Taiwanese insurers are facing difficult questions about the damage of recent swings in the New Taiwan dollar. Regulators might have a partial solution: letting firms change how they calculate the value of foreign currency assets.
The Financial Supervisory Commission (FSC) is considering allowing insurers to use six-month average exchange rates when they calculate risk-based capital in their semiannual reports, a shift from the current system where insurers use exchange rates on the final day of reporting.
The change could ease pressure on the US$1.2 trillion insurance sector, whose huge exposure to foreign assets came into the spotlight earlier this month after a rapid surge in the NT dollar against the greenback.
Photo: Wang Yi-sung, Taipei Times
“This will offer some breathing space for selected lifers where risk-based capital is close to the regulatory requirement,” Societe Generale SA Greater China economist Michelle Lam (林雪潔) said.
Still, the currency was likely to appreciate further against the greenback, meaning insurers would not entirely be spared the need to hold more capital, she added.
The change is still being considered by the commission, but FSC Chairman Peng Jin-lung (彭金隆) told lawmakers yesterday that the regulator was “inclined to agree with the proposal from the life insurance association” to switch to six-month exchange rates for the calculation.
“We’ll prioritize stability in the market and a smooth transition to the new capital requirements rules in 2026,” he said, adding that the regulator would make a decision on easing the rule by the end of next month.
Peng told a news conference on Tuesday that Taiwan’s insurance companies have enough cash on hand, and would not have liquidity issues.
The NT dollar’s more than 8 percent surge against the greenback over the past month has forced local insurers to either pay up to hedge against further currency gains or face the risk of growing paper losses on their approximately US$780 billion in foreign assets, most of which are in US dollars.
Local insurers have been divided on how best to respond to the currency volatility.
Taiwan Life Insurance Co (台灣人壽) chairman Paul Hsu (許舒博) in an interview last week said that the currency swings were causing him sleepless nights.
His firm is considering diversifying its investments across different currencies and issuing more US dollar-denominated policies to lower the risk of currency mismatches, he said.
Fitch Ratings on Friday last week revised its outlook for the life insurance sector to “deteriorating” from “neutral,” adding that exchange rate movements might affect Taiwanese life insurers’ capitalization and earnings.
Insurers are likely to hedge more of their foreign currency assets in response to the recent volatility, Fitch said.
The NT dollar yesterday edged 0.14 percent higher against the greenback to close at NT$29.910 in Taipei trading.
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