The Taiwan dollar's sharp rally against the US dollar in the first week of May has heightened foreign exchange risk exposure for Taiwanese life insurers who have been allocating a large portion of their invested assets in foreign investments, mainly USD-denominated fixed income securities.
A recent report by AM Best highlighted that the local currency appreciated by 8% against the US dollar over a two-day span in early May, which was driven by increased foreign capital inflows into the domestic equity market, speculative trading in the exchange rate, and institutional de-risking of US-denominated assets, including by major life insurers and exporters.
Data from the Taiwan Insurance Institute has revealed that as of year-end 2024, approximately 70% of Taiwanese life insurers’ portfolios were allocated to foreign investments, primarily US fixed income securities. Bottom of Form
The sector’s investment leverage stood at up to ten times reported capital and surplus.
AM Best director of analytics James Chan said that whilst life insurers have been building reserves to buffer currency fluctuations—amounting to TW$283.6bn ($9.36bn) as of March 2025—the reserve level remains limited relative to over TW$23tn in foreign investments, constraining their capacity to absorb short- to mid-term volatility.
In contrast, Taiwan’s non-life insurers had a much lower allocation to foreign investments—about 15% in 2024—and maintain a focus on liquidity to meet short-tail underwriting liabilities.