Taiwan Dollar at Risk of Insurers Reducing $95 Billion of Hedges

The Taiwanese dollar is expected to lose a crucial source of support as new accounting rules allow insurers to unwind foreign-exchange hedges on as much as NT$3 trillion ($95 billion) of overseas assets.

The country’s life insurers hold about in assets overseas, and use hedging contracts to manage exchange-rate swings. Those hedges require insurers to lock in future purchases of Taiwan dollars, helping support the currency.

That’s changing because the allow insurers to pull back on hedging and absorb more gradually, reducing the need for trades that support the Taiwan dollar. As firms dismantle these old positions, they must buy US dollars immediately on the open market, further pressuring the local currency.

Market projections for this shift stem from Bloomberg calculations based on an industry group forecast for a drop in the hedging ratio. These figures suggest that insurers may unwind as much as NT$3 trillion in hedges as they transition to the new accounting framework.

The impact is already showing up in the derivatives market. The 12‑month non‑deliverable forwards — a gauge of how the dollar is expected to trade against the Taiwan currency — turned positive in January for the first time in a decade. That suggests traders are pricing in a weaker local currency ahead.

“In the long run, the forward curve — previously suppressed by heavy hedging activity — should rise, supporting a structurally higher USD/TWD,” said Chandresh Jain , an EM Asia rates and markets strategist at BNP Paribas in Singapore. It will take a few more quarters for life insurers to achieve an optimal hedging ratio, he said.

The options market is also sending the same signal. One‑month dollar-Taiwan dollar risk reversal has climbed back toward neutral levels this year, suggesting the cost of hedging for a downside move is close to that of an upside move.

Along with pressure from , the local currency fell to an eight-month low of 31.706 per dollar on Wednesday amid broad dollar strength. Taiwan’s to the US as part of a trade deal is likely to further weigh on the currency, which just posted its biggest annual gain since 2020.

“Near-term, it looks like USD/TWD could drift higher toward 32,” said Khoon Goh , head of Asia research at Australia & New Zealand Banking Group in Singapore. Reduced hedging by life insurers, their unwinding of some earlier hedges and a firmer dollar recently are weighing on Taiwan’s currency, he said.

The bearish view also aligns with shifting strategies at the island’s life insurers. The sector held NT$15.2 trillion in FX‑exposed assets as of end‑October, according to data from the Financial Supervisory Commission.

Cathay Life Insurance Co. spokesperson Lin Chao‑ting said in November that the hedging ratio is expected to , from roughly 60%. Lin is also vice chairman of Taiwan’s Life Insurance Association.

“If lifers’ hedging activities remain structurally low, USD/TWD spot and swap points will see upward pressure and the Taiwan dollar will likely lag major Asian currencies,” said Lemon Zhang , a strategist at Barclays Plc.