Taiwanese life insurers might continue to shift away from savings policies and New Taiwan dollar-based products as they prepare for the implementation of new international accounting rules and a new solvency regime, Fitch Ratings said on Thursday.
The move toward a more favorable product mix was reflected in the pickup of foreign-currency first-year premiums (FYP) to 52 percent of total FYPs in the first five months of the year, while the ratio of traditional annuity and interest-variable life FYPs softened to 49 percent.
The industry’s FYPs dropped 34 percent year-on-year in the first six months as lower policy reserve interest rates for new policies and the COVID-19 pandemic dampened new business generation, it said.
Fitch also believes Taiwanese life insurers would remain cautious over dividend payouts and capital management to meet new capital adequacy requirements.
That explained why only one Taiwanese life insurer paid cash dividends last year, compared with five in 2016 to 2018, it said.
The ratio of saving products is likely to drop further partly following the implementation of a minimum ratio of death benefit to policy value, Fitch said.
Local life insurers have also focused on foreign-currency policies as downward revisions to policy interest rates raised reserve burdens and insurers made foreign investments backed by foreign-currency policies, mainly in US dollars, to reduce hedging needs, Fitch said.
Such adjustments should help local insurers reduce the currency mismatch between assets and liabilities over the long term, it said.
No life insurers breached the new net worth ratio requirement last year, but the financial regulator might monitor the capital adequacy requirement more frequently in light of growing financial market volatility in the first half, it said.
Stricter oversight might spur some life insurers to bring forward their capital replenishment plans, Fitch said.
Taiwanese life insurers might reduce their investment and asset risks to comply with new product and capital adequacy rules while volatility in financial markets builds up, the ratings agency said.
However, the recent tumble in their foreign-exchange valuation reserve might constrain Taiwanese life insurers’ foreign investments, at least in the short term, Fitch said.
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