Taiwanese life insurers’ foreign exchange losses in the first half of the year were NT$151.8 billion (US$5.14 billion), the highest for the January-to-June period, as the New Taiwan dollar strengthened against the US dollar, making their hedging strategies ineffective, Financial Supervisory Commission data showed.
Life insurers posted a valuation loss of NT$183.1 billion for the first six months, as the combined monetary valuation of their foreign currency-denominated assets retreated due to the appreciating NT dollar, the commission’s data showed last week.
As of the end of June, the NT dollar had strengthened 1.5 percent against the greenback from the end of last year, the data showed.
However, the valuation loss was partially offset by insurers’ hedging tools and their foreign-exchange valuation reserve, the data showed.
Overseas investment plays an important role in life insurers’ portfolios, as they pursue high returns in foreign markets, given a low benchmark rate in Taiwan.
To hedge against exchange-rate fluctuations, life insurers usually buy foreign currency-denominated hedging programs, such as currency swaps or non-deliverable forwards, a two-party currency derivatives contract, the data showed.
Some of the hedging tools are designed against the rising exchange rate of the US dollar versus the NT dollar.
In the first six months, life insurers spent NT$83.7 billion buying hedging tools, down 22.8 percent from NT$107.3 billion a year earlier, as the narrowing spread between Taiwan’s interest rates and the US’ benchmark rates lowered the price of the hedge programs, the data showed.
Despite the losses, life insurers’ combined pretax profit stood at NT$110.1 billion for the first half of this year, up 18.8 percent from a year earlier to its highest level, as the TAIEX was higher than a year earlier, which helped boost the valuation of insurers’ financial investments, the data showed.
Their combined net value increased 19.88 percent year-on-year to NT$2.06 trillion as of the end of June, which was a record high, the data showed.
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