The Financial Supervisory Commission (FSC) yesterday authorized insurers to unlock a significant portion of excess policy reserves in a bid to stabilize their earnings amid foreign exchange and equity market turbulence.
In a directive issued yesterday, the FSC said domestic insurers could release up to 40 percent of over-provisioned reserves on certain policies — either to bolster their foreign exchange buffer or to count toward pretax income.
The move, exceeding market expectations and landing at the top end of the industry’s 20 to 40 percent proposal, is expected to inject more than NT$100 billion (US$3.34 billion) in capital flexibility across the sector.
Photo: Kelson Wang, Taipei Times
The decision arrived just weeks after Taiwan’s life insurers reported NT$106.6 billion in pretax losses for May, driven by NT$66.8 billion in underwriting losses, NT$28 billion in investment losses and NT$11.2 billion in operational overheads, the commission’s data showed.
The losses obliterated prior gains, dragging the industry into a cumulative NT$61.7 billion deficit for the year through May — a sharp reversal from the NT$44.9 billion profit booked through April.
Insurers are widely expected to direct the unlocked capital toward earnings rather than currency reserves, aiming to shore up fragile midyear balance sheets. Larger players stand to benefit, given their deeper reserves and heavier exposure to foreign assets.
Under the measure, firms tapping NT$100 billion in reserves could reclassify up to NT$40 billion as income or foreign exchange reserves.
Earnings redirected through the change would be subject to the 20 percent corporate tax rate, the commission said.
Regardless of booking choice, 30 percent of eventual pretax profit must be reallocated to foreign exchange reserves by year-end if the company turns a profit.
While the directive avoids setting new limits on dividend distributions, payouts would remain subject to case-by-case oversight amid persistent global uncertainties — including the looming threat of tariff shocks and a still-volatile rate environment.
The move also coincided with the reportedly apparent end-of-session intervention by the central bank, which yesterday nudged the New Taiwan dollar weaker to close at NT$29.902 against US dollar.
Property and casualty insurers have remained profitable so far, posting NT$12.2 billion in pretax profit as of May 31 — a 2.4 percent decline from a year earlier, faring much better than life insurers.
Life insurers have advocated for a new mechanism to manage foreign exchange reserves, while increasing life expectancies underscore the need for greater flexibility in the use of mortality reserves.
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