News eDaily11 Apr 2017

Taiwan:Life insurers urged to increase forex hedging

11 Apr 2017

The Financial Supervisory Commission (FSC) is urging life insurers to step up hedging measures as lawmakers raised concerns about the foreign currency related effects of a strengthening New Taiwan dollar.

Against a 2.44% rise in the NT dollar against the US dollar last year, publicly traded companies posted NT$139.9 billion (US$4.6 billion) in foreign exchange losses, with financial firms bearing more than 90% of the losses due to the large overseas investments portfolios of their life insurance units, reported Taipei Times citing the FSC.

Lawmakers have renewed concerns about the financial sector’s sensitivity to a continued rise in foreign exchange exposure this year, with the NT dollar gaining 2.8% against the US dollar in January and 6.4% this year to date.

Hedging measures and profit from such activities would help to contain foreign exchange losses and insurance companies have been advised to build resilience, Insurance Bureau Director-General Jenny Lee said.

She said the effects are expected to continue to decrease from a peak in January, as life insurers have raised the proportion of their hedged positions to more than 70% of foreign-currency denominated investments.

In January, insurers posted combined foreign-exchange losses of NT$227.1 billion, of which NT$191.3 billion were offset by hedging, leaving losses of NT$35.8 billion, commission data showed.

However, the data also showed that reserves against foreign exchange exposure have been drying up rapidly, receding from NT$44.1 billion at the end of last year to NT$23.1 billion at the end of February.

Meanwhile, net foreign capital inflows — one of the drivers behind the NT dollar’s appreciation — rose to a record high US$9.16 billion as of March 3, FSC data showed.

Companies that are unable to set aside additional reserves would face higher hedging costs, adding further strain on earnings growth, analysts said.

Last month, Kuomintang Legislator and former FSC Chairman William Tseng estimated that the Taiwanese insurance industry could lose between NT$120 billion and NT$150 billion in the first quarter of this year from forex.

 

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