Best’s Commentary: Taiwan Dollar Rallies; Life Insurers More Exposed to Foreign Exchange Risk

HONG KONG--(BUSINESS WIRE)--The Taiwan dollar has rallied against the U.S. dollar at an unprecedented pace over the past few days, which holds implications for domestic life insurers that have been allocating a large portion of their invested assets in foreign investments, mainly USD-denominated fixed income securities, according to an AM Best commentary.

The Best’s Commentary, “Taiwan Dollar Rallies, Life Insurers More Exposed to Foreign Exchange Risk,” notes that the local currency surged by a combined 8% against the U.S. dollar over a two-day period in the past week. Factors that fueled this momentum include increased foreign capital flow into the domestic equity market, speculative investments in the exchange rate and some de-risking of U.S.-denominated assets by institutions with significant exposures, such as Taiwanese life insurance companies and large exporters.

Taiwanese life insurers’ allocations to foreign investments have been reported by the Taiwan Insurance Institute as representing approximately 70% of the segment’s overall portfolio as of year-end 2024. Investment leverage compared with reported capital and surplus was as high as tenfold as well.

“Taiwan’s life insurance segment has been gradually building up its foreign exchange fluctuation reserves. At the end of March 2025, the reserves were TWD 283.6 billion, though the amount remains very limited compared with over TWD 23 trillion worth of foreign investments to provide material volatility absorption over the short to intermediate term,” said James Chan, director, analytics, AM Best.

The non-life segment allocated approximately just 15% to foreign investments in 2024 as insurers in the segment place a heavier focus on maintaining sufficient liquidity to support the short-tail underwriting liabilities, according to the commentary. Coupled with the much lower foreign investment-to-capital gearing, significantly smaller balance sheets and consistent application of foreign exchange (FX) derivatives with a moderately high hedging ratio, AM Best expects the non-life segment’s profit and loss and capital position to remain resilient against the recent large FX volatility. As a result, we do not see related rating pressure on rated non-life insurers over the short term.

“Taiwan’s macroeconomic environment is becoming increasingly complex, aggravated by heightened geopolitical risks, and presents persistent headwinds to Taiwan’s insurance industry,” said Chan. “However, FX risk management is embedded as a key component of Taiwanese insurers’ ERM, and nearly all of our non-life rating units in Taiwan have an ERM assessment of appropriate.”

In addition to rated insurers’ own credit fundamentals, AM Best will continue to monitor the financial developments of ultimate parents of rated insurers, which include some financial holding companies with life insurance subsidiaries being dominant contributors.

To access the full copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=353695.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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