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Analysts say Fubon Life to face limited pressure on capital

Life insurance companies are under pressure to raise capital because of the recent appreciation of the NT dollar, but Fubon Life Assurance Co (富邦人壽) will see limited impact, given its better-than-expected currency hedging capabilities, analysts said yesterday.

"[Fubon Life] still has sufficient capital, it's [doing] okay," said an analyst, who requested anonymity.

The analyst's remark came after news that Fubon Life plans a capital raise this year to comply with the financial regulator's new subprime accounting rule.

The insurer, a subsidiary under Fubon Financial Holding Co (富邦金控), may raise capital of between NT$3 billion and NT$4 billion to keep its risk-based capital (RBC) ratio between 250 percent and 300 percent as required by the regulator, Fubon Financial president Victor Kung (龔天行) said on Saturday. RBC is a measure of a company's financial strength.

By keeping a more than 250 percent RBC ratio, Fubon Life will be able to apply for approval from the regulator to increase its overseas investments from 35 percent of its capital to 40 percent.

Kung did not say how much the company's losses from subprime-related investments and foreign exchanges had lowered its RBC ratio, which still leveled at 290 percent late last year.

But he added that losses from subprime-related investments and a strengthening NT dollar would weigh heavily on most local life insurers' profits this year.

Dexter Hsu (許世德), a Taiwan equity research analyst at JPMorgan Chase, agreed, expressing a negative view toward the local life insurance sector's outlook.

"Most life insurers need to raise capital. It's a matter of time," Hsu said yesterday, adding that JPMorgan is the first foreign investment bank to have a negative rating on the performance of life insurers this year.

Shin Kong Life Insurance Co (新光人壽) reportedly plans to raise NT$10 billion this year, while Taiwan Life Insurance Co (台灣人壽) is evaluating the situation. Meanwhile, Cathay Life Insurance Co (國泰人壽) has no plans to raise capital.

Aside from losses from subprime-related investments and currency exchanges, most life insurers are likely to report worse-than-expected performance in the first quarter because of past sales of low-margin products, he said.

Another analyst said he expected the US dollar to ease its downward trend, which would likely boost domestic life insurers.

"We expect the US dollar to soon bottom out and strengthen against the euro and Japanese yen," said Mike Chow (周道中), a senior manager with Yuanta Securities Corp (元大證券).

With a rebounding greenback, the NT dollar, whose recent gains were boosted by foreign capital inflows, is unlikely to gain further before May 20 when president-elect Ma Ying-jeou (馬英九) takes office, he said.

The NT dollar has gained nearly 7 percent since the start of the year to trade at NT$30.402 against its US counterpart on Friday.

Chow also expressed confidence in the future performance of Fubon Financial, which will soon be the first Taiwanese bank to branch into China via its Hong Kong banking subsidiary.
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