Friday, November 24, 2017

Taiwan revision on equity charges hurts risk profiles

Taiwan’s recent move to revise downward the risk charges on local insurers’ equity positions is credit negative, according to Moody’s Investors Service, because it will strain their risk profile and make them more exposed to market volatility.

Moody’s said the adjustments may escalate to a scenario where insurers might hike domestic equities without compensating reductions in overseas equity exposures.

Last week, the Financial Supervisory Commission (FSC) reduced the risk charges for domestic equities by 5% and exchange traded funds by 19%.

The lowering was aimed at inviting more companies to buy more local shares.

However, the FSC also increased risk charges for insurers’ overseas equities by 6.6% for developed markets and by 16.2% for emerging markets.

Still, Moody’s believes insurers are unlikely to cut down overseas equity positions because the benefits of holding foreign equities far offset the marginal increase in risk charges.

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Zainudin Ishak, Malaysian Re

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