Proxy-hedging problems
Taiwanese life insurers are facing issues with their proxy hedging positions linked with dollar-denominated assets. How are they managing their books? By Toby Garrod
Taiwanese life insurers' portfolios typically comprise 30-35% of foreign assets and, of those, well over 80% are US assets. Given the thinness and illiquidity of the offshore non-deliverable forward (NDF) and local cross-currency swap (CCS) markets, it has been challenging for many of these companies to move away from proxy currency hedging towards straight hedging without pushing up prices on the target product. In short, proxy hedging - whereby a basket of correlated currencies is used as a
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