Foreign exchange losses for local life insurance companies last month totaled NT$22.2 billion (US$731.95 million), similar to a year earlier, Financial Supervisory Commission (FSC) data showed.
Insurers last month booked NT$50.1 billion in foreign exchange gains as the monetary valuation of their foreign currency-denominated financial investments advanced with the New Taiwan dollar depreciating by 0.5 percent against the US dollar, the data showed.
However, those gains were eroded entirely by hedging losses of NT$75.1 billion, which consisted of hedging costs of NT$15.2 billion and a loss of NT$59.9 billion in their programs, the data showed.
To hedge against exchange-rate fluctuations, life insurers usually buy foreign currency-denominated hedging programs, such as currency swap or non-delivery forwards, a two-party currency derivatives contract, the commission said.
Some of the hedging tools are designed against the rising exchange rate of the US dollar versus the NT dollar, which made them vulnerable to the depreciation of the NT dollar, the commission said.
“That the valuation losses of those hedging tools was larger than the foreign exchange gains might suggest that the life insurers did not have a good hedging strategy,” an official said.
“To lower the hedging burden, companies need to precisely forecast the timing of the strengthening or weakening of the local currency, which is difficult,” the official said.
Overseas investment plays an important role in life insurers’ portfolios, as they pursue high investment returns in foreign markets given a low benchmark rate in Taiwan.
Life insurers’ combined assets totaled NT$29.8 trillion, 59 percent of which were foreign currency-denominated, or NT$17.7 trillion, the FSC said.
Despite the losses, life insurers’ combined pretax profit last month totaled NT$23.3 billion, an increase of 406.5 percent from a year earlier, as the valuation of their financial investments rose with the TAIEX surging before the Lunar New Year, the commission said.
Life insurance firms and property insurers’ combined net value spiked 53.5 percent annually to an all-time high of NT$2.12 trillion as of the end of last month, it said.
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