Accounting rule changes could raise Taiwan life insurers’ FX exposure

Written by Adam Cadle

15/01/2026

Proposed accounting rules in Taiwan will ease the impact of foreign-exchange (FX) volatility on life insurers' reported earnings, but could increase structural FX exposure, particularly for life insurers with weak long-term currency match management, Fitch Ratings has said.

It added that the approach deviates from international practice, which may reduce comparability for global investors.

In late December 2025, the Financial Supervisory Commission (FSC) released draft amendments that would allow life insurers to recognise FX gains or losses over the tenor of bonds measured at amortised cost, rather than recognising the full fair value impact of FX movements immediately under current practice. The regulator aims to reduce hedging costs that have weighed on life insurers’ profitability. The consultation runs for 30 days and is scheduled to end in late-January 2026.

The proposals defer recognition of FX movements on financial statements but do not reduce economic FX risk or currency mismatches. Foreign investments account for nearly 70% of the life sector’s invested assets. Insurers hold far more US dollar-denominated assets than liabilities and use these assets to back a large portion of Taiwan dollar insurance liabilities. The sector’s net FX asset exposure (excluding natural hedging through US dollar-denominated policy liabilities) was about TWD15trn at end-October 2025.

“We expect the life sector’s hedging ratio to decline over time from about 60%, while currency mismatches remain substantial and are unlikely to improve meaningfully in the next few years,” Fitch Ratings stated.

“Life insurers’ unhedged FX exposure could increase, considering total invested assets are likely to expand. Although life insurers have strengthened FX valuation reserves, these may be insufficient to absorb losses if the Taiwan dollar appreciates sharply and persistently, as happened in May 2025. Under extreme stress scenarios, enormous policy surrenders could force asset sales before maturity, crystallising deferred FX losses immediately and potentially impairing insurers with weak liquidity profiles and modest capital buffers.

“The proposed changes may prompt life insurers to reassess the classification of bond assets on their financial statements following the adoption of new accounting standards. If the reclassification is accompanied by greater unhedged FX exposure, life insurers' capitalisation could be more susceptible to adverse FX movements. Conversely, if savings from the reduction in hedging costs are redeployed to strengthen currency and duration matching as well as FX valuation reserves, the net impact could be favourable. The impact will depend on insurers’ long-term asset-liability management, including investment and business mix strategies. We will evaluate how our rated insurers enhance their risk management practices in response to the new accounting rules. In addition, we assess insurers’ capital adequacy and resilience of financial performance to absorb potential economic FX risk captured in their stress testing, if hedging is reduced and currency mismatches increase.”

The related supplementary measures are under discussion and expected to be finalised before the implementation of the new financial reporting standards. The FSC has yet to provide clarity about the calculation of potential savings from reduced hedging costs, the allocation of savings to increase FX valuation reserves as an additional buffer to absorb FX losses and to surplus reserve, and whether such additional FX valuation reserves will be counted as capital under the new regulatory capital regime, Taiwan Insurance Solvency, that comes into effect from 2026.

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