Taiwan’s Insurance Industry: A Story of Financial Resilience

How the Taiwan insurance market bounced back after the COVID-19 pandemic Jeremy Kan
Photo: Getty Images/gorodenkoff

Chinese Version

Between 2022 and 2023, Taiwan’s insurance industry faced unprecedented operational challenges and impacts. Notably, in May 2022, the COVID-19 pandemic affected the property insurance sector, resulting in substantial claims losses from the highly sought-after pandemic insurance coverage—a risk event that occurs once in a century.

Although the total premium income from epidemic policies was about NT$5.5 billion, the claims losses soared to more than NT$270 billion. This figure represents approximately 49 times the premium income, an impact so extensive that the term “loss ratio” barely encapsulates its magnitude.1 The claim losses incurred from payouts related to the COVID-19 pandemic have depleted more than a decade’s worth of profits in the property insurance sector. Fortunately, shareholders were timely in capital injections, helping property insurance companies weather the financial crisis COVID-19 brought.2

Similarly, the life insurance sector faced operational challenges starting in the second half of 2022, primarily because a substantial portion of the Taiwan life insurance industry’s funds were invested in the U.S. bond market. Consequently, the U.S. Federal Reserve’s rapid interest rate hikes adversely affected the valuation of the financial assets Taiwanese life insurance companies held in U.S. bonds, causing short-term volatility in some companies’ net values.

Additionally, the news regarding U.S. interest rate increases prompted some policyholders, particularly those sensitive to interest rate changes, to surrender their original insurance contracts to invest in financial products with relatively higher returns. The abnormal number of surrenders in the short term indirectly affected the daily liquidity of life insurance companies, thereby increasing liquidity risks. These two factors led to public skepticism about the financial stability of life insurance companies. Nevertheless, these concerns have been resolved with appropriate responses from regulatory authorities and the life insurance industry.

Financial Impact on the Taiwan Insurance Industry and Financial Resilience

In light of such once-in-a-century challenges, an analysis of past asset and liability indicators in the Taiwan insurance industry reveals the formidable consequences. As shown in Figures 1 and 2, the property insurance industry began to feel the impact of significant losses from epidemic insurance policies in May 2022, with shareholder equity experiencing impairment from Q2 2022 and gradually recovering by Q3 2023. The epidemic insurance event is considered an exceedingly rare scenario, and it is estimated that shareholder equity should return to 2021 levels by 2024.

Figure 1: The Balance Sheet of the Taiwan Insurance Industry (in $NT Millions)

Month/Year Nonlife Insurance Life Insurance
Assets Liabilities Equities Total Assets 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

Source: Taiwan Insurance Institute

Figure 2: The Balance Sheet of the Taiwan Insurance Industry (Relative to 2021 Index)

Month/Year Nonlife Insurance Life Insurance
Assets Liabilities Equities Total Assets 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

Source: Taiwan Insurance Institute

Similarly, the life insurance industry felt the impact of continuous U.S. interest rate hikes from March 2022 (see Figures 1, 2 and 3), with shareholder equity affected from Q2 2022 and only gradually recovering by Q1 2023. Whether it can return to the levels of 2021 remains to be monitored and observed.

Figure 3: Effects of U.S. Federal Reserve Interest Rates on Taiwan’s Interest Rates

U.S. Interest Rate Rise Taiwan Interest Rate Rise
Date BP Rates % 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

Source: Taiwan Insurance Institute

Nonetheless, despite such significant operational shocks, both the property and life insurance industries have maintained their total assets or shareholder equity above a certain level, demonstrating the commendable financial resilience of Taiwan’s insurance industry.

The Taiwan Insurance Industry’s Development Post-Pandemic and Interest Rate Hikes

The past two years have been transformative for Taiwan’s insurance industry, including challenges from the COVID-19 pandemic, geopolitical influences, an aging and low-birth-rate population structure, and various emerging risks. In response to these changes, insurance companies have reevaluated their long-term business strategies, strengthening relationships and trust with regulatory authorities and the general public.

For the property insurance industry, as the impact of the pandemic eased and business development resumed, it coincided with the global reinsurance market facing substantial losses due to extreme climate events. This directly affects the international reinsurance market’s underwriting capacity, causing reinsurance rates to rise sharply. This also directly increases the operational costs for Taiwan’s property insurance industry, prompting insurers to raise premium rates and resulting in a short-term increase in market premium income.

This market development, driven by increased insurance costs, also harbors a potential downside, in my estimation. With reinsurance capacity tightening and premium rates rising, many significant industries in Taiwan, including the technology and manufacturing sectors, may find it challenging to obtain adequate insurance protection or face increased operational costs. This could lead companies to reassess their risk management plans or enhance damage prevention capabilities to reduce insurance uptake. Such a cycle ultimately could affect the property insurance industry’s expansion.

In response to emerging risks such as climate change, geopolitical developments and technological advancements, I believe companies could benefit by strengthening or implementing risk management policies and considering ways to utilize financial technology to enhance operational efficiency. Optimizing internal operational cost benefits to counter the increased costs of external reinsurance or other resources is crucial, in my opinion. This could help mitigate the impact of rising consumer rates and enhance corporate competitiveness.

Although the continued U.S. interest rate hikes still exert influence, a long-term review of Taiwan life insurance companies’ investment strategies reveals that the strategy behind U.S. bond investments is usually to hold to maturity. Therefore, when interest rates stabilize, the asset valuation should return to normal market levels. In my view, the long-term substantial impact of this wave of interest hikes should be limited. Furthermore, with Taiwan’s impending adoption of International Financial Reporting Standard (IFRS) 17, the valuation of liabilities will transition to market fair value, thereby offsetting some of the impairment impacts on assets due to interest rate hikes.

Life insurance companies are preparing for Taiwan’s official alignment with IFRS 17 and the new generation solvency system (ICS 2.0) by 2026. Key operational topics in the Taiwan life insurance industry for the next few years include asset-liability management (ALM) and product structure transformation, with each life insurance company’s response strategy and development positioning being crucial, in my view.

As of the second half of 2023, property and life insurance companies had resumed their usual operational pace and robust financial structures. Looking ahead to Q3 and Q4 of 2024, I believe the Taiwan insurance industry could have a promising close to the year.

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

Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries or the respective authors’ employers.

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