1. Connie Wong Director Financial Services Ratings Standard & Poor’s
Taiwan Nonlife Insurance Sector Outlook
Connie Wong
Director
Financial Services Ratings
Standard & Poor’s

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

8. Comparison of Life Insurance
– Taiwan, Hong Kong, China

9. Life Insurance Market Comparison
Business Risks
Taiwan
Hong Kong
China
Industry risks
Moderately high
Negative spread
Moderately low
High
Business Review
Competitive
Dominant market share
Dominant by foreign players
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
Weak
Reserving
Slightly inadequate
Inadequate
Financial Flexibility
Vary from strong to weak
Generally good

11. Comparison of Non-Life Insurance
– Taiwan, Hong Kong, China

12. Nonlife Insurance Market Comparison
Business Risks
Taiwan
Hong Kong
China
Industry risks
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

13. 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
Below average
Reserving
Adequate
Reinsurance
High reliance
Retention% - 49%
Less reliance
Retention% – 67%
Low reliance
Retention% - above 90%
Financial Flexibility