UBS has analyzed the recent developments within Taiwan’s life insurance regulatory framework and concluded that these changes lower the probability of experiencing an abrupt surge in the U.S. dollar to Taiwan dollar (USD/TWD) exchange rate comparable to the spike during April-May 2025. Despite the USD/TWD rate advancing from approximately 29 to 31.6 since June 2025, UBS interprets this as a market adjustment responding to earlier strong Taiwan dollar gains rather than the start of a new prolonged upward trajectory.
Market participants have benefited from a notable decrease in foreign exchange (FX) hedging costs, particularly within the non-deliverable forward (NDF) market. Currently, the 12-month USD/TWD NDF hedging cost is at an annualized rate of 0.6%, substantially lower than the 2.1% annualized rate seen in onshore USD/TWD hedging. This reduction in hedging expenses may encourage increased hedging activity among Taiwan’s life insurers.
Regulatory guidance suggests that life insurers in Taiwan may shift from traditional FX hedging approaches to frameworks based on risk-based capital buffers. Nevertheless, these insurers are required to maintain significant reserves against FX volatility. With total net foreign assets in the life insurance sector valued at about TWD 15 trillion (equivalent to $474.7 billion), the FX volatility reserves must rise from the current level of TWD 384 billion ($12.2 billion) to approximately TWD 1.5 trillion ($47.5 billion). This implies a considerable reserve shortfall around TWD 1.12 trillion ($35.3 billion) that necessitates gradual accumulation over time.
UBS projects the USD/TWD exchange rate will trend downward, reaching near 30.3 by the end of 2026. The recent appreciation is therefore regarded as a temporary pullback rather than a fundamental directional shift in the currency pairing.