Fubon Financial Holding Co Ltd

TWSE:2881

Earnings Call Transcript 2021-Q1

[Operator]

Thank you for standing by, and welcome to Fubon Financial's First Quarter 2021 Financial Results. [Operator Instructions] This call is being recorded. [Operator Instructions] Now I'll hand the call over to your host, Ms. Amanda Wang, investor Relations Officer of Fubon Financial Holdings. You may begin.

[Amanda Wang, executive]

Thank you. Welcome, everyone. Thank you for joining Fubon Financial's First Quarter Conference Call today. And there will be 2 sections in the presentation today, including Fubon's first quarter performance and followed by the embedded value of on last year 2020. Then we will have the Q&A session hosted by the senior management team, including President, Mr. Harn.

So firstly, please turn to Page 4 of the presentation. In April, the Board announced the proposal of dividends, including the cash as $3 per share and subdividend at $1 per share, which are record high, which including upstream from Fubon Life of TWD 7.4 billion and also contributions for other subsidiaries. In the first quarter, the earnings performance is quite strong that come to TWD 50.6 billion in the first quarter with the growth from all major subsidiaries and specifically from Fubon Life. At net worth, the book value per share on a common share basis reached over $72 per share. And in terms of the assets, we also reached a record high, including use of the financial assets that will consolidate into the holding company's financial statement starting from March.

In Fubon Life, the net profit growth on back of investment return improvement, the hedging cost improvement and also the premium that we continue to spend at a top 2 position in the market. In the meantime, the net worth reached over TWD 524 billion hit record-high performance. In Taipei Fubon Bank, the net profit growth in the first quarter is about 20% year-over-year. And the increase mainly comes from net interest income and also treasury activities. And meanwhile, the double-digit growth in the active credit card and card consumption push up our market share gain. Card asset quality for the whole bank remains benign.

In Page 5, Fubon Insurance continued with a strong market position with the top 1 at the market share of over 24%. The net profit growth is flat is investment return improvement. In Fubon Securities, the net profit growth reflected its brokerage business, less attributable to the market turnover strength and also increase in the brokerage market share. In terms of strategic development, FinTech is one of the key areas in Fubon. So we would like to report to you, in Taipei Fubon Bank, we have reached our numbers of the online customers with nearly 1.98 million.

And also online trading volume continues to grow at over 47% growth year-over-year. In Fubon Securities, there is over 74% of the trading now it goes through online. And for a new account customer, the percentage is even higher at 90%. In terms of the ESG development, 3 points to report to share with you firstly is that we rank top one in the Sustainalytics ranging in terms of a global insurance industry and also among top 3 among global cooperation. In Taipei Fubon Bank, we recently also implemented the loans connected to the sustainability index to foster sustainable development. In the meantime, the low-carbon economy is one focus area, and we recently announced a few initiatives including termination of new project finance in coal-fired power plants. And also we set up stringent lending criteria in specific sectors.

In Page 6, in terms of the holding company's profitability, we can see the net profit growth of 120% year-over-year and also EPS which the holding company's top position.

On Page 7, the earnings growth is across all major subsidiaries. And subsequently, Fubon Life contributed 80% of the holding company's earning.

In Page 8, the assets now reached over TWD 9.6 trillion, that is also including adjacent assets, which is first time to consolidate into the holding company's balance sheet starting from March. And also, the net worth increase and therefore, push up our book value per share to over 72%. In ROA and ROE, both increased year-over-year. And please note, this is on annualized basis.

Next, let's move on to Fubon Life. Please turn to Page 11. The total premium is 8% decline. This mainly reflects the renewal premium sale of about 12.7%, and that is on back of the payout pattern of the regular pay policy. Further, first year premium continued to grow at over 5%.

In Page 12, the first year premium growth that you can see from this page that's mainly attributable to the investment-linked and also in interest-sensitive annuity policy. And therefore, a contribution of investment-linked go up to 48%. And interest-sensitive annuity go to over 20% of FYP.

In Page 13, we can see FYPE and VNB decline as a result of; number one is high base in the same period last year. And secondly it is because of the investment-linked product was popular in this quarter. However, if you look at the quarter-over-quarter performance, we can see FYP actually increased by over 30%, and therefore, both the FYPE and VNB growth.

In Page 14, in terms of channel, we can see Taipei Fubon Bank play key role in terms of FYP contribution at over 70% -- 37%. And FYPE contribution mainly came from tied agent contribution, that's about 47%.

In Page 15, in terms of the investment portfolio, total growth reached 12.2%. And in terms of the allocation, we can see the domestic equity investment increase. While the overseas fixed-income percentage came down, that mainly reflects portfolio adjustment ahead of the bond yield rebound to take profit and also lead to a higher cash position.

In Page 16, and overseas fixed-income portfolio, here, we can see the competition change, reflected: number one, is the fixed -- the financial bonds decreased year-over-year, mainly reflecting redemption of the international bond year 2020. However, the trend actually has already been stabilized this year. And the new allocation starting from last year and also second half this March, that we gradually deploy into the corporate bond and also the government bonds. And in terms of geographical exposure, Asia and others increased that mainly reflects the government bond investment.

In Page 17, the investment income here, we can see a meaningful growth of over 50% year-over-year. And in terms of the return, also increased both before and after hedge basis, as we can see in the bottom 2 lines of the table. And that's mainly on back of the capital gains strength and also the hedge cost improvement.

In Page 18, the hedging cost on your upper left-hand side that we can continue to improve. And we also expect the hedge cost can see a lower level compared to year 2020's level at about 93 basis points. So the overall current return on before and after hedge basis, it was declined so far in the first quarter that mainly reflects number: One, a higher cash position and less from capital gain realization; and number two is the Taiwan dollar appreciation. However, we do expect that after hedge basis recurring trend should see stabilization for the full year.

And in cost of liability, we can see on Page 19, it shows improvement year-over-year. And therefore, the positive spread between the cost of liability and investment return has widened. And in the lower part of this page, you can see the breakeven point also shows improvement that due to: number one is cost of liability; and also number two is the product mix change.

And in Page 20, the unrealized gain continues to increase quarter-over-quarter on back of the realized capital gain also shows a record high. And we can see the mark-to-market value primarily comes from the contribution of equity investment. And therefore, the shareholders' equity also reach an all-time high.

Next, let's move on to Taipei Fubon Bank. The revenue is 6.5% growth year-over-year, mainly driven by net interest income growth of over 5% and also treasury-related growth. In the meantime, the net fee income with a downward trend. That's mainly because of adjustments in the product mix in wealth management business.

In Page 23, we move on to the credit competition. In Taipei Fubon Bank, the loan growth of 9.4% compared to the power industry average growth over the same period of [47. 8% ], that we continue to outperform.

In Page 24, the composition into each of the loan segments, we can see the loan growth for corporate banking, primarily driven by NT dollar loan book, that is a growth of 8%. And SMEs and other key growth area with over 17% growth.

In Page 25, the mortgage grew at 9.3%, and another key area for the retail credit is personal unsecured loan, that's another 19.9% growth.

From the funding cost perspective, in Page 26, we can see the growth in both the NT dollar and foreign currency deposit balance. In the meantime, the composition from demand deposit ratio both improved from NT and foreign currency. And the total book -- demand deposit ratio reached over 61%. In terms of the asset deployment, NT dollar loan-to-deposit goes slightly higher to 85.9%. While the foreign currency book is including the bond investment reached 67%.

In Page 27, the interest spread shows a sequential improvement in first quarter, our loan deposit spread is 1.3%. For the net interest margin started down by 1 bps or 4 bps down on a same year basis, that we expect mainly the interest rate cut.

In Page 28, the asset quality of the bank remained stable, as you can see, NPL and also coverage ratio, both shows improvement and also outperformed the market average.

And the following page, on Page 29, we further break down asset quality by business line that we can also see a solid performance. For the provision cost on your right-hand side, is mainly driven by the general provisions of the loan growth and our [indiscernible] provisioning level is benign.

In Page 30, the fee income was down 14% year-over-year, that mainly reflects the wealth management fee down by 9.5%. That's mainly because of adjustment in the sales product mix. While in the meantime, the AUM of the wealth management business continues to grow by 9% growth year-over-year and outstanding reached nearly TWD 1 trillion.

In terms of the credit card, a deeper look at the business dynamics, you can see the cards and also the total consumption amount, both shows growth and also outperform the market. While the per card basis, the spending -- per card spending actually came down. The overseas are spending at the same team during the pandemic.

In Page 32, the overseas branches, the performance that we see the top line revenue still is a decline. In fact, we'll see the growth from the wealth management fees, however, the net interest income is still a downward trend, mainly because of the more cautious underwriting policy and also rate cut. And that's why that bring down a contribution to 9.6% of the total bank.

Next, let's move on to Page 34. In Fubon Insurance, its premiums, leading market position of over 24% let us [indiscernible] #1, while the underwriting quality remain very strong. You can see the net combined ratio reached 90.2% and this improvement year-over-year.

In Page 36, in Fubon Securities, the net profit also shows meaningful improvement. And that mainly reflect it's a brokerage business as the market turnover increased and also our brokerage market share continue to stand market share.

In Page 38, in Fubon Bank China, the balance sheet items, including asset loan and deposits all show a decent growth. And strategically, we continue to calculate Taiwanese customers as a priority in our growth strategy.

In Page 39, we can see the net profit of Fubon Bank China will be the growth of 6%, mainly on back of the net interest income growth and the main expansion of over 30 basis points is one of the key contributors. Asset quality remains stable. And looking ahead, we expect the capital investment plan of RMB 1 billion would support its growth into the next phase.

And next, we will have Grace Chiu to present the embedded value of Fubon Life. Ms. Chiu is the appointed HR and Senior Vice President of Fubon Life. Okay, great. Over to you. Thank you.

[Grace Chiu, executive]

Okay. Thank you, Amanda. I'll report the 2020 embedded value results. And as past practice, the results have been reviewed by Deloitte Consulting on a four-score basis.

Now please turn to Page 41. The value creation summary for Fubon Life Taiwan. The 2020 net worth and the adjusted net worth grew by more than TWD 100 billion. The growth is much explained by the historical high record of earnings of TWD 60.6 billion, equity market rebound and fixed-income asset appreciation. The value of in-force after cost of capital stands at TWD 336.7 billion, or 20.4% higher than previous year. These 2 contributed to embedded value reach at TWD 781.4 billion, a strong growth of 29% accordingly.

New sales value creation. In 2020, the FYP and VNB is much lower than 2019, mainly resulted from 2 reasons. The high base of 2019 due to 2x of subsidy effect. Total sales of 2020 because of COVID-19 and reserving interest rate reduction. The 2020 VNB is TWD 24.4 billion, a 25% lower than previous year. However, you can note that our VNB margin is increased due to the higher FYP mix of regular pay traditional insurance policy. Some of them came from the 2019 stopped building effects bill over to 2020. The value per financial holding company share is 76.4% for embedded bedding and 98.7% for appraisal value, respectively.

Page 42. The movement analysis of adjusted net worth. The historical high record of TWD 60.6 billion and TWD 86.3 billion financial asset appreciation in 2020 drives a significant growth of net worth to reach a high record. The adjustment made to never worth, to calculate the adjusted net worth are similar to previous years. Here is for your reference, that the biggest part is the adjusted market value of fixed-income assets to book value because the investment assumption will calculate for VIF is based on the book yield.

Page 43. The value of in-force before CoC movement. The expected earnings and require return explain how this low over 1 year, TWD 19.7 billion earning is transferred to the net worth, which is much lower than the actual result we have in 2020, which is TWD 60.6 billion. The data change is a positive impact, this data change is meant to capture the impact of actual versus expected policy data variances. The reduction of credit rate for interest-sensitive product helped to reduce the cost liability and contributed the positive impact here. Compared to last year, the investment return assumption are adjusted downward to reflect the NTE appreciation and low interest rate environment. Negative impact from noneconomic assumption change reflects the slightly higher morbidity and less rate assumption. The value of new business is an important driver for VIF growth as previous years. The risk discount rate reduction from 11% to 10% contribute another 10% growth. We will explain more why we lower the risk discount rate on Page 48.

Page 44, the VNB movement. The same basis VNB reduced by 32% with the negative impact for sales volume reduction and positive impact on product mix. The economic change is the positive to reflect the latest interest rate environment, although it's lower, but we also have lower hedging costs. The noneconomic assumption is the negative impact reflect the slightly higher net rate and unit cost assumption in 2020. Risk discount rate is reduced by 50 basis points and we'll explain further on Page 48.

Page 45 summarize the economic assumption for your reference. Now please move to Page 46. The value of in-force portfolio return, you could see the investment return is slightly lower in early period. This is to reflect the latest economic environment, the existing assets, hedge costs and other investment assumptions. We realized some capital gains from 6 big income assets last year when the interest rate was lower, which leads to more cash ahead and lower yield for newly invested investment, but is expected to pick up the yield gradually into the future.

Page 47, the VNB portfolio return. The investment return starts at higher than last year with the gap gets closer in later years to reflect the recent interest rate environment, lower hedge costs and other investment assumptions.

Page 48, the discount rate. The CAPM model is utilized to evaluate the risk discovery assumption as previous years. After incorporating the latest interest rate, equity plus country risk premium and beta, the calculated risk discovery curve shows about 1% lower than last year. The equity plus country risk premium gradually decreases in recent years to reflect the improvement of Taiwan rating, our country rating and better investment environment. The beta also gradually reduces per financial holding company stock experience. Risk discount rate in some sense, could be explained as shareholder required return. In the past, we used a higher discount rate for VIF and lower for VNB, which mainly to reflect there are some high-guarantee interest rate policies in the in-force portfolio. After many years of effort striving to lower the cost of liability and the calculated discount rate on CAPM model, we decide to use 10% discount rate for both VIF and VNB this year. This has been discussed and agreed by our external consultant, Deloitte. The risk discount rate of 10% is also now closer or slightly higher than the main tiers.

Page 49, cost of capital. The methodology is the same and no regulation changes for risk capital calculation this year. Pages 40 -- Page 50 and 51 presents the sensitive summary for portfolio return and risk discovery to different value metrics for your reference.

Now I will pass the call over to Ophelia from Deloitte Consulting. Thank you.

[Ophelia Au Young]

Okay. Thank you, Grace. Good afternoon, everyone. We are now on Page 52 of the presentation. Deloitte is honored to have been engaged by Fubon Life again for the review of this year's EV and VNB. Similar to the previous years, describe of this year's review includes a reasonableness review of the assumptions applied by Fubon Life in this calculation as well as the overall EV and VNB results. A high-level review of the actuarial model and policy data used by Fubon Life in this valuation. And also a review of the calculation methodology for the cost of capital, adjusted net worth and the value of in-force movement analysis.

Moving on to Page 53. With respect to the risk discount rate assumption applied by Fubon Life, the assumption derivation methodology has been kept consistent using the CAPM approach. Similar to the previous year's, Fubon Life has derived 4 data points, including the risk discount rate based on the current risk rate, long-term risk rate as well as an in-force and new business equipment, RDR. These 4 RDRs lie between 7.71% and 10.13%, and Fubon Life has set the RDR assumption for both the in-force and new business at 10% for this year's valuation.

Moving on to Page 54. In the previous years, Fubon Life set a higher RDR for the in-force business to reflect the higher cost of capital and interest rate risk underlying the in-force business. Through its efforts in adjusting the business mix for new business, the risk profile of both the in-force and new business has converged over time. We find the use of the same risk discount way for both the in-force and new business, a reasonable approach for this year's valuation.

Turning to Page 55. With respect to the investment return assumption, Fubon Life has adopted a consistent derivation methodology. The initial VIF rate for both new Taiwan dollar and U.S. dollar has been updated to the prevailing level as of the valuation date whilst keeping the long-term level the same as last year's. Investment return assumption for all asset classes has been appropriately updated to reflect the company's latest asset mix and investment strategy.

Turning to Page 56. Based on our review, we found the investment return assumption and the adjustments made to the net worth internally consistent, the overall investment return assumption lies within a reasonable range.

Turning to Page 57. Deloitte Consulting has also reviewed all the noneconomic assumptions applied by Fubon Life. All the assumptions have been updated to reflect the company's latest experience and lie within a reasonable range.

Now to Page 58. Through a review of the movement analysis for the sale of in-force business and value of new business and also a series of sensitivities, we find overall EV and VNB results for this year to lie within a reasonable range. This is Deloitte Consulting's briefing on our review of Fubon Life's EV results. Detailed findings can be found in the opinion letter issued by Deloitte Consulting.

Thank you for listening, and I'll now pass the time back to Amanda. Thank you.

[Amanda Wang, executive]

Okay. Thank you, operator. We can open the floor for Q&A.

[Operator]

[Operator Instructions] Our first question is from Jemmy Huang of JPMorgan Securities.

[Jemmy Huang, analyst]

Just 3 question for me, mainly on the insurance. First one is, can you explain a little bit more in terms of the decline, year-on-year decline for the renewal premium in the first quarter, the reason behind? And then how we see the full year situation here? And then the other 2 questions were related to the embedded value. In terms of the beta, you lower from 1.2 to 1.1. Just wondering what kind of time horizon are you using to determine the beta? Is that 1 year or 3 year or 5 year average? And then the second question is on hidden cost, I know you -- the investment return assumption being up for value of new businesses. This is our hedging costs, just trying to understand whether you do the same adjustment or similar adjustment for VIF or you simply do this for VNB this time?

[Amanda Wang, executive]

Okay. So let me reiterate Jemmy's question. I think the first question regarding the renewal premiums decline. I think this question will have tied into reply and the second and third question related to the embedded value, can we have Grace to reply.

[Grace Chiu, executive]

Regarding renewal premium, because for the past several years, we saw a lot of short premium period product and in this year, a lot of policies are paid up. So that's why the renewed premium dropped substantially this year.

[Amanda Wang, executive]

And I think, Jemmy, you also asked about our full year expectation on renewal premiums.

[Grace Chiu, executive]

Our renewal Premier, we will expect to up 10%, well, 10% to 20% this year in the -- for the whole year.

[Jemmy Huang, analyst]

Sorry, can I -- I didn't hear you clearly. So it's 10% to 20% decline for this year for the renew of premium?

[Grace Chiu, executive]

Yes, from previous year.

[Jemmy Huang, analyst]

And also, can I follow up that you mentioned, it's mainly because of the 2-year paid products that you sold in the past couple of years?

[Grace Chiu, executive]

Right. That's correct. 2 or 3 year.

[Amanda Wang, executive]

For the risk discount rate, because we don't think this is some sort of shareholder required returns. So we don't think this is a very frequently changed from year to another. So when we looked at the information for the assumption, the beta is based on the past 10 years' average. And for the hedging cost effect, yes, the hedge cost for the -- is applied to -- the assumption will be to reflect the latest experience for both VNB and VIF. But because for better in-force, many of them is already -- the hedge contract is already there. So the new hedge contracts, they have very small impact to the whole portfolio return. That's the reason why I don't mention that in the big part, but just in VNB. But actually, they are almost reflected. And most recently experienced are also affected.

[Operator]

[Operator Instructions] Excuse me speakers, at this time, there are no further questions on queue. Please proceed.

[Amanda Wang, executive]

And we wait for a few seconds to see if there is any questions come up. Thank you.

[Operator]

We do have one question. It is from Steven Lam of Bloomberg Intelligence.

[Steven Lam, analyst]

On 2 fronts, both relating to life insurance. One is given the trend that we have seen so far in first quarter, would you suggest that it will be difficult to grow the value of new business for this year? Is it mainly due to the volume side? Or it's a combination of both volume and margin. Second part of the question -- second part is about investment. So notice that very, very strong earnings up until April. We will see probably the May number very soon in a couple of weeks' time. But just curious, what would be the management expectations, say, in May, June or in the near term, for example, would we still expect a higher level of realized gains from securities and have you sort of taken the opportunity to deploy some of the cash holdings that you have had in March? Maybe bought a bit more in terms of foreign bonds, for example?

[Amanda Wang, executive]

Okay. I think your first question is regarding our VNB outlook for this year. So I will have Grace to comment on that. And I think second question regarding the investments. I think we probably can only have a very high level of comments. So I think, [ Grace ], please comment on the second one. Thank you.

[Grace Chiu, executive]

Okay. The first quarter VNB dropped mainly caused by the margin drop. And the main reason is that some market is doing very well. And the first quarter, most mainly switch from traditional inter-sensitive products to unique-linked policies. So -- and the most policies are single premium. And that margin is much lower than regular pay interest-sensitive product. That's quite a margin drop allowed. And for the next few quarters, we try to push more protection products and try to bring up the VNB margin.

[Operator]

Our next question is from Roger Lum of GIC.

[Roger Lum, analyst]

I think the speaker before me has asked a similar question, but I thought I'd approach the investment question slightly differently and ask your investment team. I mean, in terms of the rest of the year, what kind of top-down strategy are you looking at in terms of investing in the market? And obviously, the equity team has done extremely well. But again, it is tough to make predictions about performance for the rest of the year. But can you help us understand what's the strategy for the next 9 months?

[Amanda Wang, executive]

Okay. Thank you, Roger. Grace, can you please comment on our top-down investment strategy. Thank you.

[Grace Chiu, executive]

Okay. No problem. I think, this is mentioned earlier that we already have realized substantial gain from both fixed income and also -- fixed income such as bond and also equity market in the first quarter. And -- and currently, even though the recent COVID-19 outbreak has caused turbulence in the financial market overall, however, we think Taiwan's economic look promising. So in fact, the previous earnings momentum to sustain going forward. With the increased cash position, as we just mentioned that we saw that from equity and also bond, we will be able to buy bid of the market, some market, which may be high dividend pay on and also growth potential. In addition, with the rising bond yield environment and low hedging costs, we will expect this overall return maybe after hedge still can fit last year's level.

[Roger Lum, analyst]

And -- sorry, just to add on to that, I mean, the unrealized gains are quite massive still. So to what extent will that provide also a buffer in terms of the rest of the year?

[Grace Chiu, executive]

I would say it could be still substantial, but -- yes, quite similar to last quarter.

[Roger Lum, analyst]

Okay. So understood. Yes. Go ahead, Amanda.

[Amanda Wang, executive]

Okay. Roger, yes. Just want to reiterate, I think our top-down focus is still more on the recurring turn management. So in terms of the recurring return, and for after hedge basis, we can be at least at a similar level as in year 2020. So that we can achieve a positive spread between the recurring returns versus the breakeven point.

[Roger Lum, analyst]

Sure. Sure. I mean, I'm asking because a lot of the consensus has to be raised quite a bit just because of the very strong first quarter. So I guess we want to calibrate our expectations for the rest of the year. Obviously, I hope you beat all the numbers and everybody has to continue to upgrade. My other question is a small question here about the insurance business. So the VNB has actually collapsed quite a bit. And it's driven basically by renewal premiums collapsing. But just wondering, how about the persistency ratio because we didn't show that number? Does it also reflect a drop in persistency?

[Grace Chiu, executive]

No, actually, the persistency is pretty good. Still above 95%. So it's not a problem.

[Amanda Wang, executive]

Okay. And yes, let me add on a few comments. Roger, if you can refer to the summary -- sorry, the appendix page at the back of this presentation in the bottom of the table, which shows the persistency for 13 months and 25 months. And you can see the 13-month persistency still at 97% and 25 months is 95%.

[Roger Lum, analyst]

Yes. I got it. I missed this.

[Operator]

Our next question is from Brooksley Kang of BofA Securities.

[Brooksley Kang, analyst]

I have 2 questions on banks. So first, I think in the first quarter, the FX lending still has some growth, despite of that the management mentioned that actually, we are still conservative on lending policy. So can I have more color that is -- whether or that in some of the regions we are now more comfortable with? And second question is that if I can have some high-level comments and updates on Fubon Hong Kong for first quarter?

[Amanda Wang, executive]

Okay. So I think for the first question, yes, please. Thank you.

[W. Harn, executive]

The first quarter, our loan -- total loan outstanding increased 9% up to TWD 1.5 trillion mainly from our SME lending and the retail consumer lending plus mortgage loan. And also, we have a 13% increase in our foreign currency, long-term bond investment. As you referring to the FX lending, the asset to foreign exchange currency-denominated loan outstanding increased mainly from our local corporate. They draw down our U.S. dollar loan to support their overseas investment. So while you mentioned our loan outstanding increase in overseas branches, in that part, our lending policy so far is kind of conservative rather than aggressive. So our loan outstanding in Hong Kong, let me give you an example. Our loan outstanding in Hong Kong actually is drop from previous year, year-on-year growth is 20% decrease for the reason that some of the loan repaid. And we are in a position to review our credit quality. So, so far, our overseas lending, Hong Kong and Singapore, we reduced our exposure. And while we increase our loan outstanding in Vietnam by 40%. So that is basically the situation in our overseas branch.

[Amanda Wang, executive]

Yes. And also, firstly, you asked about Fubon Hong Kong. But we actually only disclosed on a half year basis. And I think the very high-level comment is that we see the -- starts to show stabilization and also the asset quality.

[Operator]

Our next question is from Chung Hsu of Crédit Suisse.

[Chung Hsu, analyst]

I have 2 questions from Fubon Life. If I look at your presentation, Slide 19, I just want to clarify, your cost liability on a year-over-year basis, is down about 20 basis points from 3.51% to 3.31%. But your breakeven point is down 43 basis points. I just wanted to -- if you could clarify what's that additional of 23 basis point decline breakeven points coming from? I guess what I'm trying to get at is how sustainable or stable is this drop in breakeven point much more than the drop in cost liability?

My second question is on FX hedging cost. If I go to Page 18. And if I look at just the gray area, the gray bar on the left side, the currency swap at NDF cost dropped from 42 basis points to -- in fourth quarter to 12 basis points. I'm just trying to get a sense that it feels at a 12 basis point hedging cost in the first quarter. It feels if you have almost no NDF, it's a very small NDF, but then we still see a pretty big sequential Q-o-Q drop. So can you just give us more color, the split? Or was it more because you changed your hedging mix Q-over-Q to drive that? I'm just also similarly trying to get a sense of how sustainable this very low hedging cost of 38 basis points is for 2021?

[Amanda Wang, executive]

Grace, just please comment firstly.

[Grace Chiu, executive]

Last April because the pandemic effect dropped the interest rate. So that's why we drop our credit rate interest-sensitive product by 20%. And usually, it takes 1 year to roll over all the in-force business. So that's why the cost dropped substantially last year. But this year, we go back to normal. So the average drop will be 5 to 6 bps. The breakeven point, as per last year because of the product mix. We sold a lot of 6-year -- 6 paid whole-life product. And that is to hold the additional reserves. So that's why the breakeven rate is high but this year, because the product mix changed, it go back to normal, around 2.6%. And we expect the 2.6% will last for the whole year, this year.

[Chung Hsu, analyst]

I see. Just want to clarify on that point. So those 6-year products mature or -- so this some release of the reserve. And so this 2.6%, it won't be some one-off items we have to adjust, meaning this -- like you said, this 2.6% is going to be a sustained or more closely tied to your cost liability trend going forward? Or should we expect more impact on product mix change for the rest of the year?

[Grace Chiu, executive]

This year, we don't have that kind of product. So we expect the breakeven year rate will be stable at 2.6%.

[Amanda Wang, executive]

Okay. over net interest, could you just comment on the second one? And your comment on the second question.

[Grace Chiu, executive]

And then I think maybe you can look at a chart like as I just mentioned, that actually, our position or even for -- hedge by forward actually the position is relatively high. And it's because the hedge, the [indiscernible] drop point actually reflect the differential or gap of the U.S. and Taiwan dollar interest rate. That means the 2 rates keep narrowing from maybe last year. So the reason you can see our hedge cost from the last charter is also down from minus 70% and minus 42% and even at minus 26%. It just reflects net interest gap between the U.S. and NT dollars, and that will be the trend.

And also because the forward country normally more in equities within the 6 months last is because the rollover effect. So you can see it's just gradually lower and lower. So based on the later thing sort, we still expect this interest gap still very narrow this year that means our cost currency stop point or cost could be [ suspend ] at this current low level. So that reason we just mentioned in the Chinese product, we think our overall hedge costs can be matched, maybe within 70% to 90% at this point or lower about 15 basis points compared to last year. Here is our view right now.

[Operator]

We have another question. I'm sorry, go ahead.

[Amanda Wang, executive]

Sorry. Let me add some comments, if I may. I think Chung's question on NDF. Indeed, we do have NDF position, but it accounts for a very low percentage in our hedge mix. And we tend to be quite active in adjusted risk portfolio. I think by end of March is at a very low position. It also reflect the NT dollar's position at that time. So -- but I think we widen our exposure to NDF from time-to-time where we feel the need to do so. And that's why the echo forecast just mentioned, year-round full year expectation for the hedge cost will be somewhere about 70 to 90 basis points.

[Operator]

We have another question from Steven Lam.

[Steven Lam, analyst]

I know it's running out of time, so I'll be quick. On Life side, I just want to hear your views on the recent spike in COVID cases. I know it's a very unfortunate event. A lot of people are working very hard to contain that. But what's your outlook for the impact on, say, new business for example, especially from the experience that we've seen elsewhere, it will be very hard to sell protection-type products when face-to-face is being reduced? Secondly, just in terms of going back to the investment preference, could we get some color in terms of your preference in the next 6 to 9 months, say between the regions, say, Asia versus Europe versus North America?

[Grace Chiu, executive]

The pandemic will cause a lot of impact on our new business according to our experience last year. So we expect these 2 months will be very difficult. But for the second half year, we'll see, and hopefully, the business can pick up.

[Amanda Wang, executive]

And President, Cheng, do you have anything to add comments from [indiscernible] perspective?

[Yao Hui Cheng, executive]

Regarding the COVID-19. So far, including our corporate and retail business, from the deposit lending and wealth management, situation is still under control, no significant change. So we are waiting for this situation and to see what the pandemic will continue or not.

[Amanda Wang, executive]

Thank you, President Cheng. And Grace, would you comment on the investment performance by geography. Thank you.

[Grace Chiu, executive]

Okay. Now first, I will talk about the fixed income. The U.S. region remain our priorities and other maybe also euro region. And for equity, if opportunity arise, we will buy on bits, both with the high dividend and payout and also growth potential and most likely will be Taiwan or stock market. That's all.

[Amanda Wang, executive]

Okay. Thank you, Grace.

[W. Harn, executive]

Okay. I just want to add that the COVID-19 situation in Taiwan started to deteriorate about a week ago. It's probably too difficult to gauge the impact on our business. I think it will be probably more appropriate for us to give you a more precise update probably in the next few weeks. I think any comment at this moment is still pretty premature in my view.

Okay. Amanda, please go ahead.

[Amanda Wang, executive]

Okay. Thank you, President Harn. So, operator, I think we are fine with the call for time being and time is up. So shall we close the call, please?

[Operator]

Of course. That concludes today's conference. Thank you all for participating. You may disconnect at this time.