathay Financial Holding Co (國泰金控), ranked second, saw its earnings drop 53.43 percent annually to NT$8.4 billion, with its life insurance arm, Cathay Life Insurance Co (國泰人壽), recording earnings of NT$2.73 billion, 78.01 percent lower than a year ago.
In contrast, Taipei Fubon Commercial Bank (台北富邦銀行) recorded a 0.66 percent annual gain in net income to NT$4.9 billion, while Cathay United Bank Co (國泰世華銀行) posted a 1.99 percent annual gain in net income to NT$5.65 billion.
Softening insurance earnings are most pronounced in Shin Kong Financial Holding Co (新光金控), which reported a net loss of NT$2.56 billion in the first quarter of this year, offsetting profit contribution of NT$1.07 billion by Shin Kong Commercial Bank (新光銀行).
In January, Shin Kong Life Insurance Co (新光人壽) incurred losses of NT$3.95 billion, as it trimmed its under-performing equities positions.
Since then, the troubled insurer has bounced back into the black to post profits of NT$69 million in February and NT$221 million last month.
Shin Kong Financial posted net income of NT$645 million last month, compared with a net loss of NT$3.48 in January.
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