Taiwan’s biggest life insurance companies saw their losses nearly double in May compared to the previous month, primarily due to the appreciation of the local currency against foreign currencies, which negatively impacted the value of their foreign investments.
According to the financial statements released by four of the largest insurers on Tuesday, their combined losses amounted to NT$35.4 billion ($1.2 billion). Shin Kong Life Insurance Co. recorded the largest loss at NT$15.4 billion. In contrast, Cathay Life Insurance Co. and Nan Shan Life Insurance Co. managed to post small profits, attributing their success to effective hedging strategies.
The significant losses were a result of the historical gains in the New Taiwan Dollar (NTD) against major foreign currencies, particularly the US dollar. This appreciation reduced the value of the insurers’ foreign investments when converted back to NTD, leading to substantial unrealized losses on their foreign asset holdings.
The life insurance industry in Taiwan is heavily invested in foreign assets to diversify their portfolios and manage risk. However, the recent currency fluctuations have posed significant challenges to these companies. The ability of Cathay Life and Nan Shan Life to mitigate losses through hedging operations highlights the importance of effective risk management strategies in navigating volatile foreign exchange markets.
The impact of currency fluctuations on Taiwan’s life insurance industry underscores the interconnectedness of global financial markets and the potential for exchange rate movements to significantly affect the financial performance of major insurers.
