AM Best revises Taiwan’s non-life insurance segment to stable

AM Best, the global credit rating agency, has revised its outlook on Taiwan’s non-life insurance segment to stable from negative, following a recovery of capital strength among carriers in 2023 after suffering sizeable pandemic-related losses in the previous year.

Another key factor that underpins the outlook revision is that insurers reportedly remain prudent in underwriting and investment strategies, while operating profitability improved in 2023 and 2024 to date.

According to AM Best, the segment’s capital position more than doubled in 2023, primarily driven by sizeable capital injections, reserve releases and organic earnings growth. However, despite this recovery, AM Best noted that capital levels have remained below pre-pandemic figures.

Nonetheless, Taiwan’s non-life sector reported improved operating profitability, with pre-tax earnings soaring over twofold year-over-year during the first seven months of 2024, which is partially attributable to the efforts of insurers to strengthen their underwriting guidelines.

In addition, the non-life segment also recorded an 11.4% year-over-year increase in direct premiums written (DPW) in July 2024, which is a continuation of the strong double-digit growth the segment produced in 2023.

It’s worth noting that AM Best anticipates that this momentum will remain strong in the short to intermediate term, driven by product lines such as voluntary motor, commercial fire, and casualty insurance.

James Chan, director, analytics, AM Best, commented: “Insurers have been reviewing their portfolios and non-renewing or increasing rates for unprofitable business, while passing on some of the increased reinsurance costs to policyholders. Insurers also have adopted a more proactive approach in offering risk advisory services and implementing loss prevention measures with the goal of reducing the frequency and severity of claims.”

Furthermore, AM Best highlighted that Taiwan’s insurance segment will implement IFRS 17 in 2026, several years after most other markets in the region have already done so. This additional time is expected to facilitate a smoother operational transition.

In view of the short-tailed nature of insurance liabilities that are predominantly domestic direct business, AM Best does not expect reported financials to fluctuate materially under the new accounting regime.

Other positive factors driving the outlook revision to stable include low net investment yields in comparison to other markets in the region, and the high exposure in Taiwan to natural catastrophes.

Despite higher reinsurance rates, Taiwanese non-life insurers are continuing to exercise caution in regards to structuring their reinsurance programmes.

Retention levels remained largely stable in the past renewal, and catastrophe excess-of-loss limits are adequate to cover the modelled outcomes for high return periods, AM Best concluded.

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