Taiwan Rewrites Life Insurer Forex Reporting Rules to Cut Billions in Hedging Costs
Taiwan's Financial Supervisory Commission approved a major overhaul of accounting rules for life insurers
Quick overview
- Taiwan's Financial Supervisory Commission approved new accounting rules for life insurers, allowing them to amortize foreign exchange gains and losses over time starting in 2026.
- This change is expected to save insurers billions in annual hedging costs and better reflect their long-term operations.
- The life insurance sector, holding around $700 billion in foreign assets, faced significant losses due to currency fluctuations and high hedging costs in recent years.
- Concerns have been raised about the potential for these changes to obscure real exchange-rate risks in financial statements.
Taiwan’s Financial Supervisory Commission approved a major overhaul of accounting rules for life insurers, letting them spread foreign exchange gains and losses over time instead of recognizing them immediately. The changes take effect in 2026 and could save insurers billions in annual hedging costs.
The new method lets insurance companies amortize exchange-rate movements for bonds measured at amortized cost. Rather than hitting financial statements all at once, forex fluctuations get spread across the bond’s remaining term. The FSC said this better reflects how insurers actually operate long-term.
Taiwan’s life insurance sector holds roughly $700 billion in foreign assets, mostly denominated in U.S. dollars. About $483 billion of those assets face exchange-rate risk based on regulatory calculations that exclude foreign currency policies.
The sector posted record losses of NT$145.4 billion in May when the Taiwan dollar surged. That spike highlighted how currency swings and soaring hedging costs hit insurers’ profitability hard, raising questions about their financial health.
From 2019 through 2025, insurers spent over NT$1.6 trillion on currency swaps and non-deliverable forwards to hedge forex risk. That exceeded their combined net income of about NT$1.4 trillion over the same period. The FSC noted this shows hedging costs have been high relative to limited effectiveness.
Monthly hedging costs ran around NT$30 billion in 2024, peaking at NT$39 billion in January. After insurers adopted a new forex reserve system this year, costs dropped from NT$27.1 billion in January to NT$21.3 billion in October. With the amortization method, the industry expects costs could fall below NT$20 billion monthly.
The FSC will require insurers to use savings from lower hedging costs to build up forex volatility reserves and strengthen capital. The Insurance Development Institute and Life Insurance Association have a week to submit detailed proposals on calculation methods.
Some academics worry the changes could “beautify” financial statements and hide real exchange-rate risks. But the FSC argues current accounting standards create misleading volatility in earnings since most forex moves are unrealized and insurers’ assets match long-term policy liabilities without short-term repatriation needs.
Insurers began cutting hedging positions in the second half of 2025. By October, the industry’s hedging ratio dropped to 58.55%, the lowest since regulators started tracking it in 2020.
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