The Russian government has paid Cathay Life Insurance Co (國泰人壽) interest in US dollars for a bond that matured on Wednesday last week, indicating that the life insurer’s exposure to Russian bonds might be lower than expected, the company told an investors’ conference in Taipei.
The announcement came amid investor concerns that Russia might default on bonds held by the insurer, after Moscow said it would pay bondholders with rubles instead of US dollars, regardless of the terms of the bonds.
“The payment in US dollars was surprising, as we were not expecting any interest payment for the Russian bonds within the next year and were expecting some losses in principal,” Cathay Life executive vice president Lin Chao-ting (林昭廷) said.
Photo courtesy of Cathay Financial Holding Co
The overall situation seems more positive than expected, but as credit rating companies have downgraded Russia’s rating to “C,” which implies an imminent default risk, Cathay Life would discuss with accountants how much expected credit loss it should recognize for this month, Lin said.
Although the bond matured on Wednesday last week, Cathay Life only on Saturday confirmed with its custodian banks that the payment was made, as cross-border payments from Russia take longer after a number of Russian banks were removed from the SWIFT international payment system, Lin added.
Cathay Life received an interest payment in rubles for another bond that matured on Monday, as its terms allow payment in the Russian currency, and did not count it as a default, Lin said, adding that the foreign-exchange risks are not as high as expected.
“Even if all the interest, estimated at about NT$1.1 billion [US$38.54 million] for all of our Russian bonds worth NT$20 billion, were to be paid in rubles, its foreign exchange loss would total NT$300 million at most, which is a fraction of our foreign-exchange risks,” Lin said.
Meanwhile, Cathay Life expects its hedging costs this year to fall by 1.1 percentage points from last year, as the New Taiwan dollar is expected to be weaker than it was in the past two years, which would be beneficial for the insurer’s proxy hedging, Lin said.
Although its pre-hedge recurring yield slid from 3.19 percent in 2020 to 3.02 percent last year, its after-hedge recurring yield rose by 20 basis points to 2.3 percent, and is expected to grow further to 2.4 or 2.45 percent this year, Lin said.
Meanwhile, Cathay United Bank (國泰世華銀行), the banking unit of Cathay Financial Holding Co (國泰金控), said it expects its net interest margin to rise to 1.3 percent by the end of this year, from 1.21 percent last year, in light of an interest rate hike by the central bank.
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