Thu, May 05, 2011 - Page 12 News List

NT dollar’s climb overshadows rise in Cathay’s value

BALANCING ACT:While surging property prices boosted its assets, heavier hedging costs because of forex volatility continued to cut into its bottom line

By Crystal Hsu  /  Staff Reporter

Cathay Financial Holdings Co (國泰金控), the nation’s largest financial group by assets, saw its real-estate value expand sharply in the past one-and-a-half years, but foreign exchange volatility continued to dampen overall earnings.

The conglomerate, which owns more than 200 real estate properties nationwide, saw its market value increase by NT$51.5 billion (US$1.8 billion) to NT$300.6 billion as of the end of March, from the last appraisal at the end of September 2009, Cathay Financial spokesman Alan Lee (李偉正) told an investors’ conference.

Property costs amounted to NT$141.3 billion, the financial report showed.

The ongoing hikes in property prices warranted a reappraisal that is usually conducted every two years, Lee said.

The embedded value for the group’s flagship unit, Cathay Life Insurance Co (國泰人壽), was estimated at NT$449 billion as of December last year, rising from NT$407 billion a year earlier, the report showed.

That translates into an embedded value, used to measure the present worth of insurance firms, of NT$44.2 per share at the end of last year, from NT$42 per share a year earlier, the report indicated.

The estimate was lower than market expectations of about NT$47 per share, with the insurer underscoring higher capital costs and lower returns.

Real estate took up 5 percent of Cathay Life Insurance’s total investment in the first quarter with a 5.1 percent return.

However, Andy Chang (張書評), an analyst at Taiwan Ratings Corp (中華信評), the local arm of Standard & Poor’s, said that volatility in the capital and foreign exchange markets would continue to erode the profitability of local financial groups, especially life insurers, for the rest of the year.

Cathay Life Insurance, the nation’s biggest by market share, reported a net loss of NT$1.5 billion in the January-March period on rising hedging costs, which stood at 3.6 percent, Cathay Financial president Lee Chang-ken (李長庚) said.

“While the New Taiwan dollar weakened slightly against the US currency in the first quarter, [Cathay Life] incurred heavier hedging costs because of market volatility,” he said. “We usually try to keep the costs at 2 percent.”

Gross insurance premiums edged up 1.9 percent from a year ago to NT$146.2 billion in the first three months, while first-year premiums dipped 3.3 percent to NT$84.5 billion, the report said.

Lin Chao-ting (林昭廷), an executive vice president at Cathay Life, attributed that to the company’s strategy of retiring interest-sensitive annuity products and emphasizing traditional protection insurance policies.

Chang said the insurer should be able to strengthen its profitability in the long run given its growth in new business value.

Overall, Cathay Financial posted a net profit of NT$1.9 billion in the first quarter, reversing a net loss of NT$1.3 billion a year earlier, as economic recovery at home and abroad improved the banking unit’s bottom line.

Cathay United Bank (國泰世華銀行) reported a net income of NT$3.2 billion in the first quarter, rising from NT$2.6 billion a year earlier, the report showed.

Net interest margin rose to 1.2 percent for the first three months, from 1.08 a year ago, it said.

Cathay Financial shares closed down 1.37 percent at NT$46.85 yesterday, underperforming the TAIEX’s 0.01 percent gain.

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