Taiwan Regulator Introduces Interim Measures to Help Life Insurers Cope with Forex Losses
The Financial Supervisory Commission (FSC) of Taiwan has introduced three interim measures to help life insurers mitigate the impact of exchange fluctuations in the financial and capital markets. These measures aim to alleviate issues faced by life insurers who have reported significant foreign exchange losses due to the appreciation of the Taiwanese currency against the US dollar.
Key Interim Measures
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Capital Adequacy Ratio Calculation: Insurers will be allowed to use six-month average exchange rates when valuing stocks for calculating their capital adequacy ratio. This measure applies to existing financial assets that life insurers haven’t been able to adjust their hedging strategy for due to short-term forex market fluctuations.
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Flexibility in Liability Valuation Reserves: The FSC will increase flexibility in calculating liability valuation reserves for specific insurance products by:
- Raising the interest rate for calculating liability reserves by up to 25 basis points
- Adopting a mortality rate assumption more in line with current experience using 100% of the “Taiwan Life Insurance Industry Sixth Experience Life Table”
- Ensuring the adjusted liability reserve is not lower than the policy valuation reserve
Insurers opting for this measure must also:
- Increase foreign exchange price fluctuation reserves
- Propose an adjustment plan to strengthen business resilience, including specific plans for asset-liability management
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Transitional Measures under New Solvency System: The FSC will adopt differentiated supervisory requirements for applying transitional measures. Insurers can choose to apply selective transitional measures based on their financial position and future expectations, with applications to be submitted by September 30, 2025.
Background and Context
The FSC decided on these interim measures after discussions with industry stakeholders, including the Taiwan Insurance Institute, Big Four accounting firms, and the Life Insurance Association. The measures aim to support life insurers, who have over 90% of their overseas assets denominated in US dollars, during the current period of currency fluctuation.
The FSC also announced that it has been over five years since it proposed adopting a new-generation solvency system for the insurance industry. The regulator has requested the Taiwan Insurance Institute to study measures to assist the industry in adopting International Financial Reporting Standards Statement No. 17 “Insurance Contracts” and the new solvency system by 2026.
The FSC’s interim measures are designed to provide relief to life insurers facing challenges due to exchange rate fluctuations while strengthening their business resilience. The regulator plans to complete the revision and publication of relevant laws and regulations by the end of the month.
