The New Taiwan dollar ( NTD ) has appreciated over 10% against the US dollar ( USD ) since the beginning of April 2025, a development that could lead to significant losses for Taiwanese life insurance companies, which have invested a sizable share of their NTD liabilities in USD assets.

Fitch Ratings has placed five Taiwanese life insurers on Rating Watch Negative ( RWN ), reflecting increasing risks to their capital and earnings, as well as their overall business risk profile.

The USD tends to weaken further in response to the aggressive trade policies of US President Donald Trump, while Asian local currencies are appreciating against the greenback to varying degrees. However, the NTD has experienced unusually continuous and significant growth compared to other emerging market currencies.

There are three main reasons for the NTD’s appreciation, according to an analysis by Dachrahn Wu, professor at National Central University. Firstly, Taiwan stocks, led by TSMC, have rebounded recently, driving foreign investors to exchange large amounts of USD for NTD to invest in Taiwan’s stock market.

Secondly, Taiwan life insurers hold significant amounts of US bonds, which are being sold due to the shrinking value of USD assets, and this capital is being redirected into the Taiwan property and stock markets.

Lastly, Taiwan exporters are concerned about the continued appreciation of the NTD, so they are selling USD, which further drives demand for the local currency.

Affected insurers

Taiwanese life insurers, with their large holdings of USD fixed-income assets and short positions in the Taiwan dollar, have been adversely affected and remain exposed to further NTD appreciation.

Those placed on the Fitch RWN list are Cathay Life Insurance, Fubon Life Insurance, and KGI Life Insurance, all with Insurer Financial Strength ( IFS ) Rating of “A”; Nan Shan Life Insurance, with an IFS Rating of “A–“; and Taiwan Life Insurance, with an IFS Rating of “BBB+”.

At the same time, Fitch has placed Shin Kong Life Insurance's ( SKL ) IFS Rating of “BBB” on Rating Watch Evolving ( indicating uncertainty about the future direction ), and affirmed Chubb Life Insurance Taiwan Company's National IFS Rating at “AA–( twn )” with Stable Outlook.

In March 2025, the Taiwan Financial Supervisory Commission approved the merger of Taishin Financial Holdings and Shin Kong Financial Holdings ( Shin Kong Life Insurance’s parent company ). The merger takes effect from July 24, with Taishin Financial becoming the surviving entity.

The merger will give Taishin access to Shin Kong’s insurance operations and is expected to boost Shin Kong Life’s capital adequacy. However, Fitch says in a recent report that the negative effects of the NTD appreciation could offset the benefits of its impending merger with Taishin, including a continued weakening in profitability, a decline in return on equity to below 3%, and a significant drop in the contractual service margin of new business.

Hedging costs rise

Taishin Financial says it will not increase its hedging ratio due to short-term exchange rate fluctuations. However, Fubon Life Insurance, Taiwan’s second-largest insurer, has chosen to strengthen its hedging operations.

FX hedging costs have soared, and the potential for further NTD appreciation remains. While insurers have hedged the majority of their balance sheet mismatches, Fitch expects this strategy to come under pressure due to the surge in hedging costs, while unhedged positions will continue to expose them to sharp currency swings.

While no rise in policy surrenders has been observed, this remains a risk to insurers' credit profiles, the rating agency says.

In Fitch's current analysis, insurers have sufficient capital buffers to withstand a 10% rise in the NTD against the USD from the start of 2025, without their Fitch Prism Global Scores breaching downgrade rating sensitivities.

That said, a moderate decline in capital ratios could contribute to negative rating action if combined with significant capital risks from further appreciation of the NTD and markedly weaker earnings prospects.