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Taiwan's life insurers boost investment-linked sales as interest rates stay low

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Taiwan's life insurers boost investment-linked sales as interest rates stay low

Ongoing low interest rates have prompted more Taiwanese life insurers to focus on the sale of investment-linked insurance products, returns on which are linked to financial market performance.

Statistics from Taiwan's Life Insurance Association show that among 22 life insurers in Taiwan, first-year premium for investment-linked insurance products grew 66.1% year over year in the first half, compared with a 2.6% decline in traditional insurance products. The share of investment-linked policies in first-year premiums rose to 26.0% from 17.1% in the first half of 2017.

Taiwan's benchmark interest rate has been 1.375% since 2016, one of the lowest in Asia excluding Japan. That has left Taiwanese life insurers fighting an uphill battle in attempting to profit from the reinvestment of premiums from traditional products, which offer steady returns to policyholders.

Low rates also constrain the interest rates that can be offered to holders of those traditional policies, reducing demand, observed a senior product manager at Cathay Life Insurance Co. Ltd., the biggest life insurer by market share in Taiwan. He declined to be named because he is not authorized to talk to media.

Yields on investment-linked insurance policies in Taiwan are linked to financial market performance, especially Taiwan and U.S. stock markets, explained Johnson Chen, deputy secretary general at the Life Insurance Association. Policyholders bear the risk of losses and pay commission fees to insurers.

Given the solid performance of both the Taiwanese and U.S. markets since 2016, along with other factors, investment-linked policies are becoming increasingly popular in Taiwan, Chen said in an interview.

The TAIEX index of all Taiwanese stocks was up 1.8% in the first half, while the U.S. S&P 500 average was up 1.7%, and both have risen further in the third quarter. By contrast, Hong Kong's Hang Seng Index and the Japanese Nikkei 225 both fell during the first half and have dropped further since.

"Life insurers are willing to proactively push the sales of investment-linked policies when financial markets perform well," said Tom Liang, a Taipei-based analyst with MasterLink Securities Corp.

Nan Shan Life Insurance Co. Ltd., which ranks second by market share, recorded gross written premium from investment-linked products of NT$14.7 billion in the first quarter alone, more than the NT$13.9 billion it booked for the entirety of 2017.

"Investment-linked policies are attractive to customers when interest rates are low," said the Cathay Life senior manager. "Insurers can also earn commissions without taking reinvestment risks."

A spokeswoman at the Taiwan branch of Cardif Assurance Vie, a wholly owned subsidiary of France's BNP Paribas Cardif, told S&P Global Market Intelligence that Taiwanese customers favor wealth management-type products, including investment-linked, especially in a low rate environment. She said the insurer's strategy in Taiwan to focus on selling investment-linked policies is "purely market-driven."

Life insurers with European parents have always tended to prefer investment-linked policies in Taiwan, Chen said, adding that these foreign-owned companies "caught the trend well" in the first half and thus grabbed market share from large local players.

Foreign-owned life insurers in Taiwan usually rely on banking distribution channels and have few agents, and end up selling more investment-linked policies than traditional products.

In the first half, the six largest life insurers — Cathay Life, Nan Shan Life, Fubon Life Insurance Co. Ltd., China Life Insurance Co. Ltd., Taiwan Life Insurance Co. Ltd. and Shin Kong Life Insurance Co. Ltd. — also increased sales of investment-linked policies, but they continue to also focus on other types of products, Chen added.

The top six insurers' overall market share dipped to 74.7% of gross written premium from 75.5%, according to Taiwan Insurance Institute statistics. Their share of first-year premiums, however, dipped further, to 72.8% from 75.4%.

As of Aug. 14, US$1 was equivalent to NT$30.84.