Cathay Financial Holding Co (國泰金控) yesterday downplayed concerns over its exposure to foreign-exchange and real-estate risks as the New Taiwan dollar gains ground against the US dollar while real-estate prices decline, putting pressure on its foreign-exchange and property assets.
The 5 percent rise in the NT dollar this year could cause between NT$120 billion and NT$150 billion (US$3.93 billion and US$4.91 billion) in foreign-exchange losses for domestic life insurers, given their massive overseas investment portfolios, Chinese Nationalist Party (KMT) Legislator-at-large William Tseng (曾銘宗) said.
Tseng, a former head of the Financial Supervisory Commission, said that to save costs, most life insurers hedge only 74 percent of their overseas investment, leaving the remainder vulnerable to currency volatility.
Cathay Life Insurance Co (國泰人壽) vice president Lin Chao-ting (林昭廷) said that the company’s unhedged positions are mostly foreign equities and the ongoing rally in global stock markets would help offset potential concerns about foreign-exchange losses.
“Concerns about potential foreign-exchange losses are overblown, as we have diversified assets into a basket of different currencies to minimize risks,” Lin said at an investors’ conference in Taipei.
Lin said that the company’s unrealized investment gains have surged from about NT$3.2 billion at the end of last year to NT$16 billion at the end of last month.
Cathay Life’s risk-based capital ratio stood at 305 percent at the end of last year, well above the 200 percent regulatory requirement, Lin said.
However, company data showed that unrealized gains took a NT$25.2 billion hit during the final quarter of last year, dropping to NT$3.2 billion due to tumbles on global equity markets.
On the real-estate risks, Lin said that rental income from home and abroad is expected to increase modestly from NT$9 billion last year to NT$10 billion this year, attributing the increase to high occupancy rates.
Lin said that the company’s real-estate appraisal showed that property prices have held stable due to sound management and timely adjustment of its portfolio.
Tseng said total exposure to US dollar-denominated investments are about NT$11.5 trillion among the nation’s life insurers, US$900 billion for banks and NT$161.9 billion for brokerages.
The effects of the currency losses could begin to materialize when companies report their first-quarter results, he said.
Life insurers have allocated provisions against foreign-exchange risks so that they can weather any volatility, Insurance Bureau Director-General Jenny Lee (李滿治) said.
Cathay Financial reported that its net income last year fell 17 percent year-on-year to NT$48.1 billion. Earnings per share were NT$3.79.