Photo from: Financial Supervisory Commission R.O.C. (FSC)
Taiwan’s Financial Supervisory Commission (FSC) called in major life insurers for urgent meetings on Monday after the Taiwan dollar soared to its highest intraday gain in over 30 years, raising concerns about the stability of insurers’ vast US bond holdings.
The FSC met with some of the island’s largest insurers, who collectively hold more than NT$23 trillion (US$767 billion) in foreign assets, mostly US debt, Bloomberg reported. The rapid appreciation of the Taiwan dollar, up as much as 5% in a single day, has put pressure on these investments, with potential for significant losses and cash-flow issues.
The surge was driven by exporters selling US dollars and speculation that authorities might allow further currency strengthening to facilitate a trade deal with the US. The situation was reportedly worsened by insurers rushing to hedge their US bond holdings, which make up the bulk of their overseas assets.
Bank of America estimates that Taiwan’s life insurers had hedged only about 65% of their foreign holdings at the end of last year, near historic lows. The lack of hedging has left them exposed as the Taiwan dollar strengthens.
Insurers have been asked to assess the impact of recent foreign exchange moves and report on how they plan to manage the risks. More meetings with other insurers may follow as regulators monitor the situation.
