Taiwan: Fall in life insurance premiums expected to slow in next 12-18 months

According to Fitch Ratings, the decline in life insurance premiums in Taiwan is expected to slow down over the next 12-18 months. This follows a challenging period for the industry characterized by plunging premiums and net income amid US interest rate hikes. However, the decline in premiums has moderated to 11% in the first half of 2023, compared to a 21% drop in 2022. Market sentiment has weakened due to volatile financial market conditions and tighter regulations. As a result, life insurers are expected to shift their sales focus towards health and accident policies to improve profitability. Furthermore, domestic insurers are preparing for the implementation of Taiwan’s Insurance Capital Standard in 2026, which aims to better reflect risks. However, an unfavorable economic environment has weakened insurers’ organic capital growth, leading them to issue subordinated debt to rebuild their equity base.

Overview

In this comprehensive article, we will discuss the current state of Taiwan’s life insurance industry, specifically focusing on the decline in premiums and the reasons behind it. We will also explore the expansion of health insurance in Taiwan and its impact on the industry. Additionally, we will discuss the sales focus on health and accident policies and the implementation of the Insurance Capital Standard. Finally, we will touch upon the capital pressure faced by insurers and the issuance of subordinated debt.

Background

Challenging years for Taiwan’s life insurance industry

The life insurance industry in Taiwan has faced several challenges in recent years. The industry has experienced a significant decline in premiums, impacting the overall profitability of insurers. These challenging years have been characterized by plunging premiums from the 2019 level and net income amid US interest rate hikes.

Decline in premiums

The decline in premiums has been a cause for concern in Taiwan’s life insurance industry. In 2022, premiums experienced a 21% plunge, reflecting the market sentiment weakening in volatile financial market conditions. However, there has been a slowdown in the decline of premiums in the first half of 2023, with a decrease of 11%.

Slowdown in premium decline in 1H2023

The slowdown in the decline of premiums in the first half of 2023 is an encouraging sign for Taiwan’s life insurance industry. This moderation in the decline can be attributed to several factors, including the stabilizing market sentiment and a shift away from unprofitable savings-type products due to tighter regulation.

Reasons for decline in premiums

There are several reasons behind the decline in premiums in Taiwan’s life insurance industry. One significant factor is the shift in market preferences, with consumers opting for health and accident policies over traditional savings products. Additionally, the appreciation of the US dollar has led to a decrease in new business from foreign currency-denominated policies, as policy prices have risen.

Expansion of health insurance

Despite the decline in premiums, the health insurance sector in Taiwan has experienced significant growth. This expansion can be attributed to several factors, including Taiwan’s rapidly aging population, rising awareness of health risks, and increasing healthcare needs. As a result, life insurers are shifting their sales focus to health and accident policies to improve profitability.

Sales Focus on Health and Accident Policies

In order to adapt to the changing market dynamics, life insurers in Taiwan are increasingly focusing on selling health and accident policies. The shift away from traditional savings products and towards health-related policies is driven by the potential for higher profitability in this sector. With Taiwan’s aging population and increasing healthcare needs, there is a growing demand for insurance coverage in this area.

Implementation of Insurance Capital Standard

To ensure the stability of the life insurance industry, Taiwan is implementing the Insurance Capital Standard. This new solvency framework aims to better reflect the risks faced by insurers and improve overall financial stability. The implementation of this standard is expected to take place in 2026, and domestic life insurers are preparing for its implementation.

Capital Pressure and Issuance of Subordinated Debt

The challenging economic environment has weakened insurers’ organic capital growth, leading to capital pressure. In order to rebuild their equity base, many life insurers in Taiwan have resorted to issuing subordinated debt. This allows them to strengthen their financial position and meet the more stringent solvency requirements under the new Insurance Capital Standard. Fitch Ratings believes that many insurers will face capital pressure and will need to take steps to address this issue.

Conclusion

In conclusion, Taiwan’s life insurance industry has faced challenging years, with a decline in premiums impacting profitability. However, there are signs of moderation in the decline, and the focus on health and accident policies presents an opportunity for improved profitability. The implementation of the Insurance Capital Standard and the issuance of subordinated debt are steps being taken to address the capital pressure faced by insurers. Overall, Taiwan’s life insurance industry is navigating through a period of change and adapting to meet the evolving needs of the market.