The sharp appreciation of the New Taiwan dollar is prompting contrasting currency risk strategies among Taiwan’s life insurers, amid growing concerns over the valuation of their substantial holdings in US fixed-income assets.
According to a Bloomberg report, Fubon Life Insurance Co is intensifying its currency hedging efforts, citing increased volatility in the foreign exchange markets. Meanwhile, Taishin Life Insurance Co has opted to hold its position, saying elevated hedging costs make additional moves impractical at this time.
The divergence follows a sudden and significant rise in the Taiwan dollar, which gained as much as 5% in a single day last week – its steepest jump since the 1980s.
The move, influenced by exporter activity and speculation over US-Taiwan trade developments, has put pressure on insurers’ US dollar-denominated portfolios.
Taiwanese insurers collectively hold more than NT$23 trillion (US$767 billion) in foreign assets, primarily in US Treasuries and corporate bonds. Despite the scale of their exposure, these institutions maintain a relatively low hedge ratio.
According to HSBC Holdings Plc, the average is under 60%, which heightens sensitivity to currency swings.
Bank of America strategist Chun Him Cheung said hedging now could crystallise losses due to a weaker dollar, while waiting exposes them to further currency appreciation. The old model is showing signs of strain.
“Either way, the past business model has now shown itself to be unsustainable,” he said in a note, as reported by Bloomberg.
Taishin Life chairman and Taishin Financial Holdings president Welch Lin said during a recent briefing that short-term market movements would not influence our hedging ratio at this point.
Fubon Life, Taiwan’s second-largest insurer, is taking a different approach. In a company statement, Fubon noted that it is actively strengthening hedging measures in light of increased market volatility.
“Capital levels remain well above the regulatory thresholds set by the Financial Supervisory Commission and continue to meet the required risk-based capital standards,” the company said, adding it will continue monitoring conditions closely.
Fubon’s 2024 report showed more than NT$2.9 trillion (US$96 billion) in overseas investments, over half of which are concentrated in North American debt markets.
Hedging costs have soared. The price of using non-deliverable forwards – a commonly used hedge instrument – has hit record highs, with three-month contracts reaching a 14% premium, according to Bloomberg data.
In response to the currency spike, Taiwan’s Financial Supervisory Commission (FSC) convened emergency talks with leading insurers this week to evaluate financial stability.
Although some firms suggested temporary regulatory relief to offset valuation losses, the FSC has yet to approve any changes, citing no immediate risks to liquidity or solvency, according to local media reports.
Fubon Life, Cathay Life Insurance Co, and Nan Shan Life Insurance Co reportedly assured the FSC that their capital ratios would remain compliant even if the Taiwan dollar appreciated further beyond 30 per US dollar.
