Cathay Financial Holding Co (國泰金控) yesterday said it expects rate hikes by the US Federal Reserve and Taiwan’s central bank would boost returns on bond investments by its life insurance arm.
The Fed on Wednesday raised its benchmark interest rate by three quarters of a percentage point, the largest increase since 1994, after hiking it by 25 basis points in March and 50 basis points last month.
“With the Fed’s rate hikes, we have seen the yields of bonds — US 10-year Treasury, 30-year Treasury, or investment-grade corporate bonds — rise by 150 to 200 basis points, which should boost our interest income,” Cathay Life executive vice president Lin Chao-ting (林昭廷) told an annual shareholders’ meeting in Taipei.
Photo: Liao Chia-ning, Taipei Times
As Cathay Life has increased its investment in US bonds, it forecast that interest income would grow by NT$3.3 billion (US$111.04 million) this year from last year, and the recurring yield would surpass 3.1 percent, Lin said.
If the trend of rising interest rates continues, Cathay Life could see its interest income increase by NT$80 billion in the next five years, Lin added.
Although local and global stock markets have tumbled of late, Cathay Life has bought on dips, targeting companies with advanced technology and rosy prospects, and expects the stocks to provide good returns, the insurer said.
With Taiwan’s central bank on Thursday raising banks’ required reserve ratio by 25 basis points, Cathay United Bank (國泰世華銀行) yesterday said that while this would lead to a decrease in funds available for lending, its loan business would not be affected, as its loan-to-deposit ratio remains at a comparatively low level, spokesman Daniel Teng (鄧崇儀) said.
Unlike Cathay Century Insurance Co (國泰世紀產險), which is to receive a capital injection of NT$10 billion to improve its financial strength as it is facing significant compensation claims for COVID-19 policies, Cathay Life Insurance would not need a capital injection as its risk-based capital stands above 350 percent, Lin said.
The property insurer has paid NT$550 million in compensation to COVID-19 policyholders, but it is hard to estimate how much it would have to pay overall, it said.
In other news, Fubon Financial Holding Co (富邦金控) yesterday said that subsidiary Fubon Insurance Co (富邦產險) would enhance risk management amid criticism by shareholders over disputes with consumers about its COVID-19 insurance policies.
The company did not realize in March that the government would change its pandemic policy from “zero COVID” to “coexisting with the virus,” and thus failed to make adjustments in time, it said.
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