Taiwan Life Insurance Sector Outlook

1
Taiwan Life InsuranceSector Outlook

• Susan Chu
• Director
• Financial Services Ratings
• Taiwan Ratings Corp.

2
Profile Update

• Life insurance sector accounts for 13 of Taiwan
  financial industrys total assets
• Improving operating performance in 2003
• Shifting dynamics amid accelerating deregulation

3
Outlook

• Outlook negative
• Problems of negative spreads
• Challenges to grow new business
• Risks from rising operational flexibility
• Diverging financial strengths of individual
  companies

4
Problems of negative spreads
5
Problems of negative spreads

• Structural mismatch
• Legacy of high guarantee rates, driven by rising
  competition along with deregulation
• Triggered by prevailing low interest rates and
  sluggish investment conditions
• How long will it take to solve the problem?

6
Challenges to grow new business

• Inflated growth?
• Last minute purchase
• Single premium
• Alternative investment
• Growth ltgt profit
• Interest rate dilemma

7
Challenges to grow new business

• Product
• Expensive rates for traditional products
• Difficulty to sell new products
• Channel
• Bancassurance yet to be proven
• Whether or not to join FHCs?

8
Risks from rising operational flexibility

• Deregulation
• Investment flexibility
• Lower assumed rates on policy reserves
• New products, such as investment-linked
• Other self-regulated schemes RBC, bonus system...

9
Risks from rising operational flexibility

• Deregulation
• Investment
• Assumed rates
• New products
• Other self-regulated schemes
• Benefits and risks

10
Risks from rising operational flexibility

• Deregulation
• Investment
• Assumed rates
• New products
• Other self-regulated schemes
• Benefits and risks

11
Diverged financial strengths
12
Diverging financial strengths

• Business profile
• Market position (not market share)
• Management (capability of managing dynamic
  changes)
• Financial profile
• Operating performance
• Investment
• Capitalization

13
Negative outlook elsewhere

• No 1 US (31.3 in terms of 2002 global premium)
• No 2 Japan (23.1)
• No 3 UK (10.4)
• . . . . .
• No 12 Taiwan (1.3)