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Taiwan life insurers’ record profits may not last, analysts say

Taiwan Life
By Hui Ching-hoo   
August 13, 2020

Taiwan’s top life insurers may have recorded higher profits in just seven months this year than they did in all of 2018 and 2019, but analysts are sceptical whether this can continue given the increasingly unstable global markets.

The island’s six largest life insurance companies earned a combined profit of NT$126.7 billion (US$4.3 billion) between January and July 2020, a 26.57% increase from NT$100.1 billion in 2019, and 41.88% from NT$89.3 billion in 2018, according to a report in Taiwan’s Commercial Times on August 12.

In July alone, it says the six largest firms – Cathay Life Insurance, Fubon Life Insurance, Taiwan Life Insurance, Nan Shan Life Insurance, Skin Kong Life Insurance, and China Life Insurance – posted a record monthly combined profit of NT$40.3 billion.

The jump in profits was mainly due to growth of their core insurance businesses and investment returns, according to Jenny Chen, an insurance industry analyst at the Taiwan Institute of Economic Research.

She says the equity portfolios of the insurers recovered as stock markets bounced back after they were hammered by the coronavirus pandemic in the second quarter.

“Taiwanese stock market may still have room for growth in the second half, but the global market condition is getting tougher. The insurers’ overseas investments could be affected by geopolitical factors such as the US presidential election,” Ms. Chen tells Asia Asset Management (AAM).

She expects profits to be pressured by market uncertainties as well as lower margins from the insurance business after measures introduced in July by Taiwan’s financial regulator, such as a minimum fee threshold for life policies.

Low US treasury yields and recent declines in foreign exchange valuation reserves that Taiwanese insurers must hold to hedge against currency risk may limit their foreign investments in the short term, according to Anthony Lam, an associate director for insurance at Fitch Ratings.

“Looking forward, the countercyclical adjustment to risk charges for equities under [global] risk-based capital framework will likely limit any further addition to equities…Overall, Taiwan’s life insurers are expected to reduce their investment and asset risks,” Mr. Lam tells AAM.

There are 26 life insurers in Taiwan with combined assets of around NT$29.3 trillion as of March 2020, according to figures from the Financial Supervisory Commission.