The capital adequacy of the nation’s life insurers would remain healthy even if the New Taiwan dollar continues trading above NT$29 to the US dollar, Financial Supervisory Commission Chairman Thomas Huang (黃天牧) told lawmakers at a meeting of the legislature’s Finance Committee on Thursday.
The NT dollar climbed above the central bank’s alleged threshold of NT$29 on Oct. 6 and central bank Governor Yang Chin-long (楊金龍) earlier this month said that it might become the new normal for the local currency to trade above NT$29 against the greenback.
In light of the strong NT dollar, the Insurance Bureau in August ran a stress test on the nation’s life insurance companies to assess the impact of exchange-rate risk on their finances, Huang said.
Photo: Wu Chi-lun, Taipei Times
In the test with a scenario that the local currency was trading at NT$28 to the US dollar, the net-worth-to-assets ratio of all the nation’s life insurance companies remained above 3 percent, the regulatory minimum, except for Hontai Life Insurance Co (宏泰人壽), the commission said.
Hontai Life, which registered an equity-to-asset ratio of 1.88 percent at the end of June, has been asked to improve its financial strength and if the insurer fails to lift the gauge above 3 percent by the end of this year, the commission would impose corrective measures on the firm, such as limiting its operations, it said.
“Overall, it seems that local life insurance companies could handle a strong NT dollar,” Huang told the meeting.
Increased net profit at life insurance companies last year are expected to help cushion their foreign-exchange losses, he said.
Local life insurance companies reported combined foreign-exchange losses of NT$195 billion (US$6.74 billion) as of the end of August, up 32 percent from a year earlier, as the fast appreciation of the local currency made their hedging strategies ineffective and slashed the monetary value of their assets denominated in US dollars, commission data showed.
However, investment gains, thanks to a booming local stock market and volatility on global financial markets, helped offset those losses, enabling the firms to post a combined pretax profit of NT$186 billion for the first eight months of the year, up 12 percent year-on-year, the data showed.
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