Welcome everyone to Cathay Financial Holding Company's third quarter 2025 conference call. All lines have been placed on mute to prevent background noise. After the presentation, there will be a question and answer session. Please follow the instructions given at the time if you would like to ask a question. Now I would like to introduce Mr. Chang-Ken Lee, CEO of Cathay Financial Holding. Mr. Lee, please begin.
Thank you. Good afternoon and good morning to those in Europe. Welcome to Cathay Financial Holdings 2025 third quarter analysis meeting. I am C.K. Lee, CEO of Cathay Financial Holdings. Today I will host the meeting. Thank you for joining us. In the beginning, I would like to introduce the senior managers who are with us today. We have Grace Chen, CFO of Cathay Financial Holdings; Abel Lin, managing senior EVP of Cathay Life; Jack Chen, executive VP of Cathay United Bank. Before we begin the presentation, I would like to share some highlights. Cathay Financial Holdings delivered a strong performance in the first nine months, achieving our third highest result on record, with net income of NTD 75 billion and a ROE of 11%. Our core business remain resilient.
Cathay United Bank, Cathay Century Insurance, and Cathay Securities all reached record heights, while Cathay Securities delivered its second-best nine-month result. Cathay United Bank reported 11% year-on-year earnings growth, supported by double-digit growth in net interest income and a 25% increase in fee income. In Cathay Life, earnings declined year-on-year, reflecting volatile financial market in the second quarter and a higher base of capital gain last year. That said, business fundamental remained solid. Annualized premium, value of new business, and recurring income all posted healthy growth.
Cathay Century continued to deliver strong underwriting profit, with net income already surpassing last year's full-year level, up 28% year-on-year. Cathay Securities also achieved 50% earnings growth. Cathay Securities continued to strengthen its position in the domestic brokerage market and maintain its number one ranking in sub-brokerage. Now, I will hand over the call to Claire from IR team for the 2025 third quarter result presentation. Claire, please.
Thank you. Let's start with the business overview on page 4, which provides a quick highlight on each subsidiary. Cathay United Bank delivered record high earnings for the first nine months, 11% year-on-year growth. Loan and deposits growth remained solid, and asset quality stayed strong. Net interest income increased by 12% year-on-year. Net fee income rose 25% year-on-year. Wealth management and credit card fees, 31% and 14% respectively. Cathay Life first year premium, annualized premium, and the value of new business all achieved double digits year-on-year growth. Recurring yield continued to improve, supported by higher dividend and interest income. Capital position remained robust with an equity to asset ratio of 9.3%. Cathay Century, the general insurance subsidiary, net income for the first nine months exceeded last year's full year result, reaching an all-time high.
Premium income grew 9% year-on-year, and the market share reached 30.8%. Asset management subsidiary, Cathay Securities, also delivered record high earnings. Assets under management reached NTD 2.3 trillion. Cathay Securities continued to gain market share in the domestic brokerage business and remained the number one in sub-brokerage market share. Cathay Financial Holdings continue to strengthen its asset management business as the group's third profit engine. Please turn to page 5. The group has integrated the investment research capabilities of the life insurance business, the distribution strength of banking business, and the product development expertise of the asset management arm to expand asset management capability and the service scope. Today, the group's total asset under management have exceeded NTD 10 trillion. To further strengthen global connectivity and investment insight, we hosted the second Cathay Asset Management Summit in October.
Global investment experts and the Cathay team explore market trends, investment strategies, and industry development. Please look at page 6. Cathay Financial Holdings net income and EPS. Cathay Financial Holdings net income reached NTD 75 billion, down year-on-year. This was mainly due to the sharp appreciation of the Taiwan dollar in the second quarter and the high base of investment gains from last year's strong financial market performance. However, the core business momentum across subsidiaries remained solid. Earnings per share was NTD 4.84. Page seven shows the subsidiaries' net income and ROE. Cathay United Bank, Cathay Century, and Cathay Life each delivered record high earnings for the first nine months, while Cathay Securities achieved its second highest performance for the same period. The bank reported NTD 35 billion in net income, up 11% year-on-year.
P&C Insurance grew 28%, and asset management increased 15%. Cathay Life posted NTD 35 billion in net income down year-on-year due to the high investment gap base and the sharp appreciation of the Taiwan dollar in the second quarter. Nevertheless, recurring income continued to rise and underwriting operations remained steady. On a consolidated basis, Cathay Financial Holdings recorded ROE of 11%, with the bank, P&C Insurance, asset management, and securities all delivering superior ROE performance. Please turn to page 8 to see the book value of Cathay Financial Holding. The consolidated book value of holding company was NTD 908 billion, up from the end of last year, supported by profit contribution and partially offset by mark-to-market losses on financial assets amid the sharp appreciation of the Taiwan dollar. Book value per share was NTD 54.5.
Page 9 shows our overseas expansion. For the banking business, Cathay United Bank's Singapore branch launched corporate loan services, the first among Taiwan-based banking, to address the growing demand for corporate cash management and help clients manage cash flow and liquidity more effectively. For the insurance business, Cathay Life's joint venture in China achieved 60% year-on-year growth in total premiums, driven by the soft selling effect ahead of the reduction in guarantees rate. Please turn to page 11 for more details about the banking subsidiary. Cathay United Bank's total loan balance rose 8% year-on-year to NTD 2.76 trillion, with growth across all segments. Personal loans grew 14% and mortgage loans increased 8%. Deposits rose 21% year-on-year to NTD 4 trillion, maintaining the advantage of a high demand deposit ratio of about 60%. Interest yield is shown on page 12.
Interest rates for the first nine months increased to 1.87%, up 5 basis points year-on-year, supported by lower funding costs from U.S. rate cuts and optimized deposit mix. Net interest margin for the first nine months remains flat year-on-year at 1.55% as adjustment in higher yield FX financial assets reduced asset yield. Page 13 shows the asset quality. Cathay United Bank maintained low NPL ratio at 14 basis points and the coverage ratio at 1,140%. Gross provision was NTD 5.2 billion and the recovery was NTD 1.3 billion. Please turn to page 14 for SME and foreign currency loans. SME loan balance grew 7% year-on-year to NTD 361 billion.
Foreign currency loans also expanded, reaching NTD 289 billion, up 11% year-on-year, or 16% including the impact of Taiwan dollar appreciation. Page 15 shows offshore earnings. The offshore earnings reached NTD 6.2 billion, up 5% year-on-year, driven by the recovery in deposits, loans, and investment income. Please turn to page 16 for net fee income. Net fee income reached NTD 26 billion, up 25% year-on-year. Wealth management fees grew over 30%, while credit card fees increased 40% year-on-year, supported by increased card spending. Page 17 shows the breakdown of wealth management fees. Wealth management fees grew 31% year-on-year to NTD 16 billion, with mutual funds and bancassurance fees up 24% and 48% year-on-year respectively. Both wealth management customers and assets under management continued to show steady growth.
Please move to pages 19 and 20 for Cathay Life's premium performance. Cathay Life's total premium income reached NTD 367 billion, up 12% year-on-year, driven by strong sales in investment-linked policies, up 37%. The U.S . dollar denominated traditional products up 10%. Total premium for high CSM protection products also increased 5%. On page 20, first year premium reached NTD 135 billion, up 53% year-on-year, supported by strong sales of investment-linked and U.S. dollar-denominated traditional savings products, which also drove 10% year-on-year increase in annualized premium to 44 billion. Health and accident premiums were affected by a high base in 2024, reflecting the soft selling effect ahead of the regulatory changes. Page 21 shows the value of new business. Value of new business was NTD 26 billion, up 11% year-on-year.
This growth aligns with the same trajectory in the APE performance. Page 22 shows the cost of liability and the break-even asset yield. The cost of liability remains flat quarter-on-quarter at 3.84%. Break-even asset yield was 2.99%. Please look at page 23 for the investment portfolio. Cathay Life's total investment was NTD 7.9 trillion, with overseas investment accounting for 69%. Please refer to the right-hand side of the table for investment yields by asset class. Overall investment yields are shown on pages 24 and 25. After hedging investment yield was 3.56%, down year-on-year due to higher hedging costs and the reduced capital gains, while recurring income increased. Page 25, the pre-hedging recurring yield was 3.48%, up 3 basis points, driven by higher dividend income.
The annualized hedging cost was 1.58% after adopting the new FX volatility reserve mechanism, along with regulatory forbearance interest in the second quarter. The impact of FX fluctuations on earnings is fully absorbed by the FX volatility reserve. The annualized compulsory provision was raised to 1.5%, which increased hedging cost but also accelerated reserve accumulation and strengthened the ability to withstand FX fluctuations. Please turn to page 26 for cash dividend income and the regional breakdown of overseas fixed income. Cathay Life recognized cash dividend income of NTD 17.4 billion in the first nine months, surpassing the full year amount of last year. On the right-hand side, Cathay Life continued to diversify fixed income investment across regions to mitigate risk, accounting 52% in North America, 18% in Europe, and the rest in Asia-Pacific and the other countries.
Page 27 shows the book value and unrealized gain of financial assets. Cathay Life's book value reached NTD 738 billion, up NTD 20.5 billion from the end of last year, supported by profit contribution and the recovery in equity and bond valuation, partially offset by mark-to-market losses amid sharp Taiwan dollar appreciation. The equity to asset ratio reached 9.3%, reflecting strong capital adequacy. Next, please turn to page 31-33 for the performance of Cathay Century. Cathay Century's premium income grew 9% year-on-year to NTD 31 billion, ranking second in the market share. Page 33, the retained combined ratio improved to 88.4% down year-on-year, driven by expanded underwriting capacity following adjustment to the reinsurance structure with higher retention rate, along with fewer large claim events and the stable loss ratios. This is the end of the presentation. Now, let's open to Q&A.
Good afternoon. This is Grace Chen. Before we move into Q&A session, let me briefly recap the key topics and questions that came up during our earlier Chinese session, along with a few key highlights we would like to share. The audience were mainly focused on three areas. Our third quarter operating performance, the outlook for next year, and the key metrics as we transition to IFRS 17 and ICS. Starting with banking, our bank continues to demonstrate strong resilience. For the full year, we are still looking at high single-digit loan growth with healthy momentum across all segments. Net interest margin should hold roughly around the 2024 full- year level. Fee income remains robust, and we are targeting double-digit growth for the year.
Credit costs will stay around 20 basis points level, supported by better than expected recoveries, and the cost-to-income ratio should be around 50%. Looking ahead to next year, we expect continuing the growth across loans, net interest income and fee income. The core banking trends remain optimistic. For Cathay Life, we saw a solid rebound in the third quarter after navigating through the market volatility in second quarter. Business momentum this year have been very strong. Both investment-linked products and traditional saving products delivered robust growth, creating a relatively high base for this year. Looking into next year, growth in saving products may be more moderate, but we do expect high CSM health products to grow. For the first nine months of this year, our new business CSM reached NTD 62 billion.
For next year, we are targeting around NTD 75 billion. On the investment side, we expect the current year to reach about 3.5% next year. Concerning IFRS 17 adoption, as we have been shifting towards value-driven product strategy ahead of our peers for many years, IFRS 17 will have a positive impact on our insurance liabilities at transition. However, under IFRS 17, liabilities are measured on a market value basis, and the U.S. dollar assets backing U.S. dollar liabilities will also be reclassified from amortized cost to fair value OCI. This will result in a negative impact on reported shareholders equity at transition. However, the combined value of shareholders equity and after-tax CSM will be higher than the shareholders equity reported under the current accounting standard.
We have accumulated a sizable CSM balance, and we expect CSM release to grow by about 10%-15% annually over the first five years, with a release rate of around 5% initially, gradually rising over the longer term. Our liability cost on an asset basis will largely decline from 3.4% to about 2.2%-2.3%, creating positive spreads under the investment results. Under IFRS 17, net income will also be more predictable and stable, should be broadly comparable to earnings in a normalized year under current accounting standard. For capital, we are targeting an ICS ratio in the range of 125%-140% upon adoption, which could create a healthy buffer for financial markets volatility. Lastly, on next year's dividend policy.
Given that our earnings this year have been very strong, probably the third highest in our history, we will consider our full year results, investors' expectations and peers' dividend yield. Our goal is to provide a dividend yield that is competitive within the industry. These are the key highlights.
Okay, thank you. Any question?
Thank you. Yep. Ladies and gentlemen, we will now begin the question-and-answer session. If you wish to ask the question, please press star key and number one on your telephone keypad, and you will enter the queue. After you are announced, please ask your question. Should you wish to cancel your question, you may press star key and number two. Thank you. Now please press star one on your keypad if you would like to ask the question. Thank you. To ask the question, you may press star key and number one on your keypad. Thank you. First we'll have Jemmy Huang of JP Morgan for questions. Go ahead, please.
Thanks for the presentation. Just one question from me still on the IFRS 17 transition. I think we talked about the changes on the cost of liability and also the impact of trading gain parts. The other two parts I want to figure out is, I think currently, EV reporting already embedded the mortality and loading gains. That part should be offset by the CSM release. Just trying to understand what will be the more normalized mortality and loading gain levels that we have been observing, maybe over the past five years. Another part is the first year surplus strain. I think that part should also be amortized under IFRS 17. What's the roughly first year surplus strain that you been incurring in recent years on the annual basis? Thanks.
I think the first one, actually the mortality gain and loading gain actually will reflect in the CSM release, most of them. So actually, you will consider that the CSM release mainly is our mortality and loading gain for the next year. This is the first one. Second one actually for the IFRS 17, we will no longer have so-called surplus strain. It means that when we sell the new business, once they are profit, we will have first year that will have the CSM release. So actually This is quite beneficial for us. If we have very strong new business growth, actually that will reflect 5% of the new businesses released in the first year.
Can I follow up? I think should we assume the CSM release in the future will be bigger or similar to the mortality and loading gain embedded in-
Jemmy?
Yeah?
I will tell you in the next month, okay? In the first month next year, the number I think that we will release that you will-
Yeah, sure.
Clear.
Yeah. Another follow-up question is, I think the cost of liability 2.2%-2.3%. Supposedly this will move up in the coming years, right?
Yes. I will tell you that.
Yeah. What’s the trend? I mean, if we look at five years away from now, maybe let's say 2030 or 2031, what’s the magnitude of the increase? Just roughly.
I think that I will tell you also in the first January, o kay?
Okay, thanks so much.
Okay, thank you. If you would like to ask the question, please press star one on your keypad. Thank you. We are now in question- and- answer session. If you would like to ask the question, please press star one on your telephone keypad. Thank you.
Let me clarify one figure. For the first nine months of this year, our new business CSM reached NTD 68 billion, not NTD 52 billion. Sorry.
Yes, thank you. As a reminder, please press star key and number one on your keypad if you would like to ask the question. Thank you. Okay, then there appears to be no further questions at this point. Mr. Lee, can we close the conference call now?
Okay. Thank you so much for your participation in today's conference call. If you have any further question, please feel free to contact our IR team. Thank you.
Thank you, Mr. Lee. Ladies and gentlemen, we thank you for your participation in Cathay Financial Holding Companies Conference. You may now disconnect. Thank you again, goodbye.
Thank you. Bye-bye.