Net foreign-exchange losses at local life insurance companies hit a record last year, but are expected to narrow this year thanks to the US Federal Reserve’s dovish stance, Financial Supervisory Commission (FSC) Chairman Wellington Koo (顧立雄) said yesterday.
Domestic life insurers reported net foreign-exchange losses of NT$232.3 billion (US$7.53 billion) last year, up 31.9 percent from the net losses of NT$176.1 billion in 2017, commission data showed.
The commission attributed the increase to a higher hedging cost of NT$484 billion last year, as insurance firms had to pay more due to foreign-exchange volatility and widening interest rate differential between Taiwan and the US.
However, the FSC expects net foreign-exchange losses to decline this year, as the Fed has put interest rate hikes on hold, Koo told a question-and-answer session at the Legislative Yuan in Taipei.
That move would help stabilize the interest rate differential between the two nations, which means that the exchange rate between the New Taiwan dollar and the US dollar could be less volatile than last year, Koo said.
Local insurers’ overseas investments, including global bonds, totaled NT$16.73 trillion as of January, accounting for 68.06 percent of their working capital tallying NT$24.58 trillion, Koo said.
Insurance firms have been looking for overseas investment targets with higher returns, as the benchmark rates in Taiwan have been comparatively low since the central bank cut rates in 2001, except when they climbed above 3 percent before the financial crisis in 2008, Koo said.
However, central bank Deputy Governor Yen Tzung-ta (嚴宗大), who also attended the meeting, said that Taiwan’s rates are not the lowest in the world, as the 10-year government bond yield, which stands at 0.8 percent, is higher than those in Germany, France and the Netherlands.
The ratio of insurers’ overseas investments to their working capital is the highest in the world, which explains why the firms suffered higher foreign-exchange losses, Yen said.
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