Taiwan's biggest life insurer, Cathay Life, reported a net profit of NT$47bn ($1.47bn) in 1H2024, a significant increase from NT$14bn in 1H2023. This 235.7% growth was mainly driven by higher investment income, said CreditSights, a unit of Fitch Group, in a commentary.
As a result, the return on equity (ROE) for 1H2024 was 14.3%, up from 5.1% in 1H2023.
Premiums
The life insurer posted net earned premiums of NT$190bn ($5.9bn), in 1H2024, down by 5.5% from NT$201bn in 1H2023. This decrease was mainly due to lower premiums from investment-linked and interest-sensitive annuities,
However, this decline in net earned premiums was offset by higher profitability from new business and improved investment income. Investment income increased to NT$168bn in 1H2024 from NT$131bn in 1H2023, supported by an improved yield (after hedging) of approximately 4.28%, up from 3.44%.
In terms of new premiums, growth was positive. Annualised premiums grew by 12% from NT$24.5bn to NT$27.4bn, driven by health and accident insurance and traditional long-term regular premium products.
The value of new business (VNB) for 1H2024 was NT$16.4bn, up from NT$13.6bn in 1H2023. The VNB margin improved to 60% from 55%, highlighting the higher profitability of new business.
Cathay Life’s underlying product mix showed improvement with larger a proportion of protection policies. Over the past three years, from FY21 to FY23, protection-type products grew from 24.5% to 37.4% of total premiums, reflecting the company's strategic shift towards higher-margin offerings. This proportion increased further to 41.3% in 1H2024.
Business profile
As of the end of June 2024, Cathay Life held a 21.3% market share in terms of total premiums, ahead of competitors such as Fubon Life (14.8%), Nan Shan Life (12.3%) and KGI Life (7.3%).
Cathay Life is supported by strong brand recognition, a diversified business mix and multiple distribution channels, including a large agency force.
Cathay Life’s agency network drives high-margin product sales, contributing to premium income, VNB and CSM accumulation. In addition, the exclusive bancassurance partnership with Cathay United Bank facilitates cross-selling opportunities and the distribution of both regular premium and new protection products.
Capital
In addition to maintaining a strong RBC ratio, Cathay Life is adapting to the new Taiwan Insurance Capital Standard (TW-ICS) through product shifting and the issuance of subordinated debt.
Cathay Life's ratio under the new TW-ICS regime is approximately 160% as of 1H2024, above the regulatory requirement of 100%.
Analysis
In CreditSights’ view, Cathay Life is a well-established and widely recognized company with a long operating history that spans over six decades. The company demonstrates a solid and improving capital adequacy ratio, which is a positive indicator of its financial health.
CreditSights believes the strategic changes in the portfolio mix are favourable and align well with the new regulatory and accounting regimes. Cathay Life's earnings have been adequate to strong, supported by a diversified business mix and reasonable investment performance.
That said, CreditSights believes that FX risk is one of the most significant and visible risks for Cathay Life, primarily due to its substantial exposure to overseas investments funded by Taiwanese dollars. While the company employs dynamic hedging strategies, including currency swaps and forwards, to manage these risks, the complexity of these strategies and the inherent limitations suggest a point for caution.
Additionally, Cathay Life's current Insurance Capital Standard (ICS) ratio, although compliant (above 100%), is not as high as those of its regional peers in Korea and Japan, which are in the 180s to 220s. Thus, while CreditSights sees some solid fundamentals for Cathay Life, ongoing FX risk management is essential to maintaining its financial stability and performance.