Shin Kong Financial Holding Co (新光金控) yesterday said its insurance unit trimmed domestic equities positions, but increased global bond holdings in the first quarter to boost its financial condition.
During the January-to-March quarter, Shin Kong Life Insurance Co’s (新光人壽) local equity portfolio was about NT$30 billion (US$914.6 million) less than a year earlier, while its holdings of global bonds increased by 25.5 percent annually to about NT$290 billion, its parent company told an investors’ conference.
The insurer expects to continue raising its holdings of international bonds to about NT$300 billion by the end of the first half, from NT$265.3 billion at the end of last year, to shelter itself from uncertainties in the domestic equities markets, Shin Kong Financial said.
“We find it difficult to answer regulators’ call on the insurance sector to raise investment holdings in the Taiwanese market,” Shin Kong Financial vice chairman and president Victor Hsu (許澎) said.
Hsu said the company was compelled to forgo viable equity investments, such as shares of Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), due to the nation’s stringent requirements on risk-based capital (RBC) ratios.
“TSMC shares have an estimated return of 4.1 percent and they pay out more than NT$150 billion in dividends at NT$6 per share, but about 80 percent of that windfall goes to foreign institutions due to the discrepancy in requirements that places domestic companies at an disadvantage,” Hsu said.
Based on the beta of 1.26 percent for TSMC shares, domestic insurers are subject to a much higher RBC fee compared with peers in other developed economies, Hsu said.
“As the IMF considers Taiwan a developed economy, the nation should adopt an RBC system that is more in line with other developed economies,” Hsu said.
Shin Kong Financial said stringent regulatory guidelines has also caused a 10 percent annual decline in the embedded value of Shin Kong Life as of the end of last year.
The insurer’s embedded value tumbled to NT$215.7 billion as it adjusted to new requirements for RBC ratios from 0.1 times to 0.3 times. That translates to an embedded value per share of NT$37.2 for the insurer and NT$21.1 for the parent company, down from NT$41.1 and NT$24.3 a year ago.
In the first quarter, Shin Kong Financial reported a net loss of NT$2.56 billion, or NT$0.26 per share, compared with a profit of NT$3.6 billion the previous year.
Shin Kong Life booked an unrealized gain of NT$72.6 billion in the first quarter from its real-estate holdings following a re-appraisal.
Hsu said the company plans to resume investments in the sector and is actively seeking bargains amid a correction in property prices.
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