Taiwanese Life Insurers Incur NT$200 Million Monthly Loss Amid July Market Downturn

In July, the Taiwanese stock market experienced a decline of over 6.5%, leading to significant capital market volatility that severely impacted the investment performance of life insurers, shifting their monthly pre-tax results from a profit to a loss. According to recent data from Taiwan’s Financial Supervisory Commission, the life insurance sector reported a pre-tax loss of NT$200 million (around $6.3 million) in July, breaking a three-month streak of positive growth. Despite this setback, the cumulative pre-tax profit for the initial seven months of the year remained robust at NT$277.7 billion (around $8.8 billion), marking the third-highest figure on record for this period.

Tsai Huo-yen, Deputy Director-General of the Insurance Bureau at Taiwan’s Financial Supervisory Commission, attributed the July loss primarily to a substantial drop in investment income. An analysis of the profit and loss structure reveals that the insurance service result yielded a monthly profit of NT$12.5 billion (around $395.4 million)—the lowest recorded this year—suggesting a deceleration in core business profitability. Furthermore, the financial result turned from a profit to a loss of NT$3.2 billion (around $101.2 million), while other operating outcomes recorded a loss of NT$9.7 billion (around $306.9 million). These factors collectively offset the gains from the insurance service result.

Over the first seven months cumulatively, the insurance service result produced a profit of NT$120.7 billion (around $3.8 billion), the financial result contributed NT$208.9 billion (around $6.6 billion), and other operating results registered a loss of NT$52.6 billion (around $1.7 billion), culminating in a total pre-tax profit of NT$277.7 billion (around $8.8 billion). Tsai Huo-yen emphasized that, driven by robust financial market performance in the first half of the year, the cumulative profit held steady as the third-highest for the same period in history.

Net Worth Retreats but Remains Above the NT$4 Trillion Threshold

Regarding net worth, life insurers’ total net worth was NT$4.1463 trillion (around $131.2 billion) at the end of July, representing a decrease of NT$39.1 billion (around $1.2 billion) from the record high observed at the end of June, largely due to a contraction in other comprehensive income. The Insurance Bureau noted that simultaneous fluctuations in both equity and bond markets during July caused the net worth to pull back from its peak. However, it remains at the second-highest level in history, comfortably maintaining a position above the NT$4 trillion (around $126.5 billion) mark.

Foreign Exchange Loss Buffer Reaches New Record Highs

Even as profit and net worth experienced a simultaneous cooldown, the life insurance industry’s “reservoir” designed to withstand exchange rate fluctuations continued to expand. In July, the Taiwan dollar depreciated by 1.41% against the US dollar. In an entirely unhedged scenario, life insurers would have recognized NT$81.7 billion (around $2.6 billion) in foreign exchange gains for the month. Conversely, hedging instruments incurred losses of NT$91.4 billion (around $2.9 billion). When factoring in NT$10.6 billion (around $335.3 million) in swap costs from hedging instruments and an additional NT$18.5 billion (around $585.3 million) allocated to the Foreign Exchange Valuation Reserve, the total net foreign exchange losses for July reached NT$38.8 billion (around $1.2 billion), marking a four-month peak.

The Insurance Bureau explained that the hedging ratio slightly increased to 42.94% in July. Additionally, the cost rate of one-year cross-currency swaps (CCS)—the primary hedging instrument—rose, resulting in a scenario where both volume and pricing escalated concurrently. Consequently, monthly hedging instrument costs reached NT$10.6 billion (around $335.3 million), reflecting a 1.3-fold increase from the prior month.

The balance of the Foreign Exchange Valuation Reserve rose to NT$718.2 billion (around $22.7 billion), increasing by NT$18.5 billion (around $585.3 million) month-over-month. When combined with the Special Surplus Reserve of NT$365.1 billion (around $11.6 billion), the total amounted to NT$1.0833 trillion (around $34.3 billion), setting a new record high and marking the second consecutive month that the total has surpassed the trillion-dollar threshold.

Under the revised guidelines for life insurers’ Foreign Exchange Valuation Reserve issued by Taiwan’s Financial Supervisory Commission in February, the current framework categorizes the reserve into four distinct “buckets”: the Foreign Exchange Valuation Reserve is divided into a Volatility Reserve (P) and a Fixed Reserve (Q), while the Special Surplus Reserve is split into a Foreign Exchange Risk Fixed Reserve (X) and a Foreign Exchange Risk Enhanced Reserve (Y). Tsai Huo-yen clarified that as of the end of July, P stood at NT$653.7 billion (around $20.7 billion), Q at NT$64.5 billion (around $2.0 billion), and X at NT$365.1 billion (around $11.6 billion). The Y reserve currently sits at zero, as the relevant figures will not be available until next year.

Insurance Bureau officials also highlighted that, based on life insurers’ net overseas investment exposure of NT$9.0417 trillion (around $286.0 billion) at the end of July, the combined Foreign Exchange Valuation Reserve and the Special Surplus Reserve’s foreign exchange risk fixed reserve can buffer an approximate 12% appreciation of the Taiwan dollar, equivalent to NT$3.8. Using the end-July exchange rate of NT$32.292 per US dollar, even if the Taiwan dollar appreciated to approximately NT$28.49, the life insurance sector as a whole would still maintain a certain degree of buffering capacity.

Reviewing the first seven months of the year, life insurers’ net foreign exchange losses totaled NT$181.6 billion (around $5.7 billion), a reduction of nearly 70% compared to the same period last year. The Insurance Bureau asserts that the new foreign exchange accounting regime has effectively diminished the impact of Taiwan dollar volatility on profit and loss, thereby substantially alleviating the interference of exchange rate factors on the earnings of life insurers.

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