TAIWAN DOLLAR RALLY HEIGHTENS FX RISK FOR LIFE INSURERS, AM BEST WARNS 

KUALA LUMPUR, May 9 (Bernama) -- The Taiwan dollar’s rapid appreciation against the United States (US) dollar in recent days has raised foreign exchange (FX) risk concerns for the country’s life insurers, according to a new commentary from AM Best.

In its commentary titled “Taiwan Dollar Rallies, Life Insurers More Exposed to Foreign Exchange Risk”, AM Best noted that the local currency surged by a combined eight per cent against the US dollar over a two-day period in the past week.

Factors that fuelled this momentum include increased foreign capital flow into the domestic equity market, speculative investments in the exchange rate and some de-risking of US-denominated assets by institutions with significant exposures, such as Taiwanese life insurance companies and large exporters.

AM Best director of analytics, James Chan in a statement said Taiwan’s life insurance segment has been gradually building up its foreign exchange fluctuation reserves, which amounted to TWD283.6 billion at the end of March 2025. (TWD100 = RM14.23)

“Taiwan’s macroeconomic environment is becoming increasingly complex, aggravated by heightened geopolitical risks, and presents persistent headwinds to Taiwan’s insurance industry.

“However, FX risk management is embedded as a key component of Taiwanese insurers’ enterprise risk management (ERM), and nearly all of our non-life rating units in Taiwan have an ERM assessment of appropriate,” concluded Chan.

Taiwanese life insurers’ allocations to foreign investments have been reported by the Taiwan Insurance Institute as representing approximately 70 per cent of the segment’s overall portfolio as of year-end 2024.

The non-life segment allocated approximately just 15 per cent to foreign investments in 2024, as insurers in the segment place a heavier focus on maintaining sufficient liquidity to support the short-tail underwriting liabilities, according to the commentary.

Coupled with the much lower foreign investment-to-capital gearing, significantly smaller balance sheets and consistent application of FX derivatives with a moderately high hedging ratio, AM Best expects the non-life segment’s profit and loss and capital position to remain resilient against the recent large FX volatility.

-- BERNAMA