台湾长寿者——一个具有新高端的崭新子集

CMBI Credit Commentary Glenn Ko, CFA高志和(852) 3657 6235glennko@cmbi.com.hk Taiwan Lifers–An emerging subsetwith newpremium Maintain buy on SHIKON35and FUBON35 Cyrena Ng, CPA吳蒨瑩(852) 3900 0801cyrenang@cmbi.com.hk Taiwan insurer is emerging market subset, coming to the offshore USD bondmarket sinceSep’24with new issue premiumahead of thefull adoption of IFRS.Despite the tightened credit spread compared with the levels when we first putout our trade ideas inJul’25, we continue topreferSHIKON 6.95 06/26/35for Yujing Zhang张钰婧(852)3900 0830zhangyujing@cmbi.com.hk Supportive regulatory environment for lifers Weanalyze the sectormorefrom a top-down approach as webelieve that the 4major Taiwan liferswith outstanding USD bondsare more or less exposed to thesame macro issues such as TWD appreciation and regulatory environment.Wepair up Nanshan Life with Shin Kong Life, as well asCathay Life with Fubon Lifefor fair and relative value assessments based on theircredit profiles and scale ofoperations.In 1H25, the profitability of the Taiwanlifers wasadversely affectedby TWD appreciation against USD through fair value loss on USD-denominatedbonds and equities.We take comfort with the supportive regulatory environment.In Jun’25, the FSC Taiwan proposed three interim measures to cope with the More investor-friendly regulatory frameworkin case of PONV The insurance regulatory framework varies across different regions in Asia. Weunderstand thatin Australia,Mainland China and Singapore,the regulatoryframeworksfor lifersaresimilar to thoseforbanks,such that the principal of thecapital papers will have to absorb losses at PONV, or the local regulator has thebail-in power.InHong Kong andSouth Korea, the distribution is deferrable and CMBI Fixed Incomefis@cmbi.com.hk Interim measures fromFSC Taiwan toalleviate the impact fromFX volatility In 1H25, the profitability of the TW lifers wereadversely affectedby TWDappreciation against USD through fair valueloss on USD-denominated bonds and equities. In Jun’25, the FSC Taiwan proposed three interim measures to copewith the market volatility, including (i) using semi-annual average exchange rate for RBC ratio calculation; (ii) relaxing TW insurers areproposing changes to accounting rules that will cut annual hedging costs by an estimated TWD90bn(cUSD2.9bn) and provide relief for excessive currency swings, by way of allowing exchange rate fluctuations to bepartially recognized overtime, rating than having the full impact booked immediately. In past decades, TW insurersspentcTWD2tnon hedging forex exposures. FSC will explore approaches for fair financial accounting representation TW-ICS andIFRS 17 introduce more volatility to solvency ratio We understand that HK, Korea, Japanand Singaporeinsurers already adopted IFRS 17 starting from Jan’23, Taiwaninsurers willfullyadoptIFRS 17startingfrom Jan’26.TheIFRS 17implementationis expected to increasethevolatility in life insurer’s solvency ratios, though the magnitudeof volatility increaseswilldepend significantly on the To illustrate, insurersarerequiredtouse current discount rates that fluctuate with market conditionsunder IFRS 17.This will affect the valuations of assetsandliabilities. Thevolatility of interest rate and steepness of yield curve could Meanwhile, the CSM, representing unearned profit to be released overtimewhich should smooth the revenuerecognition.However, the revaluation of CSM at each of the reporting period endcouldintroducenew volatility to thelife insurers.Changes in future cash flows estimates are now recognized through CSM adjustments gradually, instead Taiwan insurer USD bond supply todecelerate in 2026 Since 2023, Taiwan lifers issued totaled USD3.75bn bond to build capital buffers ahead of the TW-ICS and IFRS 17,which will become effective from 1 Jan’26.TheTaiwanFSC providedpre-implementation incentives,suchasincreasinginsurer’s asset allocation flexibility and decreasing risk factors(incl.policy-based infrastructureinvestmentsand equity),for insurers who raise capital during the preparatory phase. By the time the new rules go FSCTaiwanhas introduced transitional measures thatallow insurers to phase inlinear increase of the capitalchargesover a 15-year periodto avoid cliff effects,includinggradual phase-in of the net fair value impact from assets andliabilities of legacy portfolios based on insurers’ RBC levels;risk factor forinterest rate riskwill increase from50% to100%;emerging risk including longevity,lapse,expenseandcatastrophe,non-defaultrisk will increase from 0% to Based on the maturity schedule of the outstandingbonds, which are concentrated in 10-year tenor or callable in 10years, the next major new supply should come in 2033-34. Furthermore,there could be opportunistic issuanceshouldthe UST fall substantially in 2026, so asto refinance the more expensive tranche and optimize the capital structure. CMB International Global MarketsLimited Fixed Income DepartmentTel: 852 3657 6235/ 852 39