Taiwan’s life insurance sector, valued at over NT$1.2 trillion, is under increased scrutiny as foreign exchange volatility erodes the value of its overseas investments.
Reports show that over 90% of Taiwan-based insurers’ offshore assets are denominated in US dollars, exposing balance sheets to valuation losses amid the New Taiwan dollar’s sharp appreciation in 2025.
The FSC reported that by end-March, insurers had allocated around NT$778 billion to foreign investments, largely in US corporate bonds.
According to Bloomberg’s report, Moody’s Ratings analyst Kelvin Kwok said this portfolio structure created a pronounced asset-liability currency mismatch compared to other Asian markets.
The issue has gained urgency as the Taiwan dollar’s appreciation – over 9% year-to-date – translates to significant unrealised losses.
The average currency hedge ratio across the sector stood at 61.5% in March, leaving a sizable portion of assets exposed to currency movements.
According to Goldman Sachs estimates, every 10% gain in the Taiwan dollar could result in NT$18 billion in paper losses for life insurers.
The situation prompted Fitch Ratings to revise its outlook on Taiwan’s life sector to “deteriorating,” highlighting the erosion of capital strength and earnings potential.
Cathay Life Insurance Co, the island’s largest life insurer, increased its foreign holdings from 40% in 2011 to 68% as of March 2025. The company reported a long-term average investment return of 5%, outperforming local sovereign yields. However, most of its NT$180 billion in foreign assets were held in US dollars, magnifying recent losses.
The limited size of Taiwan’s bond market and its controlled exchange rate regime have historically incentivised insurers to seek yields abroad. In 2024, government bond issuance stood at NT$538 billion (US$18 billion), falling short of meeting the investment needs of the industry.
The FSC has floated short-term remedies, including regulatory adjustments to hedge accounting and reserve rules, but systemic challenges remain.
According to Bloomberg, some insurers plan to expand hedging programs and issue more foreign currency-denominated policies to manage currency exposure. However, these actions could introduce higher costs.
At its May briefing, Cathay Life stated there were limited options for near-term asset reallocation, with investment-grade US bonds still offering the best yield-to-risk profile.
FSC chairperson Peng Jin-lung has publicly stated that liquidity remains stable across insurers despite the currency shock.
Nevertheless, analysts have warned that Taiwan’s tightly managed exchange rate may not be sustainable in the long term, potentially increasing the financial burden on institutions heavily reliant on foreign-denominated assets.
