Cathay Financial's Earnings Call: Cathay Life's Unrealized Gains Rebound to Over NT$220 Billion, CEO Expects Full-Year CSM Growth to Exceed 10%

Cathay Financial Holding (2882-TW) held its 2026 second-quarter earnings conference today. Its core subsidiary, Cathay Life Insurance, delivered strong performance in both core operations and investments during the first half of 2026. The post-hedging investment yield, including gains and losses from FVOCI equity disposals, reached 5.55%. Notably, returns on Taiwan equities hit a high of 39%, and by late August, unrealized gains on domestic and foreign equities had rebounded to over NT$220 billion. As of the end of the first half, Cathay Life's CSM balance reached NT$547 billion, and CEO Lin Chao-Ting expects full-year CSM growth to exceed 10%.

Cathay Life's operating performance in the first half of 2026 was outstanding. Benefiting from a vibrant capital market and precise asset allocation strategies, the company achieved an after-tax net profit of NT$46.2 billion. When including the impact of FVOCI equity disposal gains and losses, the effect on retained earnings reached NT$131.2 billion—surpassing the full-year figure for the previous year and setting a new historical high.

Driven by profit contributions, realized stock capital gains, and rising OCI asset and liability valuation gains, Cathay Life's net worth surged to NT$958.7 billion in the first half, a record high. This represents an increase of NT$454.2 billion since the beginning of the year, with adjusted net worth reaching NT$1.3963 trillion. The net worth ratio stood at 11.8%, while the adjusted net worth ratio reached 17.1%.

In terms of investment performance, Cathay Life successfully captured capital gains at market peaks. The post-hedging investment yield, including FVOCI equity disposal results, reached an excellent 5.55% for the first half. As of the end of July, cumulative cash dividend income recognized by Cathay Life had reached NT$12.7 billion.

During the earnings call, Lin Chao-Ting disclosed the latest asset valuation data. Although the Taiwan stock market experienced a significant correction in July, it rebounded strongly in August, with unrealized equity gains remaining at extremely high levels. As of yesterday (August 27), Cathay Life's unrealized gains on domestic and foreign equities still exceeded NT$220 billion.

He emphasized that the company's future asset allocation principles remain unchanged. After aligning with the new accounting standards, life insurers must place greater emphasis on asset-liability management. Therefore, the portfolio will continue to focus primarily on U.S. corporate bonds. The current yield on new money is approximately 5.4% to 5.6%, which will significantly support future recurring yields. The pre-hedging recurring yield for 2026 was 3.47%, with full-year hedging costs estimated around 1.2%. The post-hedging recurring yield is expected to be around 2.7%. When including contributions from FVTPL, the interest margin is expected to remain stable at over 80 basis points.

In terms of asset allocation, Cathay Life's total investment amount in the first half reached NT$8.01 trillion. Overseas bonds continue to be diversified across regions to reduce concentration risk, with North America accounting for 53%, Asia for 30%, and Europe for 17%. Regarding currency fluctuations and hedging, the foreign exchange price adjustment reserve balance had accumulated to NT$130.9 billion by the end of the first half, providing ample flexibility and buffer.

Regarding core insurance operations and Contractual Service Margin (CSM), first-half new contract premiums (FYP) grew 105% year-on-year, while FYPE increased 27%. New contract CSM reached NT$53.9 billion, with high-CSM health and accident insurance (A&H) contributing nearly 60%. Cathay Life released NT$17.4 billion in CSM during the first half (annualized release rate of approximately 6%), bringing the total CSM balance to NT$547 billion (up 6.9% from the beginning of the year).

Lin noted that while sales of investment-type products exceeded expectations in the first half, they are expected to decline in the second half. The company will shift focus to promoting U.S. dollar variable annuities and A&H products. As a result, the CSM margin in the second half will be higher than in the first half, and the full-year CSM balance growth is expected to exceed 10%. After adopting IFRS 17, liability costs have significantly decreased, and the full-year liability cost is expected to remain at a low level of 2.1% to 2.2%.