Taiwan’s insurers are facing heightened foreign exchange ( FX ) risk and stricter capital rules under the Taiwan Insurance Capital Standard ( TW-ICS ), scheduled to be implemented in 2026. As a result, strategic adjustments, such as strengthening FX hedging, extending duration and tapping locally advantaged alternatives, are essential to helping insurers navigate volatility while enhancing capital efficiency.

Insufficient hedging meets heavy US dollar exposure

Taiwanese insurers have become increasingly sensitive to FX fluctuations, with nearly 70% of general account assets invested in foreign securities, primarily US dollar-denominated bonds. However, year-to-date, the US dollar has depreciated by over 10% against the New Taiwan dollar.

“US dollar depreciation against the New Taiwan dollar leads to losses on foreign assets, especially US corporate bonds held by Taiwan insurers,” says Vladimir Zdorovenin, head of international insurance solutions at PineBridge Investments, during a PineBridge webinar on July 16. “Currently, only 60% to 70% of currency exposure is hedged, either through overlay strategies or by offsetting US dollar liabilities,” he adds. “This leaves a significant portion of the portfolio vulnerable to exchange rate movements.”

While US investment-grade corporates have delivered approximately 4% returns in US dollar terms this year, cross-currency basis costs have further eroded returns in local currency terms. Going forward, more dynamic hedging strategies or selective reinvestment in onshore assets may be necessary to preserve net yield.

Localizing private equity investment

Historically, private equity ( PE ) allocations among Taiwan life insurers have ranged between 2% and 5% of total assets, broadly in line with, or slightly below, their Asia-Pacific and global peers. All along, Taiwan insurers, Zdorovenin shares, have been a key source of limited partner capital for large international PE firms.

More recently, there’s been a clear decline in new PE commitments by Taiwanese insurers from their 2020-21 peak, along with some high-profile divestments from global PE funds in 2024-25.

While the broader slowdown in large-cap global PE deal activity and performance has likely played a role, the shift is more meaningfully driven by preparations for the implementation of the TW-ICS, which is a new risk-based capital framework being developed by Taiwan’s Financial Supervisory Commission ( FSC ) to strengthen the insurance sector’s solvency, financial resilience and risk management in line with international standards.

Transitioning to TW-ICS will further reshape Taiwanese insurers’ capital allocation approach. Under the current risk-based capital system, PE investments are assigned a 33.75% risk charge, plus an extra 6.61%, if they’re in foreign currencies.

The TW-ICS raises the solvency calibration threshold from 95% to 99.5% and mandates full mark-to-market revaluation of both assets and liabilities. This is expected to take effect in 2026.

“A key factor is the capital intensity of PE investments under the TW-ICS,” Zdorovenin notes. “Unlisted equities, including interests in PE funds, attract materially higher capital charges than unrated illiquid credit or real estate equity, without necessarily generating sufficient excess return to justify the additional burden.”

To mitigate this, the FSC has embedded capital relief for qualifying domestic unlisted equities and infrastructure investments. This “localization framework” enhances capital efficiency while aligning with broader policy goals around economic growth and sustainability.

This creates a strategic opening for domestic PE managers to capture a larger share of insurers’ PE allocations, since they can source scalable opportunities and work closely with insurers’ internal investment teams.

For life insurers whose asset durations remain shorter than those of their liabilities, they may need to extend portfolio duration or diversify into alternative assets that offer better risk-adjusted returns.