As Trump’s aggressive policies increase USD exchange rate risk, overly exposed Taiwanese life insurers move to a more multipolar investment strategy

As uncertainty grows over the impact of President Trump’s trade war on exchange rates and global economic policy, markets are once again experiencing heightened volatility. Recent economic indicators suggest that the United States is entering a downturn, and when combined with Trump’s aggressive tariff strategy, this has pushed the U.S. dollar to a five-month low. Analysts at J.P. Morgan and Goldman Sachs have warned that the long-standing belief in "American exceptionalism" is facing serious challenges, shaking foreign investors' confidence in American markets. For Taiwan’s life insurance industry, which manages over US$700 billion in overseas assets, the combination of erratic U.S. policies and a weakening dollar presents a double threat, forcing a careful reassessment of exchange rate risks, asset price volatility, and investment strategy.

This American exceptionalism has traditionally underpinned America’s role as a global safe haven for capital. Today, the unpredictability of trade policies and rising political instability are placing that status under strain, prompting concerns among credit rating agencies and reducing the appeal of U.S. assets. Meanwhile, Germany and other European economies are presenting themselves as stable alternatives, introducing measures to stimulate growth and attract capital. For Taiwan’s life insurers, the New Taiwan dollar value of long-term holdings in U.S. bonds and real estate are shrinking, as the U.S. dollar has closed lower in seven of the past nine weeks.

Although the dollar has recently recovered some ground, retracing the gains made since last year’s election, broader trends remain unfavorable. The cost of hedging against currency risk has risen sharply as U.S. interest rates decline, further eroding profitability. With nearly 70 percent of Taiwan’s life insurance assets invested overseas, and a large share tied to the U.S., changes in American policy have significantly increased investment risks. Life insurers now face a triple challenge: currency volatility, policy unpredictability, and narrowing investment spreads. Depreciation of U.S. assets on their NTD balance sheets has led to a decline in overall net worth, and sharp currency swings could even trigger regulatory alerts for inadequate capital adequacy ratios. This erosion of financial strength, combined with the risk of credit rating downgrades, could drive up funding costs across the industry.

Taiwan’s life insurers have historically relied heavily on foreign exchange gains to bolster their earnings. Last year, many companies benefited from the depreciation of the Taiwan dollar and the strength of the U.S. dollar. That trend is now reversing, putting additional pressure on net asset values and demanding a reassessment of valuation methods and risk appetite. The Trump administration’s frequent policy shifts make long-term investment planning increasingly difficult. Abrupt changes in policy affecting specific industries or countries could derail carefully constructed investment strategies.

Uncertainty around U.S. economic policies also threatens to impact the valuation of corporate bonds and ETFs in which life insurers are heavily invested. Institutional investors like life insurers, which manage long-term liabilities and assets, are particularly vulnerable to such shocks. Policy-driven volatility not only depresses investment returns, but also raises their overall capital burden. Traditionally, the industry’s profitability has depended on the spread between investment yields and policy liability reserve rates. Yields on U.S.-denominated assets are coming under pressure as the U.S. economy weakens and expectations grow for Federal Reserve rate cuts or even renewed quantitative easing.

At the same time, policy liabilities remain sticky, tightening spreads and squeezing margins. Insurers are also facing rising costs to hedge against a strengthening Taiwan dollar, further eating into total returns. The combination of these factors is putting structural pressure on the traditional profitability model. In response, they must act decisively to diversify risks, deepen local investment, optimize their liability structures, and rethink their asset allocation and risk management.

Expanding investments into Europe and the Asia-Pacific, as well as exploring opportunities in emerging market infrastructure, capital goods, and private equity, can help them create new income streams. Greater diversification across currencies can also reduce the sector’s heavy reliance on the U.S. dollar and help build more resilient portfolios. At the same time, insurers can also align more closely with government initiatives by investing in domestic infrastructure projects, such as renewable energy, long-term care facilities, and transportation, to secure long-term assets which better match their liabilities.

Life insurers can also introduce innovative policies which promote local investments, allowing funds to be repatriated to Taiwan while supporting national economic growth. It will also be essential for them to revisit their assumptions about policy liability rates and exchange rate forecasts. They might consider flexible policy designs including floating interest rates or adjustable premiums, helping to reduce premium risk under changing economic conditions.

Given the sector’s dependence on stable fixed income returns, a more dynamic approach to asset-liability matching will be critical. Insurers must adjust asset allocations and strengthen liability management to maintain capital efficiency and enhance risk controls. Trump’s policies have not only created sharp short-term currency fluctuations, but have also triggered profound shifts in the global financial order. The U.S. dollar’s dominance as the world’s reserve currency, long considered a cornerstone of global capital allocation, is now under serious threat.

With American exceptionalism on shaky ground, U.S. assets no longer command the unchallenged dominance they once did. The global investment landscape is evolving toward a new era of multipolarity, and Taiwan’s life insurers must be prepared to navigate this changing environment.