Taiwan: Life insurers brace for further appreciation of local currency
Source: Asia Insurance Review | Jun 2025
Taiwanese life insurers, with their large holdings of US dollar fixed-income assets and short positions in Taiwan dollar, have been adversely affected by the sharp appreciation of the Taiwan dollar against the US dollar, says Fitch Ratings. They are exposed to a further rise in the local currency.
In a commentary, Fitch says that while insurers have hedged a majority of their balance sheet mismatches, this strategy is expected to come under pressure due to the surge in hedging costs, and unhedged positions continue to expose them to sharp currency swings. While Fitch has not seen a rise in policy surrenders, it believes this remains a risk to insurers’ credit profiles.
In Fitch’s current analysis, the insurers have sufficient capital buffers to withstand a 10% rise in the Taiwan dollar against the US dollar from the start of 2025, without Fitch Prism Global scores breaching their downgrade rating sensitivities. That said, a moderate fall in capital ratios could contribute to negative rating action if combined with significant risks to capital from a further rise in the Taiwan dollar and markedly weaker earnings prospects.
Fitch expects the insurers to record significant losses due to the unfavourable currency movement. Rising hedging costs and a more volatile Taiwan dollar will also likely pressure their earnings. Foreign exchange valuation reserves, which serve as a buffer against the Taiwan dollar’s rise, is likely to be exhausted for most insurers by the recent spike. This will limit companies’ ability to absorb further FX losses without impacting capital levels.
The Taiwanese dollar surged by 6% in the two weeks from 30 April to 15 May 2025 when it hovered at 0.0331 to the greenback. Since the start of this year, the Taiwanese currency has appreciated by 9% against the US dollar.
At the behest of the Financial Supervisory Commission, life insurers are assessing the impact of foreign-exchange movements and the steps to take to manage forex risks. A