Interest in interest rates
An interesting article by Norman Yin (
To exemplify my point, I can counter-argue that the insurance companies benefit from interest rate cuts because the government bonds they hold now are worth more under a low rate environment. On the other hand, when interest rates go up again, companies sell products priced on a low interest rate would benefit from that cost of capital and a higher return on their assets. So what is the truth?
The truth is both scenarios are possible. Insurance companies can get hurt by having long term fixed income liabilities when interest rates fall. They can benefit from it if they hold long term fixed income financial assets instead of liabilities. The advantage and disadvantage reverse when interest rates go up.
So what should the insurance companies do? If insurance companies can neutralize their exposure by matching the term of their assets to their liabilities they should be immune from interest rate moves. They will function solely as a service provider of risk pooling, insurance product marketing, claim service and legal assistance rather than an asset manager. Managing assets in today's global economy and interest rate environment can be a very tricky business. The crisis of Long Term Capital Management LLP is a daunting example. If an insurance company decides to keep its exposure either liabilities or assets, it should be a concious business decision. The company should know it is making a bet on the interest rate moves and that it can profit or lose from it. Insurance companies should not rely on the central bank to maintain a stable interest rate environment. Since the later has a primary goal of combatting inflation or recession. The central bank will raise or cut interest rates whenever needed to safeguard the economy and a lot of time their moves are restricted by the global environment.
My point of view is the same as Yin's only with a different emphasis on responsibilities. Insurance companies can get hurt in a changing interest rate environment. So the government should not in any situation press financial institutions to buy government bonds. On the other hand, insurance companies should always know their asset liability decisions are markets bets, all the time. As fair players they should take their profit as well as losses. Under today's global economy, insurance companies should think twice about their interest rate exposures. And maybe it would be wise to concentrate on their specialties when exposing themselves to risk and let somebody else worry about the interest rate for them.
Shultz Lu
Atlanta, Georgia
`Fakers' should serve
The conscription system in Taiwan recently came under the spotlight again as claims were made that physician Chai Chien-min (
As roughly 1,000 students each year are admitted to medical schools in Taiwan and 75 percent of those are male, then 40 percent of students were in fact disqualified for service because of one medical problem or another. This is disturbing, and only a naive person would believe all the excuses were legally justifiable.
Dr Wang Wei-tien's (
The doctors interviewed by Lin actually conceded that it was difficult to tell through examination if those being examined had taken medication before the check-up, probably because there were no routine blood or urine tests carried out to screen for drug abuse. Athletes who try to boost their muscle power before competitions frequently take steroids. However, their misconduct is almost always caught as a result of strict screening procedures. Therefore, to ensure fairness in the conscription system, a thorough follow-up investigation to catch those who cheated in the initial check-up should be done.
I wholeheartedly concur with Bo Tedards' disapproval of the disgraceful mentality of medical students who try to look for any legal loophole to escape service ("Letters," May 4, page 12). The officials in charge of conscription should immediately implement an expanded version of alternative service, including medical service as suggested by Tedards, as a way of solving this problem. Moral persuasion to youngsters that serving in the army is a duty and great honor is important but is also a lousy cliche that will not yield immediate results.
Guo Bih-fang
Kaohsiung
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