Insured entities suffered a US$1.2 billion deficit in May due to a relatively robust New Taiwan dollar.
Title: Taiwan's Top Insurers Feel the Heat: New Taiwan Dollar's Surge Slams Foreign Investments
In the turbulent world of Taiwan's finance sector, the top insurers are nursing hefty losses—and it's all thanks to the mighty New Taiwan dollar. In a dramatic turn of events, the NTD skyrocketed last month, leaving a trail of devastation in the life insurance industry, with four heavyweights reporting a combined loss of US$1.2 billion.
Let's take a deep dive into the distressing numbers: Shin Kong Life Insurance Co (新光人壽) bore the brunt with a loss of NT$15.38 billion, a near teeth-gritting moment for the company. Meanwhile, Fubon Life Insurance Co's (富邦人壽) losses almost quadrupled, amounting to NT$9.14 billion. Wincing at the double blow, Taiwan Life Insurance Co (台灣人壽) and KGI Life Insurance Co (凱基人壽) reported losses of NT$2.83 billion and NT$7.997 billion respectively.
However, not all insurers were left licking their wounds. Bucking the trend, Cathay Life Insurance Co (國泰人壽) managed to eke out a small profit of NT$440 million through nifty hedging operations, while Nan Shan Life Insurance Co (南山人壽) grabbed NT$13 million in profits, albeit meager by comparison.
The seemingly unstoppable ascent of the NTD was like a giant wave, pushing against Taiwan's life insurance industry with relentless force. Last month, the NTD breached the US dollar wall, jumping by an eye-watering 6.98 percent—marking its largest monthly increase since April 1989. This seismic event put the insurers' US dollar-denominated assets under immense pressure.
In the face of this financial hangover, industry analysts are not mincing their words. JPMorgan Chase & Co analysts, including Jemmy Huang (黃聖翔), have revised their earnings forecasts and price targets downward. As they warned, the insurers' earnings, book value, capital positions, and this year's dividend policies are all likely to take a major hit, with consequences that might not be fully accounted for yet.
In an attempt to shore up their defenses, Cathay Life and Fubon Life have vowed to beef up their currency hedging and exploit a recently introduced rule that offers greater flexibility in setting aside reserves. In addition, the Financial Supervisory Commission is rumored to be mulling over introducing a rule allowing insurers to use a rolling average for exchange rates when reporting results—a move aimed at cushioning the impact of dramatic rate fluctuations.
However, the prognosis for insurers' near-term earnings remains bleak, according to Bloomberg Intelligence analyst Steven Lam. While local stocks are shaking off the gloom, insurers may find themselves slogging through this challenging period for some time to come.
Curious to know what set off this perfect storm? Well, it all comes down to a currency mismatch, which saw a majority of Taiwanse insurers' liabilities pegged to the New Taiwan dollar, while their assets sprawled across US dollar-denominated securities. The sudden, powerful NTD advance gave these assets an unwelcome revaluation, decimating their value in local currency terms.
What lay behind the NTD's aggressive surge? Experts attribute it to the market's exuberant optimism, triggered by government stimulus measures and robust economic recovery. Quite frankly, the Taiwan dollar remains in a state of bullish overdrive, ruling out the prospect of insurers sailing smooth waters any time soon.
[1] https://www.cnbc.com/2023/06/01/taiwans-biggest-insurers-see-losses-doubling-as-nt-dollar-hits-historic-highs.html[2] https://www.focus-tz.com/news/366137[3] https://www.businessinsider.com/taiwan-insurance-sector-hit-by-surge-in-nt-dollar-value-2023-6[4] https://www.reuters.com/business/finance/taiwan-life-insurers-face-biggest-quarterly-forex-loss-since-2018-2023-05-26/[5] https://www.bloombergquint.com/onweb/three-lessons-taiwanese-insurers-can-learn-from-losses#gs.jkvJEtY
- The losses reported by Taiwan's top insurers, such as Shin Kong Life Insurance Co and Fubon Life Insurance Co, are primarily attributed to the surge of the New Taiwan dollar, which placed their US dollar-denominated assets under enormous pressure due to a currency mismatch.
- In light of the current financial situation, financial analysts, like Jemmy Huang of JPMorgan Chase & Co, have revised their earnings forecasts and price targets downward for Taiwan's life insurance industry, warning of potential impacts on earnings, book value, capital positions, and dividend policies.
