Taiwan’s Watchdog Says Insurers Have Enough Capital to Withstand COVID Claim Surge

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

The property insurance companies have no problems fulfilling their obligations in paying claims so far, Huang Tien-mu, the chairperson of the Financial Supervisory Commission, said in an interview on Wednesday. Life insurers also don’t face any operational problems after being allowed to reclassify some assets to cope with further interest rate increases from the Federal Reserve, he said.

Firms such as Fubon Financial Holding Co. and Cathay Financial Holding Co. face steep headwinds amid rising interest rates and falling stock markets at the same time as they are being hit hard by surging claims on COVID-related policies. Rapid rate increases by the Federal Reserve have weighed heavily on the island’s insurance industry, which has more than 60% of its investment portfolio placed in US bonds, according to JPMorgan Chase & Co. research.

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

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

At present, four life insurance companies are expected to reclassify their assets, Huang said. Two are life insurance companies under financial-holding firms, one is a pure insurance firm, and the other is a British company. They account for 47% of the industry by total assets, Huang said.

Insurers have so far paid out NT$100 billion ($3.1 billion) on COVID claims, while only reaping about 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 Agency reported Tuesday, citing the FSC.

In May, Huang ordered insurers to pay out on valid COVID-related insurance policies after they faced criticism from lawmakers for dismissing claims, canceling policies and delaying payouts.

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

Given the elevated cases the embedded assumptions of infections rates of 30% to 35% “may not be conservative enough and earnings could continue to be dragged by policy claims before year-end,” JPMorgan analysts including Jemmy Huang said in an Oct. 16 note. Further capital injection into property-and-casualty insurance operations might be inevitable, they said.

–With assistance from Chien-Hua Wan.

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