Connie Wong

1
Taiwan Nonlife Insurance Sector Outlook

• Connie Wong
• Director
• Financial Services Ratings
• Standard Poors

2
Taiwan Nonlife Insurance Outlook

• Outlook Stable
• Major factors
• Satisfactory financial profile
• Relatively good underwriting result
• Average investment profile
• Offset by
• Reducing premium rates
• High reliance in reinsurance

3
Taiwan Nonlife Insurance Outlook

• Satisfactory financial profile
• Generally with good capitalization vary from
  very strong to weak among companies
• Satisfactory financial flexibility majority of
  nonlife insurers are profit making and with
  support from shareholders
• Insurance companies are generally prudent in
  their balance sheet structure

• Expectation remain stable in financial profile

4
Taiwan Nonlife Insurance Outlook

• Relatively good underwriting performance
• Average combined ratio (net of reinsurance) for
  the last two years is expected to be around 96
• Two profitable year in 2002 and 2003 was mainly
  attributable by increased premium rates and no
  major natural catastrophe losses
• Subject to volatility due to catastrophe risk
  exposure

• Expectation remain adequate but subject to
  deterioration due to premium rates reduction

5
Taiwan Nonlife Insurance Outlook

• Average investment profile
• Mainly invested in domestic market
• Average asset quality but good asset liquidity
• Subject to domestic investment market performance
• Improvement in investment return in past year
• Increase in risk appetite in investment in past
  two years

• Expectation remain average as restrained by
  domestic investment market

6
Taiwan Nonlife Insurance Outlook

• Market softening
• Premium rates (for non-tariff rated) reduced
  significantly for certain business lines
• Fierce competitions
• Market discipline short-lived
• Reinsurance companies continued support
• Deregulation of the market in long term

• Expectation market softening will continue under
  strong competitions and weak market discipline

7
Taiwan Nonlife Insurance Outlook

• Heavy reliance in reinsurance
• Exposure in natural catastrophe and mega risks
• Historical high cession ratio was encouraged by
  different tax treatment in ceded and retained
  premiums
• Increased retention in past few years as a result
  of tightened reinsurance marketplace
• Continued support from major reinsurers
• Underwriting cycle has high correlation with
  reinsurance capacity availability

• Expectation remain high, but gradually reduced,
  reliance in reinsurance usage

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Comparison of Life Insurance
Taiwan, Hong Kong, China
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Life Insurance Market Comparison
Business Risks Taiwan Hong Kong China
Industry risks Moderately high Negative spread Moderately low High Negative spread
Business Review Competitive Dominant market share Competitive Dominant by foreign players Competitive Dominant by few major players
Management Corporate Strategies Market share oriented but increasing focus in profitability Mainly profitability oriented Market share oriented
10
Life Insurance Market Comparison
Financial Risks Taiwan Hong Kong China
Operating Performance ROA for 2003 1 (expected) ROA 1 ROA 0.5
Investment Average Mainly domestic, with high level of loans, increasing foreign assets Less sophisticated ALM Above above Low restriction in investment, good quality of assets Sophisticated ALM Below average Restrictive, mainly cash and fixed income Low sophistication in ALM
Capitalization Adequate Adequate Weak
Reserving Slightly inadequate Adequate Inadequate
Financial Flexibility Vary from strong to weak Generally good Weak
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Comparison of Non-Life Insurance
Taiwan, Hong Kong, China
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Nonlife Insurance Market Comparison
Business Risks Taiwan Hong Kong China
Industry risks Moderate Moderate Moderate
Business Review One dominant player, with fragmented shares for the rest Fragmented market shares Few dominant players
Management Corporate Strategies Market share oriented but increasing focus in underwriting control Market share oriented but increasing focus in profitability Market share oriented but increasing focus in bottom line
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Nonlife Insurance Market Comparison
Financial Risks Taiwan Hong Kong China
Operating Performance Combined ratio (COR) around 96 COR 90 COR around 80
Investment Average. Mainly domestic assets, good liquidity Average. Mainly domestic, good liqudity Below average. Restrictive, mainly cash and fixed income
Capitalization Satisfactory Satisfactory Below average
Reserving Adequate Adequate Below average
Reinsurance High reliance Retention - 49 Less reliance Retention 67 Low reliance Retention - above 90
Financial Flexibility Adequate Adequate Below average