AMB Country Risk Report

August 24, 2016

Our Insight, Your Advantage.

Country Risk Tier

CRT-2

Taiwan
The Country Risk Tier (CRT) reflects A.M. Bests assessment of three
categories of risk: Economic, Political and Financial System Risk.
Taiwan, a CRT-2 region, has low levels of economic, political and
financial system risk. Gross domestic product (GDP) growth for
2016 is expected at 1.5%, with medium term GDP growth in the
range of 2.0% to 3.0%. Taiwans economy is vulnerable to external
economic shocks and global demand conditions due to its small
domestic market and its export-oriented manufacturing sector.

Very
High

Very
High

Very
High

China is Taiwans key exporting destination, with approximately

40% of all Taiwanese exports going to China. As a result, the
slowdown and restructuring in Chinas economy will be a headwind
and increases the uncertainty to Taiwans outlook.

High

High

High

The countries pictured below represent a great deal of the worlds

economic potential, containing the top two most populous
countries (China #1 and India #2) in the world.

Moderate

Moderate

Moderate

Low

Low

Low

Russia

Very
Low

Very
Low

Very
Low

Sakhalin

Kazakhstan

Economic
Risk

Political
Risk

Financial
System
Risk

Mongolia

ril

Ku

nd

la

Is

Russia
Georgia
Armenia

Kyrgyzstan

Azerbaijan

Uzbekistan

Turkmenistan

North Korea

Tajikistan

South
Korea

China

Afghanistan

Japan

Iran
Kuwait

Country Risk Tier 5 (CRT-5)

Very High Level of Country Risk

Pakistan

Bahrain

Saudi Arabia

Nepal

Qatar

Bhutan
Bangladesh

U.A.E.

Oman

Myanmar

India

Taiwan

Northern Mariana Islands

Hong Kong

Laos

Macau

Country Risk Tier 4 (CRT-4)

High Level of Country Risk

Thailand

Yemen

Vietnam

Guam

Somalia

Sri Lanka
Brunei

Country Risk Tier 3 (CRT-3)

Moderate Level of Country Risk

Country Risk Tier 1 (CRT-1)

Very Low Level of Country Risk

Palau

Malaysia
Singapore
Sumatra
Seychelles

Country Risk Tier 2 (CRT-2)

Low Level of Country Risk

Philippines

Cambodia
Dijbouti

Federated States
of Micronesia

Borneo
New Guinea

Indonesia
East Timor

Papua
New Guinea
Coral Sea
Islands

Comoros

Mauritius
Madagascar
Reunion

Australia

Copyright 2016 A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED. No part of this report or document
may be distributed in any electronic form or by any means, or stored in a database or retrieval system, without the prior written permission of
A.M. Best. For additional details, refer to our Terms of Use available at A.M. Best website: www.ambest.com/terms.

New Caledonia

AMB Country Risk Report

Taiwan

Regional Summary: Eastern Asia

Vital Statistics 2015

Nominal GDP
Population
GDP Per Capita
Real GDP Growth
Inflation Rate
Literacy Rate
Urbanization
Dependency Ratio
Life Expectancy
Median Age

USD bn
mil
USD
%
%
%
%
%
Years
Years

523.58
23.5
22,288
0.7
-0.3
98.5
100.0
n.a.
80.0
39.7

Insurance Statistics

Insurance Division of the

Financial Supervisory
Commission

Insurance Regulator
Premiums Written (Life)
Premiums Written (Non-Life)
Premiums Growth (2014 - 2015)

USD mil
USD mil
%

79,627
16,352
5.8

Regional Comparison
Country Risk Tier
CRT-2
CRT-3
CRT-2
CRT-2
CRT-2
CRT-2

Taiwan
China
Hong Kong
Japan
Macau
South Korea

Taiwan is a small island economy that has

strong economic, political and historical
ties with Hong Kong, Macau and Mainland
China. It is an export-oriented economy,
making it particularly vulnerable to
fluctuations in global demand.

Economic Growth
CPI Inflation

The government remains supportive

of increasing foreign direct investment
levels through corporate tax breaks and
other business-friendly practices. Taiwan
ranks highly at 11th in the World Banks
2016 Doing Business survey. However,
bureaucracy and corruption are obstacles to
conducting business in Taiwan.

10

Potential GDP growth in the region is likely

to slow, reflecting weaker productivity
gains, infrastructure bottlenecks in
some countries and the effects of aging
populations. Tighter than expected global
financial conditions combined with high
leverage is also a concern.

Economic Risk: Low

12

The Trans-Pacific Partnership (TPP) is a

trade agreement that was signed by twelve
countries in early 2016. Once the TPP
is put into effect the agreement sets to
promote economic growth by lowering
trade barriers and establishing an impartial
dispute settlement mechanism.

Vulnerabilities associated with high debt

levels are increasing in the region as
past credit helped finance consumption,
government spending and investment.

Source: IMF, Axco, Swiss Re and A.M. Best

Real GDP

Eastern Asia is home to some of the worlds

largest and most advanced economies.
China (#2 in the world), Japan (#3) and
South Korea (#11) dominate much of the
regional economy as measured in 2015
by gross domestic product (GDP) by the
International Monetary Fund.

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

-2

-4

Source: IMF World Economic Outlook and A.M. Best

2020

2021

Taiwans labor force is one of the worlds

most well-trained and educated. The
government hopes to increase labor force
participation rates to offset a demographic
shift towards an aging population.

AMB Country Risk Report

Taiwan

Political Risk Summary

Political Risk: Low

Score 1 (best) to 5 (worst)

Taiwan

World Average

The pro-independence Democratic

Progressive Party (DPP) won the January
2016 election, winning both the presidency
and a majority in Parliament. Now President
Tsai wants to continue to maintain a
strong relationship with China, hoping to
bring about increased trade and economic
opportunities.

International Transactions
Policy

5
4

Legal System

Monetary Policy

3
2
1

Regional Stability

Fiscal Policy

Though President Tsai plans to work with

Beijing, being a member of the DPP and
at odds with China, could lead to future
sanctions and travel bans from China.
Chinese tourists account for 50% of total
tourism revenue, so sanctions could be
detrimental to the economy.

Social Stability

Business Environment

Government Stability

Labor Flexibility

Protests over various domestic issues are

common, with most of the protests being
relatively peaceful. Taiwan does not face
any substantial threat from foreign terror
groups and there is a low likelihood of
international conflict.

Source: A.M. Best

President Tsai will likely focus on domestic

issues, including restructuring Taiwans
economy, reducing levels of income
inequality and reforming both the pension
system and the judiciary.

Financial System Risk: Low

GDP Per Capita and Population

for Selected Countries
1600

80,000
GDP Per Capita

Population

1400

60,000

1200

50,000

1000

USD

Millions

70,000

40,000

800

30,000

600

20,000

400

10,000

200

Taiwan

The Insurance Bureau, a branch of the

Financial Supervisory Commission, is the
main insurance regulator.

China

Hong Kong

Japan

Macau

South Korea

Source: IMF and A.M. Best

Corporate taxation levels are in line with

the rest of the region The corporate tax rate
is currently 17%.
While Taiwan is vulnerable to global market
conditions, it does have large foreign
exchange reserves and monetary flexibility
that provides a cushion against any
potential negative economic shocks.
Taiwan has too many banks in relation
to the size of the market, which in turn
has led to extreme competition and low
profitability. The government has endorsed
mergers and international expansions
within the banking sector.

AMB Country Risk Report

Taiwan

GUIDE TO BESTS COUnTry rISk TIErS

A.M. Best defines country risk as the risk that country-specific factors could adversely affect the claims-paying ability of an insurer. Country risk is
evaluated and factored into all Bests Credit Ratings. Countries are placed into one of five tiers, ranging from CRT-1 (Country Risk Tier 1), denoting
a stable environment with the least amount of risk, to CRT-5 (Country Risk Tier 5) for countries that pose the most risk and, therefore, the greatest
challenge to an insurers financial stability, strength and performance.
A.M. Bests Country Risk Tiers are not credit ratings and are not directly comparable to a sovereign debt rating, which evaluates the ability and
willingness of a government to service its debt obligations.

Country risk Tiers

Country risk Tier

Definition

CRT-1

Predictable and transparent legal environment, legal system and business infrastructure; sophisticated financial
system regulation with deep capital markets; mature insurance industry framework.

CRT-2

Predictable and transparent legal environment, legal system and business infrastructure; sufficient financial system
regulation; mature insurance industry framework.

CRT-3

Developing legal environment, legal system and business environment with developing capital markets; developing
insurance regulatory structure.

CRT-4

Relatively unpredictable and nontransparent political, legal and business environment with underdeveloped capital
markets; partially to fully inadequate regulatory structure.

CRT-5

Unpredictable and opaque political, legal and business environment with limited or nonexistent capital markets; low
human development and social instability; nascent insurance industry.

Country risk reports

A.M. Best Country Risk Reports are designed to provide a brief, high-level explanation of some of the key factors that determine a countrys Country
Risk Tier assignment. It is not intended to summarize A.M. Bests opinion on any particular insurance market or the prospects for that market.

Categories of risk
Country Risk Reports provide scores for three categories of risk for each country. These scores are (1) Very Low; (2) Low; (3) Moderate; (4) High
and (5) Very High.

Category of risk

Definition

Economic Risk

The likelihood that fundamental weaknesses in a countrys economy will cause adverse developments for an insurer.
A.M. Bests assessment of economic risk evaluates the state of the domestic economy, government finances and
international transactions, as well as prospects for growth and stability.

Political Risk

The likelihood that government or bureaucratic inefficiencies, societal tensions, inadequate legal system or
international tensions will cause adverse developments for an insurer. Political risk comprises the stability of the
government and society, the effectiveness of international diplomatic relationships, the reliability and integrity
of the legal system and of the business infrastructure, the efficiency of the government bureaucracy, and the
appropriateness and effectiveness of the governments economic policies.

Financial System Risk

Financial system risk (which includes both insurance and non-insurance financial system risk) is the risk that financial
volatility may erupt due to inadequate reporting standards, weak banking system or asset markets, and/or poor
regulatory structure. In addition, it includes an evaluation of whether the insurance industrys level of development and
public awareness, transparent and effective regulation and reporting standards, and sophisticated regulatory body will
contribute to a volatile financial system and compromise the ability of an insurer to pay claims.

Political risk Summary

To provide additional detail on the political risk in a given domicile the Country Risk Reports include the Political Risk Summary. The Political Risk
Summary is a radar chart that displays scores for nine different aspects of political risk scored on a scale of one to five with one being the least
amount of risk and five being the highest amount of risk.

Category

Definition

International Transactions
Policy

Measures the effectiveness of the exchange rate regime and currency management.

Monetary Policy

Measures the ability of a country to effectively implement monetary policy.

Fiscal Policy

Measures the ability of a country to effectively implement fiscal policy.

Business Environment

Measures the overall quality of the business environment and ease of doing business.

Labor Flexibility

Measures the flexibility of the labor market, including the companys ability to hire and fire employees.

Government Stability

Measures the degree of stability in a government.

Social Stability

Measures the degree of social stability, including human development and political rights.

Regional Stability

Measures the degree of stability in the region.

Legal System

Measures the transparency and level of corruption in the legal system.

Country risk Tier Disclosure

A Country Risk Tier (CRT) is not a credit rating, rather it represents a component of A.M. Bests Credit Rating Methodology that is applied to all
insurers. A CRT is not a recommendation to purchase, hold or terminate any security, insurance policy, contract or any other financial obligation
issued by a government, an insurer or other rated issuer, nor does it address the suitability of any particular policy, contract or other financial
obligation for a specific purpose or purchaser.
Version 091714

Copyright 2016 by A.M. Best Company, Inc.

Copyright 2016 A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED. No part of this report or document
may be distributed in any electronic form or by any means, or stored in a database or retrieval system, without the prior written permission of
A.M. Best. For additional details, refer to our Terms of Use available at A.M. Best website: www.ambest.com/terms.