FSC mulls more policies to shore up the NT dollar

HOT MONEY:
The central bank has been working to manage the appreciation of the NT dollar, which this year has gained 4 percent against the greenback

• By Kao Shih-ching / Staff reporter

Taiwan’s life insurance companies might be allowed to sell more policies denominated in foreign currencies, in a bid to help the central bank curb the New Taiwan dollar’s appreciation against the US dollar, the Financial Supervisory Commission (FSC) said yesterday.

The commission currently limits premiums generated from a life insurer’s products denominated in foreign currencies: The cap is 35 percent of the insurer’s liability reserve multiplied by another percentage that equals one minus the firm’s approved ratio of overseas investment, the Insurance Bureau said.

The central bank advised the bureau to raise the limit to 45 percent, so insurers could sell more US dollar-denominated policies, which would increase demand for the US dollar and slow the strong NT dollar, bureau Director-General Shih Chiung-hwa (施瓊華) told reporters by telephone yesterday.

The bureau has been given similar advice by some foreign trade groups, but as easing the limit would be a big change, it has asked the Life Insurance Association to evaluate what the effect would be on the market, Shih said, adding that a final decision has not yet been made.

If the commission decides to raise the ceiling, it would ask life insurers to inform policyholders of the foreign-exchange risks, she added.

Most consumers buy US dollar-denominated policies for better returns, but they should be fully aware that as the policyholder, they bear the foreign-exchange risks, a bureau official said by telephone.

For example, it is economical for people to exchange local currency into the greenback to pay their US-denominated premiums, as the NT dollar has remained strong, but if the NT dollar weakens, the foreign-exchange rate would no longer favor policyholders, the official said.

A preliminary assessment showed that if the limit were raised by 10 percentage points, life insurers could sell at least an additional NT$1 trillion (US$34.7 billion) in policies denominated in foreign currencies.

Shih’s comment came after the Chinese-language Apple Daily reported yesterday that central bank Governor Yang Chin-long (楊金龍) had contacted FSC Chairman Thomas Huang (黃天牧) to discuss the possibility of deregulating life insurers’ overseas investments to boost demand for the US dollar.

The reason behind the request is that the central bank has been working to manage the fast appreciation of the NT dollar, which so far this year has strengthened more than 4 percent against the greenback, the Apple Daily reported.

The NT dollar yesterday closed lower at NT$28.82, approaching the central bank’s reported defense threshold of NT$28.50. The possibility of the bank’s intervention caused a retreat from a jump of NT$0.298 in noon trading.

Not disclosing details of the agencies’ discussion, Shih only said that the commission is cautious about the bank’s recommendation of relaxing the 45 percent limit on total overseas investments that life insurance companies must currently follow.

“That would be too big of a change, as life insurance companies invest tens of trillions of NT dollars overseas,” Shih said. “We worry about their risk exposure, so we tend to be a bit reserved about that suggestion.”