International credit rating agency Fitch has placed five major Taiwanese life insurance companies under review for possible downgrades. This decision follows a significant appreciation of the Taiwanese dollar earlier this month, which has put considerable strain on their financial health. The insurers affected are Cathay Life Insurance, Fubon Life Insurance, KGI Life Insurance, Nan Shan Life Insurance, and Taiwan Life Insurance. These firms have substantial exposure to U.S. dollar-denominated assets, creating a notable currency mismatch.
Fitch's analysis highlights that despite efforts by these insurers to hedge against balance sheet mismatches, rising hedging costs and unhedged positions continue to expose them to volatile currency movements. There remains a possibility of further appreciation of the Taiwanese dollar. Analysts attribute the recent spike in the local currency to a rush to repatriate U.S.-based investments amid uncertainties surrounding President Donald Trump’s trade policies and potential tariff negotiations between the U.S. and Taiwan.
According to Fitch, the insurers possess sufficient capital reserves to endure a 10% increase in the value of the Taiwanese dollar relative to the U.S. dollar starting from 2025. However, the local currency has already appreciated approximately 8.8% this year. The ratings agency anticipates concluding its evaluations within the next three to six months.
These developments underscore the complexities faced by global financial institutions navigating fluctuating currency markets. As they strive to maintain stability amidst shifting economic landscapes, these insurers must carefully manage their portfolios to mitigate risks associated with currency volatility.