The outlook for Taiwan’s non-life insurance sector has just turned negative, according to a new briefing from S&P Global Ratings.
The firm has warned that a sharp government policy change from pursuing zero COVID-19 cases to one of living with the virus under the highly infectious omicron variant could wipe out over a year of profits for Taiwan’s non-life insurance sector, amid mounting losses from pandemic insurance. It said that losses could negatively affect capitalisation for some insurers, particularly the top sellers, without a proper capital restoration plan.
However, it said that risks existed where there are opportunities.
Its authors wrote: “Since their first appearance locally in 2020, pandemic insurance policies (with lump sum payments) have gone through several redesigns and repricing and finally a stop-sale during the past two years. However, the reality is that these changes are still not enough to prove our assumptions right amid the current fast-changing environment and lack of historical data to compare with.”
It added: “Uncertainties over the total claims amount remain high. Chief among these are the percentage of the population infected before policies mature and whether the regulator lowers COVID-19’s level of severity as a transmissible disease.”
Taiwan Ratings said that it viewed adequate capital planning as necessary for insurers with larger exposures to pandemic insurance or where capital adequacy is at a borderline score if they want to maintain standalone credit profile. It also maintained that underwriting losses for some firms would be inevitable in 2022, with the sector likely to report a combined ratio above 100% for the first time since 2001.
In conclusion, Taiwan Ratings wrote: “While we assess most non-life insurers have sufficient risk controls and a manageable risk appetite, some insurers may need to tighten their risk framework and discipline based on the lessons learned from this pandemic. Our assessment of insurers’ overall creditworthiness incorporates their pricing discipline, risk-mitigating mechanism, risk appetite for rapid-growth and new risks, particularly in areas of governance framework, risk culture, capital and earnings, as well as their liquidity profile.”