Taiwan’s plan to let life insurers amortise foreign-exchange gains and losses on certain bond holdings could have “profound” implications for reported earnings and hedging behaviour, while leaving the sector’s underlying currency mismatch largely intact, analysts have warned.
In a commentary, Fitch Ratings said draft accounting amendments released by the Financial Supervisory Commission (FSC) in late December 2025 would smooth the impact of FX swings on insurers’ profit and loss, but “could increase structural FX exposure”, particularly for firms with weaker long-term currency matching.
Fitch also said it viewed the approach as a “deviation from international practice”, which may reduce comparability for global investors.
Under the proposal, life insurers would be able to recognise FX gains or losses over the bonds’ tenor, measured at amortised cost, rather than taking the full impact immediately, as is the current practice. The FSC has opened a consultation, saying it wants to reduce hedging costs that have weighed on profitability. The consultation runs for 30 days and is due to end in late January 2026.
The FSC has not yet provided clarity about the calculation of potential savings from reduced hedging costs, the allocation of savings to increase FX valuation reserves as an additional buffer to absorb FX losses and to surplus reserve, and whether such additional FX valuation reserves will be counted as capital under the new regulatory capital regime, Taiwan Insurance Solvency, that comes into effect from 2026.
Analysts from CreditSights, a Fitch Solutions unit, said the proposed policy reflects the reality that Taiwan life insurers have built large US dollar portfolios because domestic bond yields and market depth have not met return needs, leaving liabilities predominantly in Taiwan dollars. It is estimated that insurers spent NT$1.6 trillion (US$50.72bn) on currency hedging between 2019 and October 2025, exceeding their aggregate profits of NT$1.4 trillion over the same period, a situation it calls “economically irrational”.
However, Fitch cautioned that the proposals “defer recognition of FX movements on financial statements but do not reduce economic FX risk or currency mismatches.”
The changes could prompt life insurers to reassess the classification of bond assets on their financial statements following the adoption of new accounting standards, but the impact will depend on insurers’ long-term asset-liability management, including investment and business mix strategies.
“If the reclassification is accompanied by greater unhedged FX exposure, life insurers’ capitalisation could be more susceptible to adverse FX movements,” Fitch said. “Conversely, if savings from the reduction in hedging costs are redeployed to strengthen currency and duration matching as well as FX valuation reserves, the net impact could be favourable.”
