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Taiwan’s Insurance coverage Business: A Story of Monetary Resilience

How the Taiwan insurance coverage market bounced again after the COVID-19 pandemic
Jeremy Kan

Picture: Getty Pictures/gorodenkoff

Chinese Version

Between 2022 and 2023, Taiwan’s insurance coverage business confronted unprecedented operational challenges and impacts. Notably, in Might 2022, the COVID-19 pandemic affected the property insurance coverage sector, leading to substantial claims losses from the extremely sought-after pandemic insurance coverage protection—a danger occasion that happens as soon as in a century.

Though the whole premium revenue from epidemic insurance policies was about NT$5.5 billion, the claims losses soared to greater than NT$270 billion. This determine represents roughly 49 occasions the premium revenue, an influence so intensive that the time period “loss ratio” barely encapsulates its magnitude.1 The declare losses incurred from payouts associated to the COVID-19 pandemic have depleted greater than a decade’s price of income within the property insurance coverage sector. Happily, shareholders had been well timed in capital injections, serving to property insurance coverage firms climate the monetary disaster COVID-19 introduced.2

Equally, the life insurance coverage sector confronted operational challenges beginning within the second half of 2022, primarily as a result of a considerable portion of the Taiwan life insurance coverage business’s funds had been invested within the U.S. bond market. Consequently, the U.S. Federal Reserve’s speedy rate of interest hikes adversely affected the valuation of the monetary belongings Taiwanese life insurance coverage firms held in U.S. bonds, inflicting short-term volatility in some firms’ internet values.

Moreover, the information relating to U.S. rate of interest will increase prompted some policyholders, significantly these delicate to rate of interest adjustments, to give up their unique insurance coverage contracts to put money into monetary merchandise with comparatively greater returns. The irregular variety of surrenders within the quick time period not directly affected the each day liquidity of life insurance coverage firms, thereby rising liquidity dangers. These two elements led to public skepticism in regards to the monetary stability of life insurance coverage firms. Nonetheless, these issues have been resolved with acceptable responses from regulatory authorities and the life insurance coverage business.

Monetary Influence on the Taiwan Insurance coverage Business and Monetary Resilience

In gentle of such once-in-a-century challenges, an evaluation of previous asset and legal responsibility indicators within the Taiwan insurance coverage business reveals the formidable penalties. As proven in Figures 1 and a pair of, the property insurance coverage business started to really feel the influence of serious losses from epidemic insurance coverage insurance policies in Might 2022, with shareholder fairness experiencing impairment from Q2 2022 and regularly recovering by Q3 2023. The epidemic insurance coverage occasion is taken into account an exceedingly uncommon state of affairs, and it’s estimated that shareholder fairness ought to return to 2021 ranges by 2024.

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Determine 1: The Stability Sheet of the Taiwan Insurance coverage Business (in $NT Hundreds of thousands)

Month/Yr Nonlife Insurance coverage Life Insurance coverage
Belongings Liabilities Equities Complete Belongings Liabilities Equities
2021 455,091 294,315 160,775 33,342,137 30,619,959 2,722,178
March 2022 457,096 300,395 156,701 33,533,941 31,340,910 2,193,031
June 2022 485,664 382,931 102,733 32,921,716 31,666,199 1,255,517
Sept. 2022 457,602 380,850 76,752 33,612,011 32,783,498 828,514
Dec. 2022 451,979 393,122 58,857 33,623,783 32,036,049 1,587,734
March 2023 452,221 378,228 73,993 33,937,001 32,033,602 1,903,399
June 2023 475,206 358,948 116,258 34,717,772 32,667,997 2,049,775
Sept. 2023 480,775 358,760 122,016 35,189,721 33,225,083 1,964,639

Supply: Taiwan Insurance coverage Institute

Determine 2: The Stability Sheet of the Taiwan Insurance coverage Business (Relative to 2021 Index)

Month/Yr Nonlife Insurance coverage Life Insurance coverage
Belongings Liabilities Equities Complete Belongings Liabilities Equities
2021 1.000 1.000 1.000 1.000 1.000 1.000
March 2022 1.004 1.021 0.975 1.006 1.024 0.806
June 2022 1.067 1.301 0.639 0.987 1.034 0.461
Sept. 2022 1.006 1.294 0.477 1.008 1.071 0.304
Dec. 2022 0.993 1.336 0.366 1.008 1.046 0.583
March 2023 0.994 1.285 0.460 1.018 1.046 0.699
June 2023 1.044 1.220 0.723 1.041 1.067 0.753
Sept. 2023 1.056 1.219 0.759 1.055 1.085 0.722

Supply: Taiwan Insurance coverage Institute

Equally, the life insurance coverage business felt the influence of steady U.S. rate of interest hikes from March 2022 (see Figures 1, 2 and three), with shareholder fairness affected from Q2 2022 and solely regularly recovering by Q1 2023. Whether or not it may return to the degrees of 2021 stays to be monitored and noticed.

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Determine 3: Results of U.S. Federal Reserve Curiosity Charges on Taiwan’s Curiosity Charges

U.S. Curiosity Charge Rise Taiwan Curiosity Charge Rise
Date BP Charges % Date BP
03/17/2022 25 0.25~0.50 03/17/2022 25
05/04 50 0.75~1.00
06/16 75 1.50~1.75 06/16 12.5
07/28 75 2.25~2.50
09/22 75 3.00~3.25 09/22 12.5
11/03 75 3.75~4.00
12/15 50 4.25~4.50 12/15 12.5
02/02/2023 25 4.50~4.75
03/23 25 4.75~5.00 03/23/2023 12.5
05/04 25 5.00~5.25
07/27 25 5.25~5.50

Supply: Taiwan Insurance coverage Institute

Nonetheless, regardless of such important operational shocks, each the property and life insurance coverage industries have maintained their whole belongings or shareholder fairness above a sure stage, demonstrating the commendable monetary resilience of Taiwan’s insurance coverage business.

The Taiwan Insurance coverage Business’s Improvement Submit-Pandemic and Curiosity Charge Hikes

The previous two years have been transformative for Taiwan’s insurance coverage business, together with challenges from the COVID-19 pandemic, geopolitical influences, an getting old and low-birth-rate inhabitants construction, and varied emerging risks. In response to those adjustments, insurance coverage firms have reevaluated their long-term enterprise methods, strengthening relationships and belief with regulatory authorities and most of the people.

For the property insurance coverage business, because the influence of the pandemic eased and enterprise improvement resumed, it coincided with the worldwide reinsurance market dealing with substantial losses as a result of excessive local weather occasions. This instantly impacts the worldwide reinsurance market’s underwriting capability, inflicting reinsurance charges to rise sharply. This additionally instantly will increase the operational prices for Taiwan’s property insurance coverage business, prompting insurers to lift premium charges and leading to a short-term enhance in market premium revenue.

This market improvement, pushed by elevated insurance coverage prices, additionally harbors a possible draw back, in my estimation. With reinsurance capability tightening and premium charges rising, many important industries in Taiwan, together with the expertise and manufacturing sectors, could discover it difficult to acquire satisfactory insurance coverage safety or face elevated operational prices. This might lead firms to reassess their danger administration plans or improve injury prevention capabilities to scale back insurance coverage uptake. Such a cycle in the end may have an effect on the property insurance coverage business’s enlargement.

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In response to rising dangers equivalent to local weather change, geopolitical developments and technological developments, I imagine firms may benefit by strengthening or implementing danger administration insurance policies and contemplating methods to make the most of monetary expertise to boost operational effectivity. Optimizing inside operational price advantages to counter the elevated prices of exterior reinsurance or different sources is essential, for my part. This might assist mitigate the influence of rising client charges and improve company competitiveness.

Though the continued U.S. rate of interest hikes nonetheless exert affect, a long-term evaluation of Taiwan life insurance coverage firms’ funding methods reveals that the technique behind U.S. bond investments is often to carry to maturity. Due to this fact, when rates of interest stabilize, the asset valuation ought to return to regular market ranges. In my opinion, the long-term substantial influence of this wave of curiosity hikes ought to be restricted. Moreover, with Taiwan’s impending adoption of Worldwide Monetary Reporting Commonplace (IFRS) 17, the valuation of liabilities will transition to market honest worth, thereby offsetting a few of the impairment impacts on belongings as a result of rate of interest hikes.

Life insurance coverage firms are making ready for Taiwan’s official alignment with IFRS 17 and the brand new era solvency system (ICS 2.0) by 2026. Key operational subjects within the Taiwan life insurance coverage business for the subsequent few years embrace asset-liability administration (ALM) and product construction transformation, with every life insurance coverage firm’s response technique and improvement positioning being essential, in my opinion.

As of the second half of 2023, property and life insurance coverage firms had resumed their common operational tempo and strong monetary buildings. Waiting for Q3 and This autumn of 2024, I imagine the Taiwan insurance coverage business may have a promising near the 12 months.

Jeremy Kan is chairperson of the Taiwan Insurance coverage Institute.
Masu Ma is chair of the SOA Asia Editorial Sub-Committee, was a contributing editor for this text.

Statements of truth and opinions expressed herein are these of the person authors and should not essentially these of the Society of Actuaries or the respective authors’ employers.

Copyright © 2024 by the Society of Actuaries, Chicago, Illinois.

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