Taiwanese regulators have moved to help the nation’s insurers deal with the impact of a recent surge in the local currency, which had left them with massive paper losses on their foreign holdings.
Insurers would be allowed to use six-month average exchange rates when they calculate risk-based capital in their semiannual reports, the Financial Supervisory Commission (FSC) said in a statement yesterday.
At present, insurers use the exchange rates of the final day of the reporting period.
Photo: Tien Yu-hua, Taipei Times
The decision is set to be a relief for the nation’s massive life insurance industry, which this week reported more losses for last month, on top of roughly US$4 billion of currency-related losses in the first four months of this year.
The six major life insurers posted combined losses of NT$34.88 billion (US$1.18 billion) for last month, the worst since December 2023, with Shin Kong Life Insurance Co (新光人壽) reporting the largest loss of NT$15.38 billion, followed by Fubon Life Insurance Co’s (富邦人壽) NT$9.14 billion and KGI Life Insurance Co’s (凱基人壽) NT$7.997 billion.
More than 90 percent of life insurers’ overseas assets are US dollar-denominated, which has hurt the New Taiwan dollar value of their holdings as the greenback has declined.
Worse, there are few signs that the industry is ready for a major overhaul of its investment model given the limited size of the local financial market and a habitual dependence on regulatory support when times are tough.
The FSC said the rule change would help the firms cope with volatile market swings and pave a smoother path as the industry shifts to new capital requirements starting next year.
“We don’t want short-term market volatility to become a disruptive factor for regulatory indicators,” Insurance Bureau Director-General Wang Li-hui (王麗惠) told a news conference in New Taipei City. “We hope that insurance companies can smoothly transition to the new accounting system.”
In another supportive change, the regulator is to increase the policy liability reserve rate, which would help insurers access additional reserves to offset foreign currency losses.
The NT dollar’s 6.98 percent surge against the greenback last 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 of foreign assets.
The local currency had stabilized earlier this month, but jumped another 0.9 percent yesterday to close at NT$29.660 against the greenback in Taipei trading.
Wang added that the rule changes are only temporary fixes.
Insurers “still need to fundamentally improve their overall operational strength,” she said.
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