Friday, November 24, 2017

Strong currency puts pressure on Taiwan life insurers

As Taiwanese life insurers venture offshore in search for higher yields, they are also exposing themselves to unfavourable capital and currency market fluctuations, Fitch Ratings said in a new report.

Taiwan’s interest rates have been low recently.

The one-year deposit rate dropped to 1% from 1.2% between 2015 and March 2017.

The strong appreciation of the Taiwan dollar against the US dollar is not seen to help life insurers at all, profitability-wise.

Instead, it could put pressure on their capitalization, although they have resorted to control mechanisms like currency swaps and proxy hedging.

To minimise risk, they may also release foreign-exchange volatility reserves.

As of March this year, overseas investments took up 64% of the sector’s invested assets.

Non-life players, for their part, enjoyed sound capital buffers to endure the investment volatility and possible catastrophe losses.

Their combined equity-to-assets ratio as of end-March this year stood at 32%.

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