With the New Taiwan dollar’s appreciation trend against the US dollar continuing, Cathay Life Insurance Co (國泰人壽) is facing higher hedging costs and last month set aside an additional NT$2 billion (US$69.05 million) in foreign-exchange volatility reserve, a filing showed.
In the regulatory filing issued on Thursday last week, Cathay Financial Holding Co (國泰金控) said that its life insurance subsidiary had gained the Financial Supervisory Commission’s approval to increase its volatility reserve as buffer against potential foreign-exchange losses.
The move came after Cathay Life in April, June and July raised its volatility reserve by NT$1 billion, NT$1 billion and NT$3 billion respectively.
Foreign-exchange volatility reserves of major life insurers have dropped amid the local currency’s appreciation trend.
As of the end of last month, the commission had approved eight life insurance companies to add a total of NT$16.35 billion to their volatility reserves, including NT$4 billion for Shin Kong Life Insurance Co (新光人壽) in July, NT$3 billion for Nan Shan Life Insurance Co (南山人壽) in June, and NT$2 billion and NT$1.5 billion each from China Life Insurance Co (中國人壽) and Taiwan Life Insurance Co (台灣人壽) in August.
In the first nine months of this year, the NT dollar rose 3.26 percent against the US dollar and became one of the strongest-performing currencies versus the greenback. It last week fell 0.55 percent to close at NT$28.966 per US dollar on Thursday in Taipei trading.
Based on commission statistics published on Tuesday, Taiwanese life insurers reported a combined foreign-exchange loss of NT$205.9 billion for their overseas investments in the first eight months.
By using hedging tools and volatility reserves to partially soak up the losses, the life insurance industry’s foreign-exchange costs for their overseas investments totaled NT$195.5 billion at the end of August, the commission said in a news release.
While the figure was up 32 percent from a year earlier, it did not dampen life insurers’ profitability, as their pre-tax profits increased 12.4 percent from the previous year to NT$186.8 billion during the eight-month period, the commission said.
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