Fitch Ratings has reassessed the financial strength of several life insurers in Taiwan following a sharp movement in currency markets.
The rating agency placed five insurers under Rating Watch Negative (RWN) and one under Rating Watch Evolving (RWE), citing the impact of the Taiwan dollar’s recent rapid appreciation on their capital adequacy and profitability.
The five insurers under RWN included:
Shin Kong Life Insurance Co Ltd (SKL) received the RWE designation with an IFS rating of “BBB’.”
Chubb Life Insurance Taiwan Company (CLITC) maintained its “AA-(twn)” National IFS rating with a Stable Outlook.
Fitch’s review follows an 8% gain in the Taiwan dollar against the US dollar over two days in early May, which increased hedging costs and placed pressure on insurers with substantial holdings in foreign currency assets.
The firm stated that this surge has created a mismatch between asset and liability currencies for life insurers holding significant US dollar-denominated investments.
“While insurers have hedged a majority of their balance sheet mismatches, we believe this strategy will come under pressure due to the surge in hedging costs, and unhedged positions continue to expose them to sharp currency swings,” it said.
Although the affected companies have taken measures to hedge against currency mismatches, Fitch highlighted that increasing hedging expenses and unhedged exposures continue to pose a threat.
The foreign exchange valuation reserve, which buffers against sharp currency gains, has been depleted for many firms, which may reduce their capacity to manage future FX-related losses without eroding capital.
Fitch noted that while current capital adequacy remains within tolerance thresholds, ongoing stress on earnings or a marked deterioration in capital ratios could result in downgrades.
SKL’s RWE status reflects a transitional phase, with Fitch weighing the negative impacts of currency fluctuations against potential strategic benefits from its merger with Taishin Life Insurance Co Ltd. The merger is expected to broaden SKL’s distribution and strengthen its market presence through its affiliation with Taishin Financial Holding Co Ltd.
In contrast, CLITC remains relatively insulated from the recent currency volatility. According to Fitch, CLITC’s limited exposure to foreign currency risk and support from parent company Chubb Limited underpin its stable rating outlook. Its capital strength, measured by Fitch’s Prism model, is expected to remain robust even amid continued FX shifts.
Fitch plans to resolve the rating watches within the next three to six months. The outcome will depend on:
The agency outlined several triggers for potential downgrades, including sustained underperformance in return on equity, capital scores falling below defined benchmarks, and weakened business profiles.
Conversely, improvements in capitalisation, profitability, or diversification following corporate actions like mergers could lead to upgrades or affirmations.
