An upcoming regulatory change over the premium structure of insurance policies might have mixed effects on banks and life insurers, an analyst said.
The Financial Supervisory Commission (FSC) is to implement a change, tightening its control on the structure of premium loading on life insurance products to contain runaway costs.
Life insurers rely on banks’ sales channels and large clientele bases to sell and promote their policy products at high costs in the form of customer discounts, bonuses, commissions and other fees.
Bancassurance fees amount to about 5 percent of an insurance policy, Life Insurance Association of the ROC (壽險公會) data showed, while regulators intend to lower the figure to 3.5 percent to contain costs.
The change is likely to benefit companies such as China Life Insurance Co Ltd (中國人壽保險) and Fubon Life Insurance Co (富邦人壽), as 59 percent and 38 percent of their life products, respectively, are sold via external bank channels, Yuanta Securities Investment Consulting Co (元大投顧) analyst Peggy Shih (施姵帆) said in a note published on Monday last week.
Banks’ commissions amount to 15 percent of total premiums for some regular pay policies, and 2 to 5 percent of single pay policies, Shih said.
“Commission for sales channels accounts for the highest additional policy expense rate,” Shih said.
To cope with high sales commissions, insurers charge their customers a premium loading by setting an expense rate in their policies, which averages about 3 to 3.5 percent for regular pay policies and 2 to 3 percent for single-pay policies.
Despite the high rates, insurers remain willing to sell single-pay products with negative loading margins, because the interest margins of those products are still profitable at about 1 percent, Shih said.
She said that insurers are able to compensate for the negative loading margin, as they are able to generate investment return rates of 3.2 percent against the 2.24 percent required interest rate for policy holders.
Banks are expected to see a dip in income from wealth management fees income following the change, adding challenges to the narrowing net interest margins following successive rate cuts by the central bank, Shih said.
Banking-focused financial companies that sell more single-pay policy products, such as CTBC Financial Holding Co (中信金控), are facing a 2 to 8 percent impact in its pre-tax banking profits, she said.
The effect is lessened for banking subsidiaries of life insurance-centric financial groups, such as Fubon Financial Holding Co (富邦金控), which also operates Taipei Fubon Commercial Bank (台北富邦銀行), she added.
PATENTS: MediaTek Inc said it would not comment on ongoing legal cases, but does not expect the legal action by Huawei to affect its business operations Smartphone integrated chips designer MediaTek Inc (聯發科) on Friday said that a lawsuit filed by Chinese smartphone brand Huawei Technologies Co (華為) over alleged patent infringements would have little impact on its operations. In an announcement posted on the Taiwan Stock Exchange, MediaTek said that it would not comment on an ongoing legal case. However, the company said that Huawei’s legal action would have little impact on its operations. MediaTek’s statement came after China-based PRIP Research said on Thursday that Huawei filed a lawsuit with a Chinese district court claiming that MediaTek infringed on its patents. The infringement mentioned in the lawsuit likely involved
Taipei is today suspending work, classes and its US$2.4 trillion stock market as Typhoon Gaemi approaches Taiwan with strong winds and heavy rain. The nation is not conducting securities, currency or fixed income trading, statements from its stock and currency exchanges said. Authorities had yesterday issued a warning that the storm could affect people on land and canceled some ship crossings and domestic flights. Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) expects its local chipmaking fabs to maintain normal production, the company said in an e-mailed statement. The main chipmaker for Apple Inc and Nvidia Corp said it has activated routine typhoon alert
GROWTH: TSMC increased its projected revenue growth for this year to more than 25 percent, citing stronger-than-expected demand for AI devices and smartphones The Taiwan Institute of Economic Research (TIER, 台灣經濟研究院) yesterday raised its forecast for Taiwan’s GDP growth this year from 3.29 percent to 3.85 percent, as exports and private investment recovered faster than it predicted three months ago. The Taipei-based think tank also expects that Taiwan would see a 8.19 percent increase in exports this year, better than the 7.55 percent it projected in April, as US technology giants spent more money on artificial intelligence (AI) infrastructure and development. “There will be more AI servers going forward, but it remains to be seen if the momentum would extend to personal computers, smartphones and
Catastrophic computer outages caused by a software update from one company have once again exposed the dangers of global technological dependence on a handful of players, experts said on Friday. A flawed update sent out by the little-known security firm CrowdStrike Holdings Inc brought airlines, TV stations and myriad other aspects of daily life to a standstill. The outages affected companies or individuals that use CrowdStrike on the Microsoft Inc’s Windows platform. When they applied the update, the incompatible software crashed computers into a frozen state known as the “blue screen of death.” “Today CrowdStrike has become a household name, but not in