Taiwan's life insurers shift products ahead of new solvency

The segment will likely prioritise foreign currency over the local dollar.

Taiwanese life insurers are expected to further move away from savings dollars and Taiwan dollar policies in preparation for a new solvency regime, a Fitch Ratings report said.

The segment will likely emphasise foreign currency over local currency policies as mid-year downward adjustments to policy interest rates increased their reserve burden and they made foreigncurrency-backed investments to cut hedging needs, which would help the segment minimise currency mismatch between assets and liabilities in the long run.

The 49% decline in the combined proportion of traditional annuity and interest variable life first-year premiums in H1 2020 reflected the change in product mix, analysts said.

In addition, the segment will likely keep an eye on their earnings distribution and capital management strategy ahead of the implementation of the solvency regime come 2026. The additional capital adequacy requirement came down last April with the use of net worth ratios in the most recent two half-year ends as an extra measure to risk-based capital ratios.

Moreover, life insurers will likely slash their investment and asset risks as the recent market volatility and interest rate freefall will weigh down on actual investment returns, the report concluded.