Taiwan’s life insurance companies reported cumulative foreign-exchange losses and hedging expenses of NT$219.3 billion (US$7.58 billion) for the first nine months of the year, a record high, Financial Supervisory Commission (FSC) data showed on Thursday.
The losses were attributable to the New Taiwan dollar’s appreciation of 3.3 percent against the greenback since the end of last year, the data showed.
A strong NT dollar brought higher risk of foreign-exchanges losses for life insurers, as two-thirds of their investment portfolios, worth NT$18 trillion, are allocated overseas or are in US dollars.
The companies posted combined losses of NT$363 billion in the valuation of their US dollar-denominated assets as of the end of last month, a rapid increase of NT$157.1 billion from a month earlier due to the NT dollar’s rapid appreciation, the data showed.
The NT dollar traded at NT$29.526 to the US dollar at the end of August, an appreciation of 1.9 percent from the end of last year, while it strengthened against the greenback even faster last month to close at NT$29.126 on Sept. 30, with the appreciation expanded to 3.3 percent, central bank data showed.
Faced with a rising NT dollar, the life insurers spent NT$120.6 billion buying hedging tools, such as currency swaps or non-deliverable forwards, the data showed.
The companies also spent NT$20 billion in their foreign-exchange volatility reserve to offset their foreign investment’s valuation losses during the January-to-September period, the data showed.
Despite heavy foreign-exchange losses and hedging expenses, life insurers still reported combined net profits of NT$476.3 billion from their overseas investment for the first nine months of the year, which indicated a return on investment of 2.6 percent, still higher than the return rate of domestic investments, the data showed.
The losses that the life insurance companies incurred from foreign-exchange rate movements are expected to continue widening this month, as the NT dollar continue to strengthen against the greenback, trading above NT$29, the data showed.
As a result, the FSC has approved more life insurance companies to set aside additional foreign-exchange volatility reserves, it said on Thursday.
Meanwhile, life insurers reported cumulative pretax profits of NT$196.7 billion as of the end of last month, up 12.6 percent from a year earlier, which boosted their combined book value to NT$2.19 trillion, the data showed.
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