The recent violent appreciation of the New Taiwan Dollar (NTD), seeing it hit the "20" range, has raised concerns about its impact on the life insurance industry among Taiwanese legislators. On the 28th, the Chairman of the Financial Supervisory Commission, Peng Jin-long, stated that the life insurance industry holds funds of 37 trillion NTD (5.24 trillion MYR), of which 23 trillion NTD (3.26 trillion MYR) are invested overseas. After deducting 7 trillion NTD (990.787 billion MYR) in foreign currency policies, 60% of the remaining 16 trillion NTD (2.26 trillion MYR) is hedged, leaving 6 trillion NTD (849.246 billion MYR) unhedged, which is equivalent to 200 billion USD. This means that for every 1 NTD appreciation, the life insurance industry loses approximately 200 billion USD.
The NTD continued its appreciation trend, reaching 1 USD to 29.8974 NTD by 1 PM on the 29th, marking a new high in over 2 years. Lin Bo-fong, Chairman of the Third Foundation (Sam Sam Association), called on the Central Bank to stabilize the exchange rate, stating that no other country's currency has appreciated as significantly as the NTD. The business community generally hopes for exchange rate stability.
UMC held its shareholder meeting on the 28th, where CFO Liu Qidong noted that while the economic outlook for the second half of the year is still under observation, the impact of the exchange rate is already evident. Since the company's revenue is 100% calculated in USD, an appreciation of 1% in the NTD will erode the gross profit margin by 0.4%. Therefore, the company will pay close attention to exchange rate changes in the second half of the year.
Exchange rates have both positive and negative impacts on Asia Cement. Executive Vice President and CFO Wu Lingling stated that in the cement industry, the need to import liquefied natural gas and coal as fuel means the appreciation of the NTD reduces payment costs, which is a positive impact. However, imported cement also benefits from the exchange rate advantage, making it cheaper and putting pressure on local cement producers.
Peng Jin-long attended a parliamentary finance committee inquiry on the 28th. The strong rise of the NTD has become a focus of legislators' attention. Legislator Lai Shibao expressed concern, suggesting that the Life Insurance Association recommend the Financial Supervisory Commission to calculate the Risk-Based Capital (RBC) similar to stock prices, using an average price method for exchange rates. Peng Jin-long stated that using average pricing is a very neutral approach, and market stability is important. However, RBC is only valid for another half year, as the new generation of Solvency II (ICS) will be adopted next year, rendering RBC historical. He noted that the commission will consider the industry's associations' suggestions carefully, thinking toward adopting average exchange rate calculations for RBC.
There are voices hoping the NTD will appreciate gradually. However, Lai Shibao also expressed concern about whether a gradual appreciation, akin to the Plaza Accord, could lead Taiwan to follow in Japan's "lost 30 years." Peng Jin-long pointed out that, as far as he understands, the international complexity and interconnectedness at the time of the Plaza Accord were very different from now and should not be compared with the present situation. Over the past few months, the Plaza Accord has been raised multiple times, but whether history will repeat itself remains to be carefully observed according to the Financial Supervisory Commission.