According to a recent commentary published by AM Best, the credit rating agency, the Taiwan dollar has strengthened against the US dollar at a speed not previously recorded, gaining approximately 8% within a two-day span.
AM Best states that this sharp currency movement may have significant repercussions for Taiwanese life insurers, many of whom maintain substantial holdings in overseas assets, predominantly denominated in US dollars.
AM Best attributes this surge in the local currency to several contributing factors, including an influx of foreign capital into Taiwan’s equity markets, speculative trading activity targeting the exchange rate, and a reduction in US dollar exposure by institutions with large international portfolios.
These developments have led to renewed scrutiny of the currency exposure embedded in the investment strategies of Taiwan’s insurance sector.
AM Best notes that Taiwanese life insurers have historically allocated a significant proportion of their investment portfolios to foreign holdings in search of higher yields and longer-duration assets, given the relatively low interest rate environment and limited depth of the domestic fixed income market.
As reported by the Taiwan Insurance Institute and cited by AM Best, foreign investments accounted for around 70% of life insurers’ total portfolios as at the end of 2024. In many cases, investment leverage was reported to be as high as ten times the capital and surplus on record, intensifying the sensitivity of these firms to exchange rate fluctuations.
In contrast, AM Best explains that non-life insurers in Taiwan maintain far lower exposure to foreign assets, with foreign investments comprising only about 15% of their portfolios in 2024.
These insurers focus more heavily on maintaining liquidity to meet their short-term liabilities, which typically include infrequent but high-severity claims such as those arising from industrial fires or natural catastrophes.
According to AM Best, non-life insurers also consistently apply foreign exchange hedging strategies, with AM Best-rated entities commonly maintaining hedge ratios between 60% and 80%. Due to their smaller balance sheets, lower gearing, and stronger liquidity profiles, AM Best expects this segment to remain relatively insulated from the recent exchange rate volatility. Consequently, AM Best does not anticipate any short-term ratings impact on non-life insurers under its coverage.
Foreign exchange risk management is firmly integrated into the enterprise risk management frameworks of Taiwanese insurers, as highlighted by AM Best.
Nearly all rated insurers in Taiwan have received an ERM assessment of ‘Appropriate’ from AM Best, reflecting the emphasis placed on managing currency exposures.
The Financial Supervisory Commission’s data, cited by AM Best, indicate that between 2022 and 2024, life insurers posted notable gains from foreign exchange positions, although approximately 80% of those gains were offset by negative returns on corresponding hedging instruments. AM Best further observes that the cost of hedging has risen over the same period, aligned with the broader strengthening of the US dollar.
To mitigate the impact of exchange rate shifts, AM Best notes that life insurers have been gradually increasing their foreign exchange fluctuation reserves.
These reserves stood at TWD 283.6 billion at the end of March 2025. However, AM Best emphasises that this figure remains modest relative to the sector’s more than TWD 23 trillion in foreign investments and may be insufficient to absorb substantial currency shocks in the near to medium term.
AM Best underscores that the wider macroeconomic environment is becoming increasingly complex, particularly due to elevated geopolitical tensions.
These conditions continue to create operational and financial pressures for the Taiwanese insurance industry. AM Best will continue to monitor not only the financial health of rated insurers but also the broader financial standing of their parent companies, particularly financial holding groups in which life insurance subsidiaries contribute a significant portion of earnings.
AM Best remains attentive to any developments that could influence the credit quality of rated entities in Taiwan.
“Taiwan’s macroeconomic environment is becoming increasingly complex, aggravated by heightened geopolitical risks, and presents persistent headwinds to Taiwan’s insurance industry,” added James Chan, Director, Analytics, AM BEST.
“However, FX risk management is embedded as a key component of Taiwanese insurers’ ERM, and nearly all of our non-life rating units in Taiwan have an ERM assessment of appropriate.”
