Strengthening hedging strategies in response to NT$ currency appreciation by KGI.
KGI Financial Holding Co addresses foreign exchange exposure impact on profitability
KGI Financial Holding Co, a prominent Taiwanese financial institution, has revealed steps taken to mitigate the negative effects of the local currency's appreciation on its life insurance arm's profitability.
KGI Life Insurance Co, which accounted for 66 percent of the group's total net income last year, has increased hedging to 55 to 60 percent and diversified its currency positions to manage currency volatility, according to the insurer.
The company disclosed that a NT$0.1 increase in the New Taiwan dollar against the US dollar would result in a negative impact of approximately NT$1.7 billion without considering valuation gains from hedging instruments. However, when gains from traditional hedging instruments and diversified currency positions are taken into account, the actual impact is expected to be less than NT$1.7 billion, KGI Life stated.
As of the end of last month, KGI Life held NT$21.2 billion in foreign exchange reserves, with a break-even point on the exchange rate estimated between NT$30.7 and NT$30.8 against the US dollar. The local currency gained NT$0.08 to close at NT$29.935 in Taipei trading yesterday, reaching its highest level in more than two years amid concerns over US and EU trade.
The continued appreciation of the New Taiwan dollar could potentially lead to foreign exchange losses for local life insurers, given their substantial holdings of US Treasuries, corporate debts, securities, and other US dollar-denominated investment instruments.
KGI Life has updated its embedded value, a measure of the total value of the life insurer, to NT$475.9 billion, reflecting a 11.3 percent increase from the previous year. Embedded value suggests the current value of existing business and forecast profits from policies in force. The embedded value per share stands at NT$28.4, according to the company data.
KGI Bank, the group's banking arm, aims for a 15 percent loan growth this year, with similar contributions from mortgage and corporate lending operations. Despite uncertainties linked to US trade policy, the bank is targeting overall loan growth of at least 10 percent, with increases in loan size, interest margins, and fee income.
In addressing foreign exchange exposure, KGI Financial has been expanding its operations, including an overseas branch in Hong Kong, which may help diversify income streams. The institution has also been notable for innovative financial services, although specific details about the life insurance arm's performance and challenges were not mentioned in the available search results.
- The banking-and-insurance industry, with KGI Financial Holding Co as an example, has been proactive in managing foreign exchange exposure, especially in the finance and business sectors, as shown by KGI Life Insurance Co's increase in hedging and diversification of currency positions to counteract currency volatility.
- As the banking-and-insurance industry faces potential foreign exchange losses due to the continued appreciation of the New Taiwan dollar, KGI Financial Holding Co, through KGI Life, has been taking measures to mitigate these losses, such as increasing hedging, diversifying currency positions, and expanding operations overseas to diversify income streams.
