The effect of the Insurance Company Act on the capital benefit of investment in Taiwan’s life insurance industry

Abstract

The insurance industry makes a commitment to provide insureds with future payments and settlements within a certain insured scope. The business performance of a life insurance company will influence its solvency. In recent years, falling financial market interest rates have forced life insurance companies to take huge interest spread losses. Since their underwriting business has been affected, life insurance companies have tried to replace underwriting income with earnings from use of funds. In addition, the government has gradually eased various restrictive investment instrument ratios in the life insurance industry. Because of this reason, the question of how to maximize the earning ability of investments while safeguarding funds will affect the survival of life insurance companies, and also impact overall economic development of the country. This study uses a panel data regression model to analyze panel data from 17 life insurance companies in Taiwan during the period of 2001–2007, and investigates the relationship between net yield of capital utilization in the life insurance industry and various statutory investment items. The final empirical findings indicate that the deposit ratio, stock ratio, and amount of life insurance assets are negatively correlated with net yield of capital utilization. In contrast, the liability ratio, short-term investment ratio, and the real estate investment ratio of domestic life insurance companies are positively correlated with net yield of capital utilization.