TAIPEI (TVBS News) — Taiwanese life insurance companies confront mounting challenges from New Taiwan dollar exchange rate volatility, Fitch Ratings (惠譽信評) warned Tuesday (Aug. 26) during its annual "Fitch on Taiwan 2025" (惠譽看台灣2025) forum. The credit rating agency highlighted persistent currency uncertainties that threaten operational stability across Taiwan's insurance sector. Fitch's assessment underscores growing concerns about the industry's ability to navigate fluctuating exchange rates in an increasingly volatile global economic environment.
Wang Chang-tai (王長泰), Fitch Ratings' senior vice manager of Asia-Pacific insurance ratings, emphasized that long-term demand for Taiwan's life insurance products depends heavily on the island's economic performance trajectory. He observed that New Taiwan dollar volatility against the U.S. dollar, fueled by international tariff policies, continues disrupting insurers' operational stability. The currency mismatches create particular vulnerabilities since some New Taiwan dollar policy liabilities rely on U.S. dollar asset backing, amplifying exposure risks.
Taiwan prepares to implement International Financial Reporting Standard 17 (IFRS 17) for insurance contracts next year, prompting life insurers to promote protection-type products for higher contractual service margins. The Financial Supervisory Commission's (金管會), Taiwan's financial regulator, localization and transitional measures provide some relief, but foreign currency losses continue hindering internal surplus growth. These currency-related setbacks create additional pressure on capital accumulation efforts across the insurance sector.
Fitch advised life insurance companies to strengthen asset-liability risk management capabilities for weathering exchange rate-induced economic losses. Increasing foreign exchange hedging ratios offers insurers protection against short-term currency losses, though high hedging costs would reduce foreign currency asset investment returns. The rating agency recommended diversifying foreign currency-denominated policies, broadening foreign currency asset allocations, and actively managing exchange rate exposure to mitigate volatility's adverse effects on operational performance.