Taiwan’s life insurers are expected to continue their shift away from savings products and Taiwan dollar policies as they prepare for IFRS17 and the start of a new solvency regime, says Fitch Ratings.
The move towards a more favourable product mix was reflected in the increase of foreign-currency (FC) first-year premiums (FYP) to 52% of total FYPs in 5M2020 as the share of traditional annuity and interest-variable life FYPs in the total fell to 49% in 1H2020. FC products help to narrow the currency mismatch in assets and liabilities.
In its “Taiwan Life Insurance Dashboard: August 2020” report, Fitch thinks Taiwan’s life insurers will continue to emphasise foreign-currency over Taiwan dollar policies as mid-year downward adjustments to policy interest rates raised their reserve burden and they made foreign investments backed by their foreign-currency policies, mainly in US dollars, to reduce hedging needs. This will help Taiwanese life insurers reduce the currency mismatch between their assets and liabilities in the long term.Fitch believes the life insurers will remain cautious in their earnings distribution and capital management strategy ahead of the new solvency regime that will be fully implemented in 2026. The requirement for additional capital adequacy took effect in April 2020 with the use of net worth ratios in the most recent two half-year ends as an extra measure to risk-based capital ratios in determining their capital adequacy.Fitch expects Taiwan’s life insurers to reduce their investment and asset risks. The recent financial market volatility and fall in interest rates will continue to put pressure on and add volatility to their actual investment returns. The recent fall in their foreign-exchange valuation reserve may constrain Taiwanese life insurers’ foreign investments, at least in the short term, as they have less room to adjust their foreign-currency hedging.