FSC: Life Insurance Industry's Foreign Exchange Reserves Can Withstand 3.51 TWD Appreciation

The Financial Supervisory Commission (FSC) announced on the 28th that the life insurance industry's foreign exchange valuation reserve balance reached 680.1 billion TWD by the end of April, combined with 289.7 billion TWD in special surplus reserves for foreign exchange risk, totaling 969.8 billion TWD. Considering the industry's net foreign investment exposure, this buffer is sufficient to withstand an 11.1% appreciation of the New Taiwan Dollar, or approximately 3.51 TWD based on the end-of-April exchange rate.

The FSC introduced a new foreign exchange accounting regime last December, which uses an amortization method to reduce the impact of exchange rate fluctuations on financial statements. As a result, life insurers have been continuously lowering their hedging ratios. FSC data shows that the hedging ratio has fallen from 50.23% at the end of 2025 to 47% in January this year, and further to 44.31% in April, marking a new low.

Chen Ching-yuan, Deputy Director-General of the Insurance Bureau, explained at a regular press conference that of the 44.31% hedging ratio at the end of April, cross-currency swaps (CS) accounted for over 75%, while non-deliverable forwards (NDF) accounted for less than 25%.

In February, the FSC amended the regulations for life insurance foreign exchange reserves, creating a 'four-bucket' system: 'Volatility Reserve (P),' 'Fixed Reserve (Q),' 'Special Surplus Reserve - Fixed Foreign Exchange Risk (X),' and 'Special Surplus Reserve - Enhanced Foreign Exchange Risk (Y).' As of the end of April, P stood at 648.6 billion TWD, Q at 31.5 billion TWD, and X at 289.7 billion TWD. Y is expected to have figures starting next year.

The Insurance Bureau stated that while the industry's net foreign investment exposure is 8.7024 trillion TWD, in an extreme scenario where all foreign investments are repatriated, these reserves would provide a sufficient buffer against TWD appreciation.