Life insurers in Japan and Taiwan are confronting increased investment strain as appreciation in local currencies and elevated bond yields reshape the returns on foreign asset holdings and push firms to reconsider portfolio management approaches.
Recent analysis published by Bloomberg suggested that Taiwan’s life insurance sector could be facing up to NT$18 billion in unrealised losses on overseas assets, driven largely by currency mismatches and limited hedging coverage.
As of March, Taiwanese life insurers held nearly NT$710 billion in offshore investments, according to Goldman Sachs. Approximately 28% of these assets are exposed to unhedged currency fluctuations.
With the Taiwan dollar having appreciated by roughly 10% against the US dollar since the end of Q1, many of these investments have seen a decline in local-currency terms.
“Japan and Taiwan insurers have always needed to weather two components of market risks that their peers have less burden on – FX and yield,” said Steven Lam, an analyst at Bloomberg Intelligence.
Japanese life insurers, meanwhile, are navigating a separate but related issue. While foreign bond holdings have been reduced by ¥1.15 trillion in the six months through April, these firms are now dealing with rising yields on 30- and 40-year Japanese government bonds, resulting in valuation losses on long-term domestic assets.
Taiwan’s Financial Supervisory Commission (FSC) issued a statement in early May assuring market participants of insurer solvency amid the currency’s surge. Concurrently, the central bank announced plans to inspect fund flows, aiming to discourage speculative financial activity.
Regulators in both Taiwan and Japan are enforcing risk-based capital regimes that disincentivise unhedged foreign asset exposure. This framework is encouraging insurers to adopt more comprehensive hedging strategies, including currency swaps and forwards.
Speaking at a recent financial forum, HSBC Asset Management CEO Nicolas Moreau said there is growing demand for currency protection mechanisms, particularly among insurers in Japan, Taiwan, and South Korea.
Responses to the market conditions vary. Nippon Life Insurance Co is expanding its domestic bond holdings, favouring longer-dated instruments despite potential markdowns.
By contrast, firms such as Meiji Yasuda Life Insurance are reducing exposure to local bonds, citing yield outlooks and solvency rule adjustments.
Others – including Fukoku Mutual, Taiju Life, and Taiyo Life – plan to increase yen bond investments as part of a longer-term liability matching strategy.
