Taiwan watchdog says insurers have enough capital to withstand spike in COVID claims

Taiwan’s insurance industry has hedged against rising COVID claims after raising capital, the head of the island’s market regulator has said.

So far, property insurance companies have had no problem meeting their claims payment obligations, Huang Tien-mu, chairman of the Financial Supervisory Commission, said in an interview on Wednesday. Life insurers also face no operational problems after being allowed to reclassify some assets to meet further interest rate hikes from the Federal Reserve, he said.

Companies such as Fubon Financial Holding Co. and Cathay Financial Holding Co. are facing strong headwinds amid rising interest rates and falling stock markets at the same time they are hit hard by the rise in complaints about COVID-related policies. Rapid rate hikes by the Federal Reserve have taken a heavy toll on the island’s insurance industry, which has more than 60% of its investment portfolio in U.S. bonds, according to research by JPMorgan Chase & Co.

“This is a turbulent situation, and the financial regulator should be cautious and fearful,” Huang said. “We have to be very careful in reacting to interest rate hikes or different changes in the future.”

The turmoil this month has prompted the FSC to allow companies to reclassify their assets to improve their financial ratios and the regulator has also asked insurers to build up special reserves to ensure capital adequacy.

Currently, four life insurance companies are expected to reclassify their assets, Huang said. Two are life insurance companies belonging to financial holding companies, one is a pure insurance company and the other is a British company. They make up 47% of the industry in terms of total assets, Huang said.

Insurers have so far paid out NT$100 billion ($3.1 billion) on COVID claims, while collecting only around NT$4.5 billion in revenue on those policies. The six property and casualty insurers that have sold the most COVID insurance, including units of Cathay and Fubon, have raised a total of NT$70.7 billion in capital this year to cover costs, Central News reported on Tuesday. Agency, citing the FSC.

In May, Huang ordered insurers to pay out valid COVID-related insurance policies after coming under fire from lawmakers for rejecting claims, voiding policies and delaying payments.

Taiwan over the past week has reported more than 40,000 local cases a day, on average, and eased border controls.

Given the high cases, the built-in infection rate assumptions of 30% to 35% “may not be conservative enough and revenues could continue to be driven by political claims before the end of the year”, JPMorgan analysts, including Jemmy Huang, said in an Oct. 16 note. . A further injection of capital into P&C insurance operations could be inevitable, they said.

–With assistance from Chien-Hua Wan.

Photograph: Pedestrians wearing protective masks cross a street in a shopping district in Taipei, Taiwan, Saturday, April 16, 2022. Photo credit: Lam Yik Fei/Bloomberg

Copyright 2022 Bloomberg.

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