The Financial Supervisory Commission (FSC) of Taiwan has decided on several interim measures to mitigate the impact of exchange fluctuations in the financial and capital markets caused by changes in the international financial situation.
The three temporary measures are:
1. In calculating the capital adequacy ratio, insurers will be allowed to apply six-month average exchange rates in valuing stocks. At present, the calculation is based on exchange rates as of the last day of the reporting period.
This interim measure applies to existing financial assets for which life insurers have not been able to adjust their hedging strategy due to short-term fluctuations in the forex market, excluding assets such as foreign currency cash and foreign currency deposits.
2. Flexibility in calculating liability valuation reserves for specific insurance products will be increased by:
(i) Raising the interest rate for calculating liability reserves: The interest rate for calculating liability reserves applicable in current insurance product calculations may be used as the basis, with a maximum increase of 25 basis points.
(ii) Adopting a mortality rate assumption that is more in line with current experience: The life table used in calculating liability reserves may be changed to 100% of the "Taiwan Life Insurance Industry Sixth Experience Life Table" which is closer to the current life experience data of the population.
(iii) The adjusted liability reserve shall not be lower than the policy valuation reserve.
The FSC added that if life insurers wish to apply the interim measures for adjusting the basis for provisioning liability reserves, they should also adopt the following supporting measures to strengthen their business structure:
(i) Make a mandatory increase in foreign exchange price fluctuation reserves: In addition to setting aside 30% of the pre-tax profit at the end of 2025 as foreign exchange price fluctuation reserves, the monthly fixed contribution rate will be adjusted as follows:
a. For insurers adopting the old system, the monthly fixed contribution rate will be adjusted from 0.06% to 0.085% (annual fixed contribution of 1.02%).
b. For insurers adopting the new system, the monthly fixed contribution rate will be adjusted from 0.100% to 0.125% (annual fixed contribution of 1.5%).
(ii) Propose an adjustment plan to strengthen business resilience, including specific plans and indicators for strengthening business structure and asset-liability management.
3. Regarding the criteria for applying transitional measures under the new-generation solvency system, differentiated supervisory requirements will be adopted:
(i) The FSC stated that among the four phases of transitional measures currently issued, only the transitional measures regarding the risk factors for domestic listed and over-the-counter stocks, real estate and policy-driven public infrastructure assets, announced in July 2023, are uniformly applicable. The rest, including net asset transitional measures, and transitional measures for risk factors such as interest rate risk and emerging risks (including longevity, withdrawal, expenses, catastrophe and non-default spread risks, etc.), are selective transitional measures.
Insurance companies may take into account their own financial business position and future development expectations and submit their applications to the FSC before 30 September 2025.
(ii) However, if an insurer’s capital adequacy ratio on 30 June 2025 does not meet statutory standards, the FSC will review the company's capital adequacy ratio on 30 September 2025 and decide whether to approve its application for adopting transitional measures.
The FSC said that it would complete the revision and publication of the relevant laws and regulations relating to the three interim measures (including the capital adequacy report formats, matters needing attention for foreign exchange price fluctuation reserves, and measures to adjust the basis of liability reserves) by the end of this month.
The FSC decided on the interim measures after holding joint discussions with the Taiwan Insurance Institute, the Big Four accounting firms, the Life Insurance Association and the life insurance industry.
The interim measures aim to alleviate issues faced by life insurers who have reported heavy foreign exchange losses as the Taiwanese currency appreciates against the US dollar. More than 90% of life insurers’ overseas assets are US dollar-denominated.
New solvency regime
The FSC also said that it has been more than five years since it announced in 2020 the proposed adoption of the new-generation solvency system by the insurance industry. Following deliberations by the industry, government, and academia, the implementation of the new system is imminent, the regulator said.
The FSC had requested the Taiwan Insurance Institute (TII) to study and discuss legal and feasible measures to assist the industry in adopting smoothly the International Financial Reporting Standards Statement No. 17 "Insurance Contracts" and the new-generation solvency system in 2026 as scheduled. In its turn, the TII invited experts and scholars, the Life Insurance Association and life insurance companies to discuss the matter and submit the proposed measures to the FSC.