Taiwanese life insurers are grappling with mounting foreign exchange risks as the New Taiwan dollar (TWD) continues its sharp rise against the US dollar, exposing their predominantly USD-denominated overseas assets to significant valuation losses. With over 90% of their foreign investments in US dollars, the rapid TWD appreciation—up more than 12% in 2025—has created a pronounced asset-liability currency mismatch, leading to unrealized losses estimated at NT$18 billion for every 10% TWD gain.
Despite these pressures, the sector’s average hedging ratio remains around 61.5%, leaving nearly 28% of offshore assets vulnerable to currency swings. This situation has prompted Taiwan’s Financial Supervisory Commission (FSC) to step up regulatory reforms, including:
- Increasing the allowable forex volatility reserve limit from NT$300 billion to NT$960 billion
- Doubling the “extra deposit and offset rate” to 100%
These measures are aimed at cushioning insurers from short-term FX shocks and reducing reliance on costly immediate hedging. Yet, high hedging costs and a scarcity of domestic investment opportunities continue to delay more aggressive hedging actions by insurers.
You know what? It’s like trying to adjust your sails when the wind suddenly shifts—insurers need to recalibrate their FX risk strategies swiftly to avoid being caught off guard by ongoing tariff-related market volatility. These challenges highlight the critical need for life insurers to enhance foreign exchange risk management frameworks in line with FSC regulations, adopt enterprise-wide risk management principles per ISO 31000, and maintain robust capital buffers as prescribed by Basel III market risk requirements.
Doing so will help them absorb currency shocks more effectively, safeguard solvency, and stabilize earnings amid tariff uncertainties and volatile FX markets. Honestly, the lesson here is clear: without a solid hedging strategy and regulatory compliance, insurers risk eroding their capital strength and credit ratings.
Regular scenario-based stress testing and transparent risk disclosures can further bolster resilience. For insurers and stakeholders alike, understanding and acting on these regulatory frameworks is crucial to navigating the FX storm that Taiwan’s life insurance sector currently faces.