Companies have a ‘very low’ likelihood of boosting funding returns within the subsequent two years, making it arduous for them to enhance their capitalization, an analyst stated
By Chen Cheng-hui / Employees reporter
Taiwanese life insurers wanting to enhance their capital construction face robust headwinds this yr, given extended low rates of interest and financial impacts derived from commerce protectionism and the COVID-19 pandemic, Taiwan Rankings Corp (中華信評) stated on Friday.
The native life insurance coverage sector additionally nonetheless has excessive asset dangers and such dangers are prone to market volatility, the native arm of Normal & Poor’s World Rankings stated.
Since final yr, main monetary holding corporations — together with CTBC Monetary Holding Co (中信金控), Cathay Monetary Holding Co (國泰金控) and Shin Kong Monetary Holding Co (新光金控) — have introduced plans to lift recent capital to bolster the monetary energy of their banking and insurance coverage subsidiaries.
This got here as monetary holdings have been confronted with elevated market volatility as a result of US-China commerce dispute and implementation of latest Worldwide Monetary Reporting Requirements.
Cathay Life Insurance coverage Co (國泰人壽), as an illustration, reported that its capital place was strong, with a risk-based capital ratio of 346 p.c as of Dec. 31 final yr, up from 292 p.c on the finish of 2018, and that its risk-bearing skill improved with the online worth-to-assets ratio rising to 9.2 p.c final yr from 2.6 p.c a yr earlier.
Whereas stronger financial exercise and larger stability in capital markets had helped life insurers shore up their capital buffers final yr, the sector’s common capitalization stays barely weaker than in 2017, Taiwan Rankings stated, including that there are extra challenges this yr for insurers given elevated credit score threat as a result of COVID-19.
“We anticipate elevated draw back threat for Taiwan life insurers, given the probability of larger capital market volatility over the approaching few months,” Taiwan Rankings credit score analyst Patty Wang (王珮齡) stated in a information launch. “Powerful working circumstances, weak funding returns and continued excessive asset threat pose vital headwinds for insurers to maintain the development in capital and earnings made in 2019.”
The scores company stated that capitalization has lengthy been a key ranking weak spot for the life insurance coverage sector, whereas insurers nonetheless carry vital asset dangers.
In the meantime, the long-term mismatch between insurers’ property and liabilities is a legacy problem, which might result in increased losses if market costs expertise bigger fluctuations, hindering their efforts to revive capital ranges, it stated.
“Regardless of legacy points affecting the sector’s capitalization, we consider insurers’ efforts to gradual enterprise development and make use of extra inflexible capital guidelines might considerably offset these draw back dangers,” Wang stated. “Nonetheless, the very low probability of bettering funding returns over the approaching two years poses a big problem for insurers to enhance their capitalization.”
Taiwan Rankings stated that its evaluation of the life insurance coverage sector’s capitalization and earnings ranges from truthful to passable for this yr and subsequent yr.
Nevertheless, which means companies within the sector are lagging behind most of their Asia-Pacific friends, it stated.
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