Taiwan’s life insurers have refrained from aggressively building up their reserve to protect against foreign exchange volatility introduced in March last year, reflecting limited desires and flexibility to alter hedging strategies, according to Taiwan Ratings Corp (中華信評), Standard & Poor’s local arm.
The reserve pool accounts for a mere 0.38 percent of domestic life insurers’ overseas investments as of September last year, down from 0.5 percent in March the same year, when they were first allowed to set aside the fund, the ratings agency said.
“Until the fund grows substantially, it can provide only marginal support to insurers’ bottom lines,” Taiwan Ratings’ credit analyst Patty Wang (王珮齡) said, attributing the drop in reserves to rapid growth in overseas investments.
The reserve fund is intended to counter the negative impact of severe foreign exchange fluctuations on their assets.
The slow build-up of reserves indicates that domestic life insurers may keep their prudent hedging strategies unchanged in the coming one to two years, Wang said, adding that they are generally exposed to higher foreign exchange risks than regional peers because of their large overseas exposure and higher rate of currency-mismatch problems.
“We don’t expect the pool to expand rapidly in the near future unless insurers are willing to sacrifice their earnings to make additional provisions,” Wang said.
The small reserve pool restricts hedging flexibility and life insurers are unlikely to lower their hedged positions drastically to save hedging costs in the absence of a strong foreign exchange buffer, Wang said.
Life insurers would have to substantially increase their foreign exchange reserves if they want to more effectively cushion against foreign exchange losses, Wang said.
Consequently, the use of the reserve may not trigger rating actions in the coming one to two years even though drastic changes in foreign exchange risk-taking behavior will impact credit profiles, Taiwan Ratings said.
The agency has assigned a negative rating outlook on local life insurers because of the sector’s volatile capitalization and lower earnings in comparison with Asian peers.
GROWING OWINGS: While Luxembourg and China swapped the top three spots, the US continued to be the largest exposure for Taiwan for the 41st consecutive quarter The US remained the largest debtor nation to Taiwan’s banking sector for the 41st consecutive quarter at the end of September, after local banks’ exposure to the US market rose more than 2 percent from three months earlier, the central bank said. Exposure to the US increased to US$198.896 billion, up US$4.026 billion, or 2.07 percent, from US$194.87 billion in the previous quarter, data released by the central bank showed on Friday. Of the increase, about US$1.4 billion came from banks’ investments in securitized products and interbank loans in the US, while another US$2.6 billion stemmed from trust assets, including mutual funds,
Micron Memory Taiwan Co (台灣美光), a subsidiary of US memorychip maker Micron Technology Inc, has been granted a NT$4.7 billion (US$149.5 million) subsidy under the Ministry of Economic Affairs A+ Corporate Innovation and R&D Enhancement program, the ministry said yesterday. The US memorychip maker’s program aims to back the development of high-performance and high-bandwidth memory chips with a total budget of NT$11.75 billion, the ministry said. Aside from the government funding, Micron is to inject the remaining investment of NT$7.06 billion as the company applied to participate the government’s Global Innovation Partnership Program to deepen technology cooperation, a ministry official told the
Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), the world’s leading advanced chipmaker, officially began volume production of its 2-nanometer chips in the fourth quarter of this year, according to a recent update on the company’s Web site. The low-key announcement confirms that TSMC, the go-to chipmaker for artificial intelligence (AI) hardware providers Nvidia Corp and iPhone maker Apple Inc, met its original roadmap for the next-generation technology. Production is currently centered at Fab 22 in Kaohsiung, utilizing the company’s first-generation nanosheet transistor technology. The new architecture achieves “full-node strides in performance and power consumption,” TSMC said. The company described the 2nm process as
Even as the US is embarked on a bitter rivalry with China over the deployment of artificial intelligence (AI), Chinese technology is quietly making inroads into the US market. Despite considerable geopolitical tensions, Chinese open-source AI models are winning over a growing number of programmers and companies in the US. These are different from the closed generative AI models that have become household names — ChatGPT-maker OpenAI or Google’s Gemini — whose inner workings are fiercely protected. In contrast, “open” models offered by many Chinese rivals, from Alibaba (阿里巴巴) to DeepSeek (深度求索), allow programmers to customize parts of the software to suit their
RSS