Abstract

Foreign exchange exposure is an important consideration in insurance operations where insurers hold foreign-currency assets, receive premiums, or have claims and other obligations denominated in currencies different from their reporting currency. Changes in exchange rates can alter the value of these assets and liabilities and consequently affect the adequacy of insurance technical reserves. Effective assessment of foreign exchange exposure is therefore essential for maintaining appropriate reserve levels and supporting the financial stability of insurance companies. The study examines the effect of foreign exchange exposure on insurance technical reserves. It focuses on how fluctuations in exchange rates may influence the valuation of technical reserves established to meet future claims and other insurance obligations. The study will assess the relationship between foreign exchange movements and changes in reserve values and determine the extent to which currency exposure may create additional uncertainty in insurance reserving. The study will consider factors such as foreign-currency-denominated claims, foreign assets, exchange rate movements, claim settlement timing, reserve levels, and the proportion of insurance obligations exposed to foreign currencies. Actuarial reserve estimation techniques will be applied to assess how changes in exchange rates affect outstanding claims reserves and other technical provisions. Different exchange rate scenarios will also be examined to evaluate the potential effects of currency appreciation and depreciation on reserve adequacy. A quantitative research approach will be adopted for the study. Relevant insurance and foreign exchange data will be analysed using descriptive statistics, trend analysis, actuarial reserving techniques, and sensitivity analysis. Historical exchange rate movements will be compared with changes in technical reserve values, while alternative foreign exchange scenarios will be used to estimate potential changes in reserve requirements. The analysis will provide a basis for assessing the sensitivity of insurance technical reserves to currency movements. The study is expected to show that significant foreign exchange exposure can increase the volatility of insurance technical reserves, particularly where claims or other obligations are denominated in foreign currencies. Currency depreciation against the reporting currency is expected to increase the domestic value of foreign-currency liabilities, while favourable exchange rate movements may reduce their equivalent value. The findings may also indicate that insurers with greater foreign exchange exposure require more careful reserve estimation and monitoring. The study is expected to provide useful information for actuaries, insurance companies, regulators, and risk managers in understanding the implications of currency risk for technical reserve adequacy. The findings may support the development of more appropriate reserving practices, foreign exchange risk management strategies, and scenario-based assessments of insurance liabilities. Incorporating exchange rate sensitivity into reserve analysis may also improve the ability of insurers to maintain adequate resources for future claims. The study concludes that foreign exchange exposure can have a meaningful effect on the adequacy and stability of insurance technical reserves. It is therefore recommended that insurers regularly monitor their foreign currency exposure and incorporate relevant exchange rate assumptions into actuarial reserve assessments. Scenario analysis, sensitivity testing, and appropriate currency risk management practices should also be adopted to strengthen reserve adequacy and improve the financial resilience of insurance companies.

Keywords: Foreign exchange exposure, insurance technical reserves, exchange rate risk, insurance liabilities, actuarial reserving, reserve adequacy, foreign currency claims, foreign currency assets, currency fluctuations, claims reserves, technical provisions, currency risk management, exchange rate sensitivity, insurance solvency, actuarial risk.