Posted on Apr 23, 2012 by Sergio Ulloa
Taiwan's largest life insurance companies have begun the 2012 business year well, overcoming their small and over-saturated home market to post solid first quarter premium growth.
New statistics released by the Life Insurance Association of the Republic of China (LIA-ROC) this week show that Taiwan's life insurance sector reaped a cumulative NT$310.6 billion (US$10.5 billion) in first-year premium (FYP) revenues during the first quarter of 2012, a record amount for this quarterly reporting period. Key to this record total was the increased involvement of banks in selling protection, savings and investment products in Taiwan.
According to the Taiwan Economic News, over 60 percent of the new premiums recorded during the first quarter were generated through bancassurance channels, which themselves posted a 37 percent growth rate over the corresponding quarterly period in 2011. Bank sales continue to be the most popular distribution channel for life insurance products in Taiwan. The LIA-ROC data showed that banks on the island registered NT$67.6 billion (US$2.29 billion) in FYP revenues during March, equal to 59 percent of the insurance industry's total for the month.
Taiwan's life insurance sector has also benefited from strong efforts made by the market's three largest insurers, Cathay Life Insurance Co., Fubon Life Assurance Co. and Nan Shan Life Insurance Co., to improve their operating performance over the past year. In addition to increased bancassurance development, it has been the continued ability of these three archrival companies to push and sell more conventional insurance products which has kept the Taiwanese market afloat. The LIA-ROC data showed that Cathay Life has led the market this year, recording NT$77.1 billion (US$2.62 billion) in FYP revenues during the first quarter 2012. Of this amount, 47 percent, or NT$36.3 billion (US$1.23 billion), came from bank sales. Second place went to Fubon Life with NT$72.8 billion (US$2.47 billion) in FYP, of which 79 percent, or NT$57.8 billion (US$1.96 billion) came from bank sales. Nan Shan Life meanwhile finished third with NT$42 billion (US$1.42 billion), with 38 percent of which, or NT$16.1 billion (US$550 million), was accounted for by bank sales.
Based on the NT$310.6 billion (US$10.5 billion) FYP earned in the first quarter, market analysts now anticipate that Taiwan's domestic life insurance industry revenues could exceed NT$600 billion (US$20.35 billion) during the first half of 2012, of which NT$360 billion is estimated to come through bank sales. While much of the work in attaining these ambitious growth targets remains to be done, that such a positive forecast is being made should be welcome news to the Taiwanese market after a difficult couple of years.
Taiwan's insurance sector has grown stagnant in the aftermath of the global economic crisis, with the market restricted by difficult operating conditions and previous business secured at binding interest rates which are no longer sustainable for many firms. According to LIA-ROC's annual report, only 16 of the country's 30 active life insurance companies finished 2011 in the black, with the remaining 14 all incurring annual operating losses. These insurers also saw their first-year premium (FYP) revenues drop by 14 percent to NT$995.1 billion (US$33.75 billion) and their overall revenues fall by 4 percent year-on-year to NT$2.1983 trillion. The life market, as a whole, only registered NT$425 million (US$14.4 million) in gains during 2011, a figure which saw the domestic industry's net worth shrink by an estimated NT$100 billion (US$3.39 billion) for the year.
Much of this decline can be attributed to moves made by Taiwan's chief market regulator, the Financial Supervisory Commission (FSC), to reduce the sale of interest-sensitive annuity and wholesale endowment insurance products by insurers to policyholders. Taiwanese consumers tend to favour these short-term insurance products as savings instruments as they tend to offer higher interest yields than conventional bank savings accounts. Having so many clients tied to the performance of the global equity market poses its own risks however, and the FSC decided it was time to act and restrict this trade. Domestic insurers have certainly listened, sales of interest-variable products dropped by 70 percent in 2011. Thus as life insurers place more emphasis on longer-tenor insurance products, sales of shorter term annuity products drop and so do earnings.
The LIA-ROC data revealed that Fubon Life Assurance finished 2011 as Taiwan's most profitable life insurer with NT$10.1 billion (US$340 million) in after-tax earnings. They were then followed by Nan Shan Life Insurance with earnings of NT$4.895 billion (US$170 million), and China Life Insurance who finished third with NT$4.2 billion (US$140 million). Shin Kong Life, meanwhile, was the fourth most-profitable life insurer in Taiwan with NT$2.47 billion (US$80 million) in after-tax earnings during 2011, but had NT$36.5 billion (US$1.24 million) in unrealized losses in financial assets - the highest among all domestic life insurers last year. In terms of FYP revenues, Cathay Life Insurance Co. finished first by scoring NT$255.5 billion (US$8.67 billion) in new premiums during 2011, followed by Fubon Life Assurance with NT$222.8 billion (US$7.56 billion), and then China Life Insurance Co. with NT$91.7 billion (US$3.11 billion).
As cross-strait economic ties with Mainland China improve expect these numbers to grow further. Moves made by both countries' regulatory authorities
in recent years have worked to make business in the world's second largest economy much more accessible for Taiwanese businesses in particular. The country's life insurers can now afford to take more risk with their overseas investment strategies. Expanding into the massive Mainland insurance market should work to both improve their competitiveness internationally and maximize shareholder returns at home.
Founded on Novenber 16, 1998, The Life Insurance Association of the Republic of China (LIA-ROC) works to investigate, research, analyze, oversee and promote the interests of life insurance companies in Taiwan
Taiwan's Financial Supervisory Commission (FSC) was founded on July 1st 2004 to promote the interests of the country's financial services sector. The FSC now works to oversee Taiwan's banking, securities and insurance sectors, and acts as a single regulator for all of these financial service industries.