The Financial Supervisory Commission (FSC) has announced that as of 15 October 2024, two life insurance companies have applied to adopt the new foreign exchange rate volatility reserve system.
Of the two, one received approval to start implementing the system with effect from 30 September 2024.
The new system was introduced on 6 September 2024 to strengthen the financial soundness and resilience of life insurance companies. It offers additional foreign exchange hedging options, making the exchange rate hedging strategy of the life insurance industry more flexible.
Among the new provisions, insurers are allowed to apply to increase the foreign exchange rate volatility reserve from other reserves, subject to regulatory approval. The new rules also double the additional deposit and offset rate for forex gains and losses of insurers’ unhedged assets and liabilities to 100%.
Furthermore, the favourable impact on equity caused by the first application of IFRS 17 (scheduled to take effect on 1 January 2026) can be reported to the competent authority for approval, and a certain amount of the positive impact can be transferred to the foreign exchange rate volatility reserve.
Annual hedging cost savings will be accumulated under the capital account over the long term.
The new system will provide life insurance companies with a more substantial cushion to deal with and manage foreign exchange risks.