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Financial Supervisory Commission Voices Concern: More Worried That Life Insurance Industry Hasn't Done This Than the Exchange Rate Accounting Debate
United Daily News | Local Language | News | Nov. 28, 2025 | Regulation
The Financial Supervisory Commission (FSC) is urging the life insurance industry to shift focus from avoiding financial statement volatility through excessive hedging to substantive exchange rate risk management. The FSC highlights that the industry’s excessive hedging over the past decade has cost over NT$2 trillion, surpassing total profits of NT$1.68 trillion, causing asset outflows without effectively mitigating real risks. The commission stresses that managing exchange rate risk should go beyond accounting debates to address actual risk management.
Life insurers currently rely heavily on short-term hedging instruments, such as NDFs and CSs, which fail to cover the industry's long-term liabilities of 20–30 years. The FSC advocates accumulating capital reserves as "self-insurance" to absorb long-term exchange rate uncertainties. Regulatory adjustments aim to reduce excessive hedging and redirect savings towards enhancing solvency by raising reserves and setting aside surplus capital, rather than generating short-term profits.
The FSC identifies the root cause of exchange rate problems in the insufficient scale of the domestic fixed-income market, which pushes insurers toward foreign assets, creating currency and asset-liability mismatches. To address this, the FSC has outlined three fundamental reforms: strengthening asset-liability management (ALM) to reduce mismatches, encouraging domestic investment through relaxed restrictions and collaboration with government initiatives, and implementing a 15-year capital upgrade plan aligned with IFRS 17 and ICS to bolster net worth and risk capacity.
Overall, the FSC’s supervisory approach aims to transition the life insurance industry away from short-term accounting fluctuations towards sustainable long-term risk management by balancing reasonable hedging, capital self-insurance, and enhanced domestic investment to mitigate structural risks. This strategic shift is intended to secure the industry's fundamental stability and long-term operational soundness.