Taiwan Non-Life Insurance Report 2010 1. Non-Life Insurance Overview (1) Premium Income In 2010, the Taiwan non-life insurance companies together reported TWD 105.81 billion in premium income, up by TWD 3.95 billion or 3.9% from a year ago. This is the first growth experienced since 2006. Main reasons for the increased premium income are detailed as follow: i. Premium income from voluntary automobile insurance accounted for 34.9%, or TWD 36.9 billion, of the sector s premium income for the year. In light of the recovery of the new automobile industry, the premium income of voluntary automobile insurance rose by 9.8% or TWD 3.3 billion, accounting for 83.7% of the growth achieved by the sector. ii. In 2010, ACE Group reorganized its business in Taiwan and shifted the personal accident insurance and health insurance business segments from its life insurance branch to non-life insurance branch. As a result, both the personal accident and health insurance manifested significant growth; the premium income of these two types of insurance grew 1.2-folds from the previous year. Without the ACE Group s reorganization, the non-life insurance sector s year-over-year growth rate for the sector s premium income would have been 2.9% instead of 3.9%. iii. Premium income from cargo insurance jumped by 13.3% due to the substantial growth of import and export trade values. iv. In the wake of 2008 financial tsunami and the implementation of the third phase of rate deregulation in 2009, premium income had declined for two years straight. The low comparison base could have been one of the factors contributed to the growth seen in 2010. Fire insurance has reported declines in premium income for five consecutive years. It represented only 16.4%, or TWD 17.37 billion, of the total premium income in 2010 the lowest record since 2005. Nevertheless, the decline rate has lessened in comparison with the previous year (the year-over-year drop rate in 2009 was 13.2% and 7.2% in 2010). The implementation of the third phase of rate deregulation and the downward adjustment of the premium rate for the compulsory residential earthquake insurance in 2009 may have reduced the comparison base for the year, thus flatting the decline rate. In observance of the average premium rate of fire insurance in 2010, the rates for commercial insurance faced a recognizable decline although the number of policies in force has increased, signifying that the potentials for further business development remain in place. 1
The premium income from compulsory automobile liability insurance amounted to TWD 15.76 billion, accounting for 14.9% of the sector s premium income for the year. The downfall seen in the recent three years was mainly led by the continuous rate adjustment. Marine insurance premium income was approximately TWD 8.48 billion, accounting for 8% of the total premium income. Of the TWD 8.48 billion, cargo insurance made up TWD 5.76 billion. The year-over-year growth rate surged from -20.5% in 2009 to 13.3% in 2010. The entire segment of marine insurance (including cargo insurance, marine hull insurance, and fishing vessel insurance) grew by 11.1% in premium income. Liability insurance rose by 9% in premium income, accounting for 6.2% of the total premium income in 2010 the highest in five years, as the business line continued to expand. Engineering insurance fell by 13.6% from the previous year due to lack of large public infrastructure projects in 2010. It represented 4% of the total premium income, falling from 4.7% in 2009. Contrarily, bonding insurance substantially jumped by 26% because of Coface s outstanding business delivery in bonding insurance segment. The premium income from bonding insurance made up 1.2% of the total premium in 2010, improving from 1.0% in 2009. Health insurance, which was first introduced to the non-life insurance market in the fourth quarter 2008, represented TWD 860 million of the total premium income in 2010, growing significantly by 521% in comparison with the previous year. Over 60% of the premium income was contributed by ACE Group, which had shifted its health insurance business from life insurance branch to non-life insurance branch during 2010. As for aviation insurance, the premium income was around TWD 1.26 billion, increasing by 9.4% from 2009 and accounting for 1.2% of the total premium income as it did a year ago. Because the non-life insurance sector is highly related to reinsurance sector, therefore more attention should be paid to retained premium. The so-called retained premium is the underwriting premium income that the non-life insurers keep after ceding part of risks to reinsurers or assuming from reinsurers for risk spreading purpose. In 2010, the non-life insurance sector attained a year-over-year growth rate of 3.9% in premium income and 6% in retained premium, improving from TWD 70.36 billion last year to TWD 74.61 billion in 2010. In view of the average premium of voluntary automobile insurance in 2010 or a year after the implementation of the third phase of rate deregulation, it had fallen around 9% in comparison with the rate in 2008, but increased approximately 0.9% when compared with April through December of 2009. The average premium rate of fire insurance declined as much as 29% in comparison with 2008 s and 15.3% with April to December 2009. The difference was the most significant in commercial fire insurance. Due to fierce competition and vibrant merger activities, top five non-life insurance companies in the Taiwan market have varied over the recent years. In general, the market has 2
became more concentrated over the years as top five non-life insurers represented 54.5% of the market share in 2006 and 58.7% in 2010. (2) A Breakdown of the Claim Payouts In 2010, the non-life insurance companies paid TWD 62.28 billion in claims, up by TWD 7.47 billion or 13.6% from the previous year. Among all types of insurances, fire and voluntary automobile insurance were the two major contributors to this augmentation. In the wake of several work safety accidents and natural disasters such as the Tai Yuen Textile, Formosa Plastics, and Nan Ya Plastics fire accidents, Jiashian Earthquake, Typhoon Fanapi, and Typhoon Megi, the amount of claims paid during the year amounted to over TWD 1 billion dollars. Moreover, the claims of voluntary automobile insurance increased because of a big improvement in the sales of the insurance. Of the various types of voluntary automobile insurance, the third party liability insurance loss ratio jumped by 6%. A more detailed breakdown of the claim payout indicated that fire insurance claims totaled approximately TWD 14.39 billion, increasing by 1.7-fold or TWD 9.11 billion from the previous year mainly due to the incidents mentioned in the preceding paragraph. Claims of automobile insurance rounded to about TWD 32.61 billion, up by 9.9%; of which, voluntary automobile insurance claim payouts totaled approximately TWD 22.14 billion, climbed by 12.3% or TWD 2.42 billion from a year ago; compulsory automobile insurance claim payout, on the other hand, amounted to TWD 10.47 billion, ascended by 5.1% due to expanded scope of medical coverage and increased insured amount. The claim payout of marine insurance decreased around 34.7%, crediting to reduced ship wreckages or collisions during 2010. Engineering insurance claims totaled around TWD 2.34 billion, declining by 41.1%. Claims paid through liability insurance stood at TWD 3.02 billion, rose by 3% from a year ago. Bonding insurance is smaller in terms of the scale of business. Because of the deductibles and in some cases insurers were able to recover the claims, bonding insurance reported a claim payout of TWD 170 million. Nevertheless, the claim payout of personal accident and health insurance increased 0.7% and 352.8%, respectively, due to expansion of business. The earned net loss ratio of 2010 was approximately 56.8%, increasing nearly six percentage points from last year. Marine insurance, bonding insurance, personal accident insurance, and health insurance experienced declines in earned net loss ratio, while other insurance types had increased. Among all types of insurance, engineering insurance reached the highest in 2010 with an earned loss ratio of 65.7%, up by 18.1 percentage points from last year, because of smaller scale of business in 2010 and larger retained indemnities. Voluntary automobile insurance ranked second with 62.2% earned loss ratio, up by 3 percentage points from 2009 mainly due to rising loss ratio from the third party liability insurance. Ranking number three was the compulsory automobile liability insurance which reported 60.2% 3
earned net loss ratio, up by 6.9 percentage points in the wake of downward adjustment of the premium rate as well as the increased insured amount which picked up from TWD 1.5 million to TWD 1.6 million. The earned net loss ratio of fire insurance stood at 60.2% as well, increasing drastically by 22.9 percentage points from last year. Despite risk spreading through reinsurance, earned net loss ratio worsened noticeably because of the impact from reduced average premium rate in addition to several major accidents that triggered large claims. Based on the terms of underwriting, the overall expense ratio of the non-life insurance sector reduced 0.2% in comparison with same period last year mainly due to downfall of operating expense ratio. Meanwhile, commission-expense ratio remained the same as previous year. Bigger volatility was seen in the loss ratio and combined ratio because of major natural disaster and work safety accidents, thus leading the combined ratio to hit as high as 92.6%, the third highest record in recent 12 years, only behind 1999 (Chichi Earthquake) and 2001 (Typhoon Nari and Oriental Science Park fire). (3) Financial Overview and Fund Utilization i. Assets and Liabilities As of the end of 2010, the assets of non-life insurance companies totaled TWD 267.86 billion, up by 5% from last year. The sector s total assets were allocated as follows: 47.2% in securities and bonds, 25.1% in cash or bank deposits, and 12.3% in overseas investments. The debt-equity ratio for the industry is 72.4% (liabilities) to 27.6% (shareholder s equity). ii. Losses and Profits The non-life insurance sector generated TWD 210.13 billion in business revenue, rose by TWD 5.68 billion from last year. Operating costs totaled to around TWD 176.63 billion, up by TWD 6.67 billion from a year ago. Non-operating revenue minuses non-operating expenses came to TWD 170 million, increased TWD 1.8 billion in comparison with 2009. The sector achieved a net profit before tax of TWD 8.49 billion, improving by TWD 80 million from a year ago. iii. Fund Utilization The non-life insurance sector utilized TWD 196.24 billion of funds in 2010, allocating in deposit (accounting for 25.1% of the utilized funds), stocks (14.4%), overseas investment (12.3%), bonds (13%), and real estate investments (11.4%). In general, the returned on utilized funds in 2010 was approximately 4%. 4
2. Outlook Since the implementation of the third phase of rate deregulation in April 2009, the average premium rate of fire insurance has been declining. In addition, the premium rate for disaster insurance has gradually fallen as well due to fierce market competition despite the increasing number of natural disasters in the recent years. The rate decline is most significant for major insurance contracts with over one hundred billion dollars in insured amount. After more than two years of observation, one can conclude that the loss ratio of non-life insurance companies has been much higher than before, indicating that there are no rooms for further rate reductions. By the end of 2010, the situation has become noticeable to all non-life insurers. It has been suggested to Insurance Bureau, the Taiwan Insurance Institute, and the Non-Life Insurance Association that appropriate assessment and enactment of related measures for earthquake insurance, typhoon insurance and flood insurance has become necessary. It is expected that effective from July 1, 2011, the premium rate for major earthquake insurance, typhoon insurance and flood insurance will be made based on result of each individual non-life insurer s ratemaking model or the reference rates suggested by the Taiwan Insurance Institute. This will perhaps lead the premium rate back to its normal range. To ensure that the rate and solvency is at a reasonable level, it is recommended that insurers should first consider the rights of the insured and business longevity when making rates. Moreover, insurers should set aside and accumulate reserves for natural disaster as another fire wall for building up solvency in order to prevent the potential impacts of huge losses incurred by catastrophe. 5