KGI Financial Holding Co (凱基金控) yesterday said its life insurance arm has increased hedging and adopted other moves to curb the impact of the local currency’s appreciation on its profitability.
“It is difficult to accurately depict the hedging costs, which might vary from 7 percent to 40 percent in a single day,” KGI Life Insurance Co (凱基人壽) told an investors’ conference in Taipei.
KGI Life, which underpinned 66 percent of the group’s total net income last year, has elevated hedging to 55 to 60 percent, while using a basket of currencies to manage currency volatility, the insurer said.
Photo courtesy of KGI Financial Holding Co
As different currencies demonstrate varying degrees of valuation changes, it is hard to tell the exact cost of hedging, it said.
The insurer said that based on its foreign exchange exposure, every NT$0.1 rise in the New Taiwan dollar against the US dollar would negatively impact the company by about NT$1.7 billion (US$56.79 million), without accounting for valuation gains from hedging instruments.
When gains from traditional hedging instruments and diversified currency positions are considered, the actual impact is expected to be less than NT$1.7 billion, it said, adding that non-deliverable forwards are a part of its toolkit.
As of the end of last month, KGI Life held NT$21.2 billion in foreign exchange reserves, with a break-even point on the exchange rate estimated between NT$30.7 and NT$30.8 against the US dollar, the company said.
The local currency yesterday gained NT$0.08 to close at NT$29.935 in Taipei trading, the highest in more than two years, amid concern over US and EU trade.
The continued advance in the NT dollar could spell foreign exchange losses for local life insurers given their heavy holdings of US Treasuries, corporate debts, securities and other US dollar-denominated investment instruments.
Unrealized losses on equity holdings are expected to decline as gains are realized over time, company officials said, pointing out that the company recorded a small valuation loss on real estate due to a first-quarter reappraisal.
KGI Life updated its embedded value, which stood at NT$475.9 billion late last year, rising 11.3 percent from the previous year.
Embedded value is a measure used by the industry to reflect a life insurer’s total value, including the current value of existing business and forecast profits from policies in force.
The embedded value is NT$28.4 per share, company data showed.
KGI Bank (凱基銀行), the group’s banking arm, said it is looking at loan growth of 15 percent this year, with similar contributions from mortgage and corporate lending operations.
Despite uncertainty linked to US trade policy, the bank said it is aiming for overall loan growth of at least 10 percent, with increases in loan size, interest margins and fee income.
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