Proposed rule may raise Taiwan insurers’ underlying risk, Fitch warns

The gov’t has not clarified how hedging cost savings or FX reserves will be calculated.

Proposed accounting changes in Taiwan could smooth the impact of foreign exchange (FX) swings on life insurers’ reported earnings but may increase their underlying FX risk, especially for companies with weak long-term currency matching, Fitch Ratings warned.

In late December 2025, the Financial Supervisory Commission released draft rules that would allow life insurers to spread the recognition of FX gains and losses over the life of bonds measured at amortised cost, instead of booking the full impact immediately. 

The regulator said the move aims to reduce hedging costs that have weighed on insurers’ profitability. The public consultation runs for 30 days and is due to end in late January 2026.

Fitch said the proposals would only delay the recognition of FX movements in financial statements and would not reduce the sector’s actual currency risk. 

Foreign assets account for nearly 70% of life insurers’ total investments, with a large mismatch between US dollar assets and Taiwan dollar liabilities. 

The sector’s net FX asset exposure, excluding natural hedges, stood at about $32b (TW$15t) as of end-October 2025.

The ratings agency expects the sector’s hedging ratio to fall from around 60% over time, whilst currency mismatches are likely to remain large. 

Unhedged FX exposure could rise further as total assets continue to grow. 

Although insurers have built up FX valuation reserves, Fitch said these may not be enough to absorb losses if the Taiwan dollar strengthens sharply and for a prolonged period, similar to what occurred in May 2025.

Fitch also warned that in a severe stress scenario, large policy surrenders could force insurers to sell assets before maturity, bringing forward deferred FX losses and putting pressure on companies with weaker liquidity and capital buffers.

The agency added that the new rules may lead insurers to reclassify bond holdings under upcoming accounting standards. If this results in higher unhedged FX exposure, capital positions could become more sensitive to currency moves. 

However, if savings from lower hedging costs are used to strengthen currency and duration matching and build larger FX reserves, the overall impact could be positive.

Fitch said the final effect will depend on each insurer’s asset-liability management and business mix.

It will assess how rated insurers adjust their risk management and capital planning once the new rules and related measures are finalised. 

The FSC has yet to clarify how hedging cost savings will be calculated, how much will be set aside as FX valuation reserves, and whether these reserves will count as capital under the new Taiwan Insurance Solvency regime starting in 2026.