Taiwan Currency Shock Splits Insurers on How to Hedge US Bonds

Two Taiwanese life insurers are taking opposite approaches to foreign-exchange hedging after a surge in the island’s currency put hundreds of billions of dollars of their US bond holdings under scrutiny.

Fubon Life Insurance Co. has “enhanced” hedging as the biggest one-day surge in the currency since the 1980s threatened to erode the US dollar-denominated assets of Taiwanese companies. Taishin Life Insurance Co. said the rising costs of such protection has stayed its hands from adding more.

Insurers will lock in a weak dollar if they hedge more now, while doing nothing exposes the companies to the risks of further ...