May 2019

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Taiwan: Life insurers post net forex losses of $7.5bn for 2018

Source: Asia Insurance Review | Mar 2019

Net foreign exchange losses recorded by life insurers in Taiwan last year reached NT$230.9bn ($7.5bn) in 2018, reported Reuters citing data from the Financial Supervisory Commission (FSC).
Although the life sector made gross forex gains of NT$281bn during the year, this was offset by hedging costs of NT$484bn. The life insurers as a whole made pre-tax profit of NT$84.2bn.
Taiwanese insurers have accumulated forex risks from rising overseas investments, a substantial portion of which are not backed by foreign currency insurance policies.
To address the issue, the FSC has proposed changes to foreign exchange volatility reserve rules. Under the proposed rules, insurers can use the reserve to offset up to 60% of their foreign exchange gains/losses, up from 50% currently, when the market hedging cost of currency swaps is higher than 2% of the notional value. 
Moody’s Investor Service says that the foreign exchange volatility reserve is not a good substitute for hedging arrangements even from an accounting perspective because the reserve could be depleted quickly in the event of material foreign-exchange rate shifts. A 
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