Life insurers should be able to weather the NT dollar's 5 percent appreciation in the past two months, although losses incurred from overseas investments are estimated at between NT$10 billion (US$3.2 million) and NT$15 billion, Taiwan Ratings Corp (中華信評) said yesterday.
"Given [insurers'] improving risk management, adequate profitability and adequate capitalization, Taiwan Ratings believes that the local currency's appreciation won't have a major impact on risk profiles in the sector," the report penned by credit analysts Serena Hsieh and Andy Chang (張書評) said.
The NT dollar rose NT$0.131 to close at NT$30.748 against the US dollar on the Taipei foreign exchange market yesterday. The local currency has risen 5.23 percent against the greenback this year, tallies compiled by the central bank showed.
Taiwan Ratings, a local arm of Standard & Poor's, estimated that the life insurance sector's foreign-exchange losses over the past two months would erase between 20 percent and 30 percent of the sector's annual earnings, which averaged NT$50 billion annually between 2004 and last year, Hsieh said yesterday.
The NT$10 billion to NT$15 billion losses will represent between 0.1 percent and 0.15 percent of the sector's total assets as of October last year, the report said.
The ratings agency said most insurers should be able to absorb the losses.
Taiwan Ratings estimated that the overall industry's effective hedge ratio was between 70 percent and 80 percent at the end of last year. Foreign assets accounted for 32 percent of the industry's total investments last year, up from 30 percent the previous year, the report said.
The agency said foreign exchange fluctuations alone were unlikely to turn 2008 into a loss-making year, or have a negative effect on local life insurers' ratings.
"Even if the Taiwan dollar appreciates by up to 10 percent since the beginning of January 2008, the overall sector will likely be able to absorb the maximum potential loss," the report said.
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