Taiwan’s Nan Shan Life Insurance has received an Insurer Financial Strength (IFS) Rating of ‘A-‘ (Strong), a National IFS Rating of ‘AA(twn)’, a Long-Term Issuer Default Rating of ‘BBB+’, and a National Long-Term Rating of ‘AA-(twn)’ from Fitch Ratings.
In addition, an ‘A+(twn)’ rating was assigned by Fitch to the company’s proposed Taiwan dollar subordinated bond. The bond, a direct, unsecured, and subordinated obligation, will be used to boost the insurer’s working capital and risk-based capital ratio. Stability is forecasted for all the above ratings.
Nan Shan ranked third out of all life insurers in Taiwan, with an 11% market share in first-year premiums in the first quarter of 2023. Fitch said the favourable ratings are a reflection of Nan Shan Life’s strong capital position, excellent financial performance, and balanced asset-liability management and investment risk. Nan Shan Life’s risk-based capital ratio stood at around 280% in June 2023, while its financial-leverage ratio was measured at 12% at the end of last year.
In terms of financial performance, Nan Shan Life exhibited strong results with a return on equity average of 9% from 2020 to 2022.
Change of strategy
Over the past years, the insurer has shifted its attention more towards health products. This refocus has seen the role of health products in annual net premiums written and the value of fresh business grow steadily since 2018.
In addition to this, the insurer has made a shift away from single-premium policies in favour of long-term regularly paid ones, and is putting a stronger emphasis on protection products. This strategy adaptation is in response to the challenges experienced from the transition to the IFRS 17 accounting framework and stricter regulatory controls on savings products.
ALM and investments
The insurer’s risk in asset-liability management is moderate. It has been mitigating the foreign exchange disparity between its assets and liabilities by investing in high-credit-quality overseas fixed-income securities and using a dynamic hedging approach.
As of the end of March 2023, the duration of the insurer’s fixed-income assets exceeded that of its liabilities. However, a negative spread issue emerged from the prior sale of high-guarantee-rate products because the liability cost was higher than the investment yield.
Nan Shan Life’s investment risk also sits at a moderate level. The riskier assets, which include both listed and unlisted shares, equity-style mutual funds, preferred equity, and below-investment-grade bonds, composed 145% of the equity and reserves at the end of 2022, up from 101% the previous year. The spike is attributed to a fall in total equity due to ascendant interest rates.
Over 80% of the insurer’s assets were invested in fixed-income investments, with the entity’s proportion of equity investments falling short when compared to market peers at the end of 2022. The majority of the bond portfolio was made up of investment-grade bonds.