Taiwanese life insurers face "limited'' potential losses from holding securities linked to US subprime home loans, Financial Supervisory Commission Vice Chairwoman Susan Chang (張秀蓮) said yesterday.
"They have reported their estimates on potential losses and overall the numbers are pretty limited," Chang said in a telephone interview, declining to disclose specific details.
The FSC is looking into holdings of subprime related securities by the nation's insurers and banks after Taiwan Life Insurance Co (台灣人壽) said last Thursday that it had booked a US$13 million loss in the first half writing off investments in the Bear Stearns High Grade Credit Strategies fund.
Cathay Financial Holding Co (國泰金控) and Shin Kong Financial Holding Co (新光金控) said on the same day they held collateralized debt obligations (CDO) relating to US subprime loans, but they were not yet booking losses because their CDO investments fell into the "hold to maturity" category.
Chang said the commission was still collecting reports from banks.
Shares of Cathay Financial, the nation's largest financial services firm, rose 5 percent to NT$81.90 yesterday on the Taiwan Stock Exchange, while Shin Kong Financial added 4.5 percent to NT$35.75. Both outperformed the benchmark index's 2.68 percent gain.
"Index declines in the past few days have already factored in any possible impact," said Nora Hou, a Taipei-based analyst at Nomura Securities Co.
Lee Chang-ken (李長庚), chief strategy officer at Cathay Financial, said none of its overseas investments -- more than NT$700 billion -- were directly invested in US subprime mortgage products. Only the NT$1.8 billion in CDOs, which are granted high ratings, are related to subprime home loans.
"Even in the worst-case scenario, Cathay Financial would only suffer a loss of NT$1.8 billion," he said.
Standard and Poor's Ratings Services (S&P) said on Tuesday that its ratings on the three life insurers -- Taiwan Life, Cathay Life Insurance Co (國泰人壽) and Shin Kong Life Insurance Co (新光人壽) -- were not immediately affected by their disclosed exposure to US subprime mortgage loan related instruments.
"Standard and Poor's does not expect potential credit losses to materially erode the companies' capital bases, given their adequate profitability and capitalization," it said in a report.
Statistics provided by S&P show that Taiwan Life's booking of a US$13 million loss in the first half accounted for about 3.3 percent of its capital. Cathay Life's holdings of CDOs containing subprime mortgage loans amounted to NT$1.7 billion at the end of June, which was only 1.3 percent of its capital.
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