Fubon Life’s investments raise volatility concerns

Its P&C segment’s profits and capitalisation over the next 12-18 months should remain stable.

Moody’s Ratings said that Fubon Life has presented a strong market presence, diversified channel mix, and consistent improvements in earnings quality.

These strengths are balanced by significant overseas and equity investments, which expose earnings and capitalisation to higher volatility compared to global peers. 

Despite these risks, Fubon Life remains the second-largest life insurer in the domestic market, with strong channels and an established franchise.

Earnings quality is expected to improve due to better product margins and reduced negative spread risk, as the insurer grows protection-oriented products and shifts towards regular-premium products with lower guarantees. 

However, high equity and real estate investments relative to its capital base make it sensitive to market volatility. 

The insurer's solid earnings and focus on less capital-intensive products support its business growth and help withstand capital market fluctuations. 

The risk-based capital (RBC) ratio was 336% at the end of 2023, well above the regulatory minimum of 200%. 

The stable outlook reflects expectations of maintained profitability and capitalization over the next 12-18 months.

On the other hand, it’s property & casualty (P&C) segment, Fubon P&C, has a highly liquid investment portfolio focused on bank deposits and fixed-income investments, with a diversified business mix. 

However, weak profitability and market position offset these strengths, with earnings likely to remain weak over the next 12-18 months due to limited expense ratio improvements and volatility in non-motor profitability. 

The stable outlook indicates expectations that market position and profitability will not significantly deteriorate, and support from major shareholders will remain unchanged.