Local life insurers in January saw their foreign exchange losses improve from a year earlier due to less volatility and an easing of requirements by the Financial Supervisory Commission (FSC), but their combined pretax profits plunged amid headwinds, FSC data showed.
Insurers booked foreign exchange gains of NT$15.4 billion (US$500.4 million) for January, as the New Taiwan dollar depreciated by 0.02 percent against the US dollar over the period, but those gains were offset by hedging losses of NT$32.5 billion, the data showed.
Net foreign exchange losses for local life insurance companies in January totaled NT$2.26 billion, down from net losses of NT$30.1 billion a month earlier and NT$2.58 billion a year earlier, the commission said.
The eased regulations on foreign exchange reserves that took effect in January allow life insurers to use their reserves to offset up to 60 percent of their foreign exchange gains or losses, up from 50 percent previously, when hedging costs exceed 2 percent, it said.
Life insurers may add 0.06 percent of their foreign currency positions to their reserve each month, up from 0.05 percent when their hedging costs are less than 2 percent, which is expected to expand the size of the reserves by NT$4.3 billion per year, it said.
The system allows insurers to reserve part of their retained profit to absorb potential foreign exchange losses, it added.
Besides the eased regulations, life insurers last month endured less losses, as there was less foreign exchange volatility than in the same period a year earlier, Insurance Bureau Deputy Director-General Wang Li-hui (王麗惠) said.
In January last year, the NT dollar strengthened against the US dollar, causing hedging losses of NT$155.7 billion for the month, commission data showed.
However, life insurers in January saw their pretax profits dive 81.4 percent annually from NT$24.7 billion to NT$4.6 billion, while property insurers reported pretax profits totaling NT$1.1 billion for the period, down 38 percent year on year, the data showed.
Life insurers booked a combined net value of NT$1.26 trillion, a 16.7 percent drop from NT$1.51 trillion a year earlier, the commission said.
FSC Chairman Wellington Koo (顧立雄) on Wednesday said that life insurers could promote their foreign currency-denominated insurance policies to prevent foreign exchange risks.
However, the commission forbids them from promising a high return rate, as that would mean they face higher investment risks, he added.
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