Taiwan’s Life Insurance Sector Under Scrutiny as FX Volatility Impacts Overseas Investments
Taiwan’s life insurance industry, valued at over NT$1.2 trillion, is facing increased scrutiny due to foreign exchange volatility eroding the value of its overseas investments. Reports indicate that more than 90% of Taiwan-based insurers’ offshore assets are denominated in US dollars, exposing their balance sheets to valuation losses amid the New Taiwan dollar’s sharp appreciation in 2025.
By the end of March, insurers had allocated approximately NT$778 billion to foreign investments, primarily in US corporate bonds, according to the Financial Supervisory Commission (FSC). Moody’s Ratings analyst Kelvin Kwok noted that this portfolio structure has created a significant asset-liability currency mismatch compared to other Asian markets. The Taiwan dollar’s year-to-date appreciation of over 9% has resulted in substantial unrealized losses.
The average currency hedge ratio across the sector was 61.5% in March, leaving a considerable portion of assets exposed to currency fluctuations. Goldman Sachs estimates that every 10% gain in the Taiwan dollar could lead to NT$18 billion in paper losses for life insurers. This 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, Taiwan’s largest life insurer, has 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, amplifying recent losses.
The limited size of Taiwan’s bond market and its controlled exchange rate regime have historically encouraged insurers to seek yields abroad. In 2024, government bond issuance stood at NT$538 billion (US$18 billion), falling short of meeting the industry’s investment needs. The FSC has proposed short-term remedies, including regulatory adjustments to hedge accounting and reserve rules, but systemic challenges persist.
Some insurers plan to expand hedging programs and issue more foreign currency-denominated policies to manage currency exposure. However, these measures may introduce higher costs. At its May briefing, Cathay Life stated that 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.
