Tue, Aug 23, 2005 - Page 10 News List

Shinkong expects hedging costs to soar

EXPENSES The insurer reduced its exposure to a weakening US dollar by diversifying its foreign investments, with hedging costs forecast to triple to NT$5 billion this year

By Amber Chung  /  STAFF REPORTER

Shinkong Life Insurance Co (新光人壽), the nation's third-largest life insurer, expects its hedging costs to nearly triple from last year after the insurer raised the proportion of overseas investments in its portfolios against a background of a weakening US dollar, the company said yesterday.

"We expect hedging costs to reach NT$5 billion this year, up from some NT$1.9 billion last year," Hsu Shun-yun (徐順鋆), manager of the accounting department at Shinkong Financial Holding Co (新光金控), Shinkong Life's parent company, told a media briefing yesterday.

The insurer's hedging expenses added up to NT$2.2 billion over the first six months of this year, which can be translated into a hedging-cost rate of around 2.8 percent, up from around 2 percent previously, according to the company.

The company is considering several options that could reduce its hedging costs, including natural hedging or basket hedging by diversifying the number of currencies in its portfolio and reducing exposure to the greenback, Shinkong Life's asset allocation manager Will Chung (鍾富榮) said.

In pursuit of better investment returns, the insurer poured more than NT$30 billion (US$934 million) into its overseas portfolio over the previous two months, bringing its overseas investment ratio to 34.4 percent at the end of July, from 30.6 percent in May, according to the company's figures. This level is approaching the regulatory limit of 35 percent.

Shinkong Life had a net yield rate of between 3.5 percent and 4 percent, equivalent to a return of NT$1.2 billion per month, from its overseas investments after deducting the hedging cost, Hsu said.

The insurer said the yield rate of domestic investments was between 2.5 percent and 3 percent in May.

Shinkong Financial's January-July earnings of NT$6.47 billion, or NT$1.91 per share, beat its earlier financial forecast by 6 percent.

Chinatrust Financial Holding Co's (中信金控) earnings per share over the same period stood at NT$1.91 and those of Cathay Financial Holding Co (國泰金控) at NT$1.71, making Shinkong Financial one of the most lucrative investment targets in the finance sector.

Shinkong Financial hopes to garner another NT$700 million from cash dividends this month on top of the NT$1.5 billion cash dividend income for the first half of the year, Hsu said.

"Shinkong Financial has strong fundamentals, despite the recent allegations about insider trading, which should have only a short-term psychological influence on its share price," Chu Yu-chun (朱玉君), a finance analyst at SinoPac Securities Corp (建華證券), said in a report released last week.

The securities house expected Shinkong Financial, the nation's seventh largest financial holdings firm by assets, to report earnings of NT$7 billion, or NT$2.06 per share, this year. It has raised its target share price for the second half of the year to NT$40 from NT$35 and is recommending bottom fishing for the firm's shares.

The Taipei Prosecutors' Office indicted the financial holdings firm's chairman Eugene Wu (吳東進) on Aug. 12 on suspicion of insider trading. He is accused of illegally selling 1,510 Shinkong shares in June 2002 before announcing a sharp downward revision of the company's profits for that year.

Shinkong Financial spokesman Victor Hsu (許澎) said yesterday that the company has not received any official indictment documents, and added that Wu assured the company's board of his innocence last Friday.

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