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雷达卡
SECTOR REVIEW
The perfect storm
■ A fast-deteriorating outlook for investment returns and near-term
severe equity damage from a falling stock market are eroding the
value of Taiwan life insurers at a pace that decelerating new business
growth cannot keep up with. We believe that it will take time and
substantial recapitalisation for the sector to weather the perfect storm.
■ Credit Suisse’s economics team expects Taiwan to head into the
deepest recession in its history (2009E GDP -7.2%) with a bleak
outlook for a speedy recovery. This is likely to lead to a sustained low
interest rate environment and a rapidly deteriorating investment
outlook. We cut our long-term investment yield assumption for Taiwan
life insurers from 4.25% to 3.50%.
■ In the first nine months of 2008, a sharp correction in the stock market
eroded the Taiwan life insurance sector’s equity base by 46%. Current
regulatory forbearance on solvency is only temporary and we expect
substantial capital-raising as the market starts to show signs of
recovery.
■ The significant business retrenchment of Nan Shan (AIG) and the two
high-profile sales from ING and Prudential Plc to local players
reinforces the challenges facing local life insurers. Market share is
consolidating further in the hands of local players, and so is the risk.
Our current assessment, barring no detailed information on EV, is that
the long-term investment yield will need to be at the higher end of
3-4% to make the two acquisitions by local players value accretive.
■ Our target price for Cathay FHC is cut to NT$25.2 from NT$47.5 after a
75 bp reduction in our investment yield assumption to 3.50%, and we
also downgrade the stock to UNDERPERFORM. Based on our current
yield assumption, we see negative value for Shin Kong FHC due to a
heavy drag on its legacy book. We remove our target price for SKFH
and continue to avoid the counter until further recapitalisation and an
improving investment outlook to enhance overall group value.
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