Cathay Financial Holding Co (國泰金控) yesterday said that the local currency’s sharp appreciation has limited impact on its life insurance arm, thanks to 20 years of experience in managing foreign exchange risk.
Cathay Life Insurance Co (國泰人壽) has stood by a dynamic and flexible hedging strategy, which maintained total foreign exchange losses — including valuation changes and hedging costs — at NT$7.3 billion (US$243.15 million), Cathay Life spokesman Lin Chao-ting (林昭廷) told an investors conference in Taipei.
Unrealized losses would ease to NT$5.4 billion after factoring in gains from other currency operations, compared with Cathay Life’s NT$5 trillion in overseas assets — primarily in US corporate bonds, Lin said.
Photo: CNA
The New Taiwan dollar rose 3.6 percent against the US currency last month and has increased another 6.1 percent this month, raising market concerns over possible erosion of capital sufficiency and profitability among local life insurers.
Fitch Ratings and Taiwan Ratings issued separate warnings about domestic life insurers’ profitability outlook, attributable to foreign exchange volatility.
Cathay Life’s foreign exchange exposure is well-controlled, as it has significantly increased its traditional hedging ratio since late 2023 by taking advantage of low-cost opportunities in the non-deliverable forward market, Lin said.
In the previous quarter, the insurer raised its traditional hedging ratio from 65 to 69 percent, while extending hedge tenors from one-to-three months to six-to–24 months, he added.
It also increased its allocation for non-greenback currencies, further enhancing its alternative hedging effectiveness, Lin said.
Only 22 percent of Cathay Life’s portfolio, or about NT$840 billion, is exposed to foreign exchange risk, he said.
With 40 percent covered by alternative hedging tools, the exposure impacting the income statement is limited to about NT$560 billion, Lin said.
For every 1 percent appreciation in the NT dollar, Cathay Life would incur a manageable NT$2 billion loss in foreign exchange, he said.
Cathay Life has also filed a request with the Financial Supervisory Commission to use a new foreign exchange reserve mechanism that would allow the insurer to fully offset foreign exchange losses for this month, even if the NT dollar continues to appreciate, Lin said.
As of March, Cathay’s foreign exchange reserve amounted to NT$30.5 billion, with an extra NT$3 billion provisioned for the January-through-April period, he said.
Even if the NT dollar gains 10 percent to reach NT$29.5, Cathay’s risk-based capital ratio would remain at a robust 329 percent, down from 359 percent in December last year, but still well above the regulatory minimum of 200 percent, Lin said.
The local currency yesterday closed up NT$0.047 at NT$30.023 in Taipei trading.
The net worth ratio would decline by 0.7 percentage points to 8.18 percent, also comfortably above the 3 percent threshold, Lin said.
France cannot afford to ignore the third credit-rating reduction in less than a year, French Minister of Finance Roland Lescure said. “Three agencies have downgraded us and we can’t ignore this cloud,” he told Franceinfo on Saturday, speaking just hours after S&P lowered his country’s credit rating to “A+” from “AA-” in an unscheduled move. “Fundamentally, it’s an additional cloud to a weather forecast that was already pretty gray. It’s a call for lucidity and responsibility,” he said, adding that this is “a call to be serious.” The credit assessor’s move means France has lost its double-A rating at two of the
AI BOOST: Although Taiwan’s reliance on Chinese rare earth elements is limited, it could face indirect impacts from supply issues and price volatility, an economist said DBS Bank Ltd (星展銀行) has sharply raised its forecast for Taiwan’s economic growth this year to 5.6 percent, citing stronger-than-expected exports and investment linked to artificial intelligence (AI), as it said that the current momentum could peak soon. The acceleration of the global AI race has fueled a surge in Taiwan’s AI-related capital spending and exports of information and communications technology (ICT) products, which have been key drivers of growth this year. “We have revised our GDP forecast for Taiwan upward to 5.6 percent from 4 percent, an upgrade that mainly reflects stronger-than-expected AI-related exports and investment in the third
Mercuries Life Insurance Co (三商美邦人壽) shares surged to a seven-month high this week after local media reported that E.Sun Financial Holding Co (玉山金控) had outbid CTBC Financial Holding Co (中信金控) in the financially strained insurer’s ongoing sale process. Shares of the mid-sized life insurer climbed 5.8 percent this week to NT$6.72, extending a nearly 18 percent rally over the past month, as investors bet on the likelihood of an impending takeover. The final round of bidding closed on Thursday, marking a critical step in the 32-year-old insurer’s search for a buyer after years of struggling to meet capital adequacy requirements. Local media reports
RARE EARTHS: The call between the US Treasury Secretary and his Chinese counterpart came as Washington sought to rally G7 partners in response to China’s export controls China and the US on Saturday agreed to conduct another round of trade negotiations in the coming week, as the world’s two biggest economies seek to avoid another damaging tit-for-tat tariff battle. Beijing last week announced sweeping controls on the critical rare earths industry, prompting US President Donald Trump to threaten 100 percent tariffs on imports from China in retaliation. Trump had also threatened to cancel his expected meeting with Chinese President Xi Jinping (習近平) in South Korea later this month on the sidelines of the APEC summit. In the latest indication of efforts to resolve their dispute, Chinese state media reported that
RSS