Insurance firms get discretionary fund okay

The Ministry of Finance has approved insurance companies' use of discretionary managed accounts (代客操作) to manage their funds. It is estimated that some NT$840 billion out of the NT$2.4 trillion in revolving funds accumulated by the insurance firms will be available for discretional investments.

Last Friday, the finance ministry informed the Life Insurance Association (壽險公會) and Fire and Casualty Insurance Association (產險公會) that insurance companies could manage their funds through the use of discretionary managed accounts. But these accounts should be provided by authorized securities investment trusts, securities investment advisories, and trust companies, a finance official said.

According to Insurance Law regulations, the total an insurance company allocates to stocks and bonds cannot exceed 35 percent of its total funds. Meanwhile, holdings in any single company's share cannot exceed 5 percent of the insurance company's total funds or capital.

The finance ministry also called for the insurance industry to exercise this option with care. The ministry said it would also review how the industry has been doing with such investments from time to time.

"It's a vast market for the local fund and advisory industry," said Liu Kai-pin (劉凱平), president of SinoPro Securities Investment Consulting. "The [investment] industry has been waiting for the opportunity for years. It could provide a stimulus for the development of the discretionary managed account service." However, not every analyst is optimistic on the prospects of the new funds from the insurance industry.

"The insurance industry has been extremely conservative in their investment strategy for decades, it's unlikely that it would change overnight," said Dicky Dai (戴震) a stock market commentator and former chairman of a local securities company.

"Since most the large insurance companies have been investing their own money into the stock market for years by themselves, I doubt how much money would be available for the local fund or advisory industry. I expect there would be some money from smaller insurance companies, but it would be only a fraction of the total, and most of the money is likely go to the bond funds issued by local fund companies, which they have already been investing. The business for stock funds is unlikely to bring a lot of business in the near future," he said.

"This is the first step toward deregulating the insurance companies' fund management [in the discretionary managed account business]," said Henry Cheng (鄭百亨), managing director of Manulife Funds Direct.

"After Taiwan's entry into the WTO, foreign asset management companies would be able to provide similar services for the insurance industry here. By then, the local insurance industry could diversify their investment risk throughout international stock and bond markets, instead of concentrating their investment risk in the local securities market.

"It could provide a much bigger business opportunity for the investment industry by then."