Taipei, Oct. 24, 2012 (CENS)--Affected by sluggish economy and decline of market interest rates, the Financial Supervisory Commission (FSC) announced yesterday (Oct. 23) slashing the interest rates for liabilities reserves funds for foreign currency-denominated insurance policies by one to four basic points, effective January next year.
Life insurers noted that the adjustment will create the greatest impact on U.S. dollar-denominated insurance policies, whose premiums will rise by at least 50% next year, leading to suspended sales at the end of this year.
Life insurers reported that premium income of U.S.-dollar insurance policies will top NT$340 billion this year, for market share of over 30%. Therefore, the adjustment will impact performance of life insurers next year.
Life insurers remarked that people will have to pay higher costs for buying insurance policies for the sake of savings or protection, urging customers to take on insurance by the end of the year, since premiums will become increasingly expensive.
The FSC didn’t give the market grace period for the interest-rate cut, which will take effect from Jan. 1 next year, only two months from now, different from the cut on the interest rates for the liabilities reserves funds for life insurance this year, which was put into practice from July 1, following a grace period of half a year.
Tseng Yu-chung, director general of Insurance Bureau, the FSC, remarked that interest rates for insurance reserves funds should reflect market interest rates and the regulator should cut interest rates timely in a responsible manner. Otherwise, the potential loss from interest-rate differential, or negative spread, for life insurers will become even more serious, according to Tseng.
Tseng pointed out that the interest rates for insurance policies don’t have to be cut along with the cut on interest rates on liabilities reserves fund, since life insurers have mortality savings and fee savings for reflection in premium rates. In addition, insurance firms have large flexibility for premium pricing, if they enjoy good investment returns.
(by Philip Liu)
