Fitch Ratings has placed the Insurer Financial Strength (IFS) Ratings of five major Taiwanese life insurers on Rating Watch Negative (RWN), and one on Rating Watch Evolving (RWE), following a significant surge in the value of the Taiwan dollar.
The five insurers on RWN are Cathay Life, Fubon Life, and KGI Life, each with an ‘A’ IFS Rating; Nan Shan Life with an ‘A-‘ rating; and Taiwan Life, with a ‘BBB+’ rating. Shin Kong Life (SKL), rated ‘BBB’, was placed on RWE. Fitch also affirmed Chubb Life Insurance Taiwan Company’s (CLITC) National IFS Rating at ‘AA-(twn)’ with a Stable Outlook.
The RWN actions reflect heightened risks to insurers’ capital and earnings following an 8% surge of the Taiwan dollar over two days in early May. The rally was fuelled by foreign capital inflows into Taiwan’s equity markets, speculative trading, and the unwinding of US dollar assets by major institutions, with Taiwanese life insurers themselves likely contributing to the currency’s sharp appreciation.
The shift has also been amplified by global market volatility stemming from renewed trade tensions and tariff uncertainties, which have prompted investors to rebalance portfolios and reduce exposure to US dollar assets.
The sharp currency movement has led to increased hedging costs and intensified pressure on the financial profiles of insurers heavily exposed to US dollar-denominated assets and short Taiwan dollar positions.
Taiwan’s Financial Supervisory Commission (FSC) has summoned several of the island’s largest life insurers to meetings in Taipei, as the sharp rally in the Taiwan dollar threatened the value of their substantial unhedged holdings in US dollar bonds.
Taiwanese life insurers have traditionally relied on investing Taiwan dollar liabilities in US dollar assets, creating a structural currency mismatch. Although most insurers hedge a portion of these exposures, the rapid escalation in hedging costs has rendered this strategy more costly and less effective. Fitch noted that unhedged positions continue to pose a material risk, particularly in the event of further appreciation in the local currency.
While Fitch’s analysis indicates that the affected insurers can withstand a 10% rise in the Taiwan dollar from the start of 2025 without breaching Prism downgrade thresholds, the depletion of foreign exchange valuation reserves across the sector is a growing concern.
These reserves have historically acted as a buffer but are expected to be mostly exhausted due to the recent spike in the currency’s value, limiting the insurers’ ability to absorb further FX losses without capital erosion.
The RWE on SKL reflects a balance between the potential downside of currency-driven losses and the anticipated benefits of its planned merger with Taishin Life. Fitch expects the transaction to improve SKL’s market position, diversify its distribution channels, and provide additional financial backing from Taishin Financial Holding.
In contrast, CLITC’s rating remains unaffected. Fitch said the insurer has minimal exposure to currency mismatch risk and benefits from support by its ultimate parent, Chubb Limited (A+/Stable). CLITC’s capital position remains robust, and its Prism score is expected to stay at ‘Extremely Strong’, shielding it from near-term FX volatility.
The agency expects to resolve the Rating Watches within three to six months, following a reassessment of sector-wide exposure to FX volatility, insurer strategies to mitigate this risk, and changes in capital and earnings profiles.
Taiwanese life insurers posted their biggest monthly loss in 18 months in April, with a combined shortfall of almost NT$19bn (US$620m) driven by the Taiwan dollar’s sharp rise against the US dollar, even before the further currency gains in early May raised concerns about their currency risk and hedging strategies.
