Nan Shan Life Insurance Co (南山人壽) and Cathay Life Insurance Co (國泰人壽) have cut the declared interest rate on their New Taiwan dollar-denominated policies for this month.
Life insurers announce each month the rate — based primarily on the rate of their investment returns — that they are to use to calculate the size of policyholders’ distributions.
Nan Shan lowered the declared rate for 10 of its NT dollar-denominated products to a range of 2.15 percent to 2.25 percent from last month’s 2.3 percent, the company told the Taipei Times yesterday.
The company said it trimmed the rates on the expectation of falling investment returns due to the high cost of hedging against foreign-exchange risks and as some issuers continue to redeem bonds.
Given the low yield of 10-year US Treasury bonds, more issuers are expected to redeem their bonds this year to stop paying higher interest to investors, Nan Shan said.
This means that it must find new investment targets that could generate higher returns, the company said.
Nan Shan has kept the declared rate for its US dollar-denominated products unchanged at 3.3 percent, it said.
Cathay Life has reduced the declared rate for about 30 of its NT dollar-denominated interest-sensitive policies by 10 to 20 basis points, with the rates falling to between 2.15 percent and 2.3 percent, Cathay Life executive vice president Lin Chao-ting (林昭廷) said by telephone.
“Hedging costs are expected to continue to rise this year as the NT dollar is likely to remain strong against the greenback. Fluctuations in exchange rates will increase our costs and reduce our investment returns,” Lin added.
“It is a consensus in the industry that hedging costs will continue to rise. Some of our peers lowered their rates one or two months ago,” he said.
Cathay Life said that it would not adjust the rate for its NT dollar-denominated policies that are below 2 percent, as it seeks to keep rates higher than the return on a two-year fixed savings deposit.
The company raised the declared rate for its US dollar-denominated products by 5 basis points to 3.25 percent — the first change since August last year — due to higher market rates, Lin said.
Other companies such as Fubon Life Insurance Co (富邦人壽), Taiwan Life Insurance Co (台灣人壽保險) and China Life Insurance Co (中國人壽) have decided to keep their declared rates unchanged this month.
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