Welcome everyone to Cathay Financial Holding Company's Third Quarter 2022 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 the question. I would like to introduce Ms. Sophia Cheng, the CIO of Cathay Financial Holding Company. Ms. Cheng, please begin.
Thank you. Good afternoon, good morning to investors in Europe. Welcome to Cathay Financial Holding, our third quarter analyst meeting. I'm Sophia Cheng, the Chief Investment Officer of Cathay Financial Holding. Today, I will host the conference call. Thank you for joining us today. In the beginning, I would like to introduce the senior managers who are with us on the line and also in the meeting room here. Today we have Mr. Daniel Teng, Senior EVP of Cathay Financial Holding, Ms. Grace Chen, Chief Financial Officer of Cathay Financial Holding, Mr. Abel Lin, Managing Senior EVP of Cathay Life, and Mr. Chia-Yuan Hsu, Senior EVP of Cathay Century P&C Insurance. For today's conference call, Charlie from our IR team will present the third quarter results. After the presentation, we are open for Q&A session, in which senior management will answer your questions.
Without further ado, let me pass the call over to Charlie for the third quarter briefing.
Thank you, Sophia. Let's start with the first nine months business overview on page four, which provides a quick highlight on each subsidiary. Cathay United Bank net income reached a record high in the first nine months of 2022, grew 11% year-on-year. Cathay United Bank delivered double digit growth in deposit and loans. Asset quality remained benign. Net interest margin expanded, net interest income grew 23% year-on-year owing to rate hikes. Cathay Life continued the value-driven strategy. Protection type first-year premium grew 11%, delivered sound investment performance with after-hedging investment yield of 4.3%, benefiting from substantially improved hedging costs and enhanced return yield. Cathay Century, the general insurance subsidiary, the first nine months' net loss reflected the impact of pandemic insurance. If excluding the impact from pandemic insurance, Cathay Century continued to deliver double digit growth in premium and maintain stable profits.
Asset management subsidiary, Cathay Asset, set a record high net profit for the first nine months of 2022. Asset under management was TWD 1.14 trillion, ranked number one in the industry. Lastly, Cathay Securities maintained number one market share in sub-brokerage business. Please look at page five, Cathay Financial Holding net income and EPS. Cathay Financial Holding net income for the first nine months was TWD 54.5 billion. The year-on-year earnings decline was mainly due to higher base periods for investment gains amid favorable capital markets last year. EPS was TWD 3.83. Page six shows the subsidiaries' net income and ROE. Cathay United Bank net income grew 11% year-on-year, driven by strong net interest income growth. Cathay Asset set the record high first nine months earnings. Cathay Life delivered its second highest historical first nine months earnings.
The year-on-year decline was due to the higher base period for capital gains in the same period of last year. Cathay Century's net loss was due to pandemic insurance. On a consolidated basis, the holding company ROE was 11.9% in the first nine months of 2022. Please turn to page seven to see the book value of Cathay Financial Holding. The consolidated book value of holding company was TWD 307 billion as of the end of the third quarter. The decline in book value reflected a sharp rise in bond yields and the equity market correction. Book value per share was TWD 15.4. Prior to the end of September, Cathay Life decided to change its business model for financial asset classification, with effective date being October 1st.
Upon reclassification, the book value increased by TWD 243 billion- TWD 549 billion, and book value per share rose by TWD 18.4- TWD 33.8. Page nine and 10 shows our overseas expansion. Philippine- Manila branch signed a sustainability linked loan agreement with Prime Asset in September. Cathay Life Vietnam's total premium increased 26% year-on-year. As for the operation in China subsidiary and Hong Kong branch saw steady growth in all business lines. For Cathay Life's joint venture in China, the total premium grew 17% year-on-year. Please turn to page 12 for more detail about the banking subsidiary. Cathay United Bank delivered robust loan growth, with mortgage and consumer loans both grew in double digits. The total loan balance increased 11% to TWD 2 trillion as of the end of the third quarter.
Deposit grew 12% year-on-year to TWD 3.1 trillion. The demand deposit ratio was around 70%. Interest yield is shown on page 13. Net interest margin and interest spread show significant increase thanks to rate hikes. The accumulated net interest margin and interest spread increased to 1.33% and 1.93%, respectively. Page 14 shows the asset quality. Cathay United Bank maintained low NPL ratio at 9 basis points and coverage ratio at 1,855%. Gross provision was TWD 3.4 billion. Most was the general provision for the regulation requirement. Recovery was TWD 1 billion. Please turn to page 15 for SME and foreign currency loans. SME loan balance grew to TWD 291 billion, grew 8% year-to-date, and accounted for 15% of total loan. Foreign currency loan balance was TWD 230 billion.
If converted the foreign currency loan to U.S. dollar, was down year-to-date as we aim to grow foreign currency loans while ensuring asset quality. Page 16 shows offshore earnings. Offshore earnings show slight increase to TWD 7.1 billion. Please turn to page 17 for fee income. Fee income declined 2% in the first nine months due to decreased wealth management fees. Vertical fee continued to show solid growth. Page 18 shows the breakdown of wealth management fees. Wealth management fee declined 10% year-over-year due to lower sales in mutual funds and investment-linked product amid the volatile capital market this year. Securities fees grew 24% thanks to higher sales of overseas bond products. Please move to page 20 and 21 for Cathay Life premium performance. Total premium was TWD 352 billion in the first nine months of 2022.
The decline was due to the lower renewal premiums, reflecting the end of regular payment terms for some top-selling products, as well as the lower new business premium resulting from the higher base period for investment-linked product last year. Page 21, new business premium, FYP, and the annualized premium, APE, was TWD 101 billion and TWD 32 billion respectively. Both declined year-over-year due to high base period for investment-linked policies and favorable capital market last year. However, protection type policy FYP grew 11%, supporting the contractual service margin. Page 22 shows the value of new business. Based on the 2020 embedded value assumptions, value of new business for the first nine months was TWD 20.4 billion. The decline was due to the same reason as we mentioned earlier, the high base period for sales volume in investment-linked policies last year.
However, with our continuous effort in growing the high CSM protection type policies, VNB margin increased year-over-year. Page 23 shows the cost of liability and break-even asset yield. The reserve-based liability cost was 3.73% as of the end of the third quarter, improving 4 basis points year-to-date. The break-even asset yield was 3.16%. Please look at page 14 for the investment portfolio. Cathay Life total investment was over TWD 7 trillion as of the end of the third quarter. Overseas investment accounted for 70%. The investment return of each asset class are as follows: cash and cash equivalent, 0.3%, domestic equity, 9.8%, international equity, 6.3% pre-hedge, domestic bond, 3%, international bond, 3.8% pre-hedge, mortgage and secure loans, 2%, policy loans, 5.3%, real estate, 2.9%. Overall investment yield are shown on page 25 and 26. After hedging investment yield remained benign at 4.26%.
The year-over-year decline was mainly due to the higher base period for capital gains amid favorable capital market last year. On page 26, left-hand side, the pre-hedging return yield increased 33 basis points to 3.35% as the new money yield from overseas bond surged year-to-date with increased positioning and cash dividend income increased year-over-year. The overall hedging result was a net gain of 28 basis points in the first nine months, owing to Taiwan dollars depreciation and effective proxy hedging. The foreign currency reserves surpassed TWD 50 billion as of the end of the third quarter. Please look at page 27 for the cash dividend income regional breakdown of overseas fixed income. Cathay recognized cash dividend income of TWD 23.3 billion in the first nine months of 2022, higher than 2021 full year cash dividend income.
For overseas fixed income investment, Cathay Life allocate 49% in North America, 18% in Europe, and the rest are in Asia Pacific and other countries. Page 28 shows the book value and unrealized gain of financial assets. Both decline year- to- date, reflecting a sharp rise in bond yields and a decline in equity markets. Prior to the end of September, Cathay Life decided to change its business model for financial asset classification, with effective date being October 1st. Upon reclassification, Cathay Life's book value increased by TWD 243 billion. Next, please turn to page 32 to 34 for the performance of Cathay Century. Cathay Century's premium earned grew 11% year-on-year to TWD 22 billion. Market share was 13%. On page 34, the gross combined ratio and retained combined ratio both increased due to the pandemic insurance losses impact.
Following an update on the pandemic insurance, the number of effective COVID policy decreased to 653,000 as of the end of October, shows meaningful decline compared to the 1.3 million as of the end of April. The accumulated settled claim payment was TWD 16.6 billion and TWD 18.1 billion for the first nine and 10 months respectively. The loss reserved for claims not yet settled and incurred but not reported on retention basis was TWD 3.1 billion as of the end of October. In the first 10 months, the accumulated direct loss, including claims and loss reserves, was about TWD 21.6 billion, and the retained loss was TWD 18.1 billion. As the daily number of new COVID cases has gradually decreased recently, and preventative policy for the pandemic are also being adjusted, Cathay Century will continue to monitor pandemic-related developments.
We'll look to adjust its loss ratio accordingly. We will disclose related information in the monthly result. In order to enhance Cathay Century's capital adequacy, the Board of the holding company has approved the second capital injection this year, which will be completed by the end of December. This is the end of presentation. Now, let's open for Q&A.
Yes. Thank you. Ladies and gentlemen, we will now begin our question-and-answer session. If you wish to ask the question, please press zero one on your telephone keypad, you will enter the queue. After you are announced, please ask your question. Should you wish to cancel your question, you may press zero two. Thank you. Please press zero one on your telephone keypad to ask the question. Thank you.
Before we take questions, I'd like to remind you that Cathay Financial Holding is in the process of capital raising. Despite that we are not in a quiet period, considering governance of information disclosure, today we will focus on year-to-date operation details, and we will not touch on forward-looking guidance. Thank you.
Thank you, Ms. Cheng. Now please press zero one on your telephone keypad to ask the question. Thank you. We are now in question-and-answer session. If you would like to ask the question, please press zero one on your telephone keypad. Thank you. Our first question is coming from Jemmy Huang of JPMorgan. Go ahead, please.
Yeah. Hi. Thanks for the presentation and taking my question. Just two questions from me. First one is on Cathay United Bank. We've seen the operating expenses up 11% year-on-year. Is there any one of items or what has been driving the much higher OpEx growth this year? Second question is for Cathay Life. I think after the bond reclassification, we know that for amortized cost securities, it's usually the trading flexibility will be relatively constrained. Just trying to understand, is that correct? That every year you can only address no more than 5% of the outstanding balance? And then, is there any color regarding, for example, when the banks are under FVOCI or FVTPL with overlay, what's the turnover ratio usually in the past? Thanks.
Daniel?
Well, I don't have that kind of data with me. I'm checking if I have that kind of operating expense issue. You mean 11% growth?
Yeah. On page 43, the P&L of Cathay United Bank. The net operating income grew by 13%. Operating expenses grew by 11%. Jemmy was asking where is-
Yeah, I know. I'm checking if I have any of that kind of data with me.
Okay. Maybe-
If I don't, maybe I'll get back to you later.
Jemmy, overall, you can see that the expenses is growing at slower speed than the revenue increase. The cost income ratio in first nine months was 49.3% vs 50% last year during the same period.
Yeah, I see. Can I assume this is maybe driven by the performance-related compensation mostly?
We really need to check a bit detail first. I'm checking the number as well. Just one minute.
Okay. Now I see. Yes. It's from the salary increase and the incentive program and the marketing expenses is very aligned with our P&L operating environment.
Jemmy, some are due to our marketing promotion.
Expenses, yes.
Yes, expenses for credit card in launch of the CUBE card, and also for the upcoming August next year, the contract will be terminated. We try very hard to just deepen the relationship with our credit card holder, given their spending account in the shop is around 20%. It's quite important for us to maximize our CUBE card program, promotion-related activities.
It's mainly from the CUBE card.
I see. Thank you.
Yeah, Jemmy, about the reclassification, yes, right now the regulation about the AC, each year only allow this 5% of the AC position that can be capitalized. For the FVOCI or the overlay position, you don't have that kind of constraint. As long as you think that under our investment team thinking that it's a proper time that we can all realize the capital gain. We didn't have that kind of past experience, the turnover rate for this kind of statistics. Also I think that sometimes if the market, like the last two years, the capital market is good, then we have a lot realized capital gain under the FVOCI. It all depends on the market condition. I didn't have that kind of turnover rate for the FVOCI.
No problem. Thank you.
Thank you.
We are now in question and answer session. If you would like to ask the question, please press zero one on your telephone keypad. Thank you. As a reminder, please press zero one on your telephone keypad if you would like to ask the question. Thank you. Okay, there appears to be no further questions at this point. Ms. Cheng, can we close the conference call now?
Thank you. Thank you all for participation in Cathay Financial Holding conference call today. If you have further question, anytime, the IR team will be here stand by for you. You can just email them. Yeah? Thank you, and goodbye.
Thank you, Ms. Cheng. Ladies and gentlemen, we thank you for your participation in Cathay Financial Holding conference call. You may now disconnect. Goodbye.