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Insurance firms cool to government's stock plan

"The plan is still too obscure and lacks enough specifics for us to make an evaluation for the moment."

Victor Hsu, spokesman for Shinkong Life Insurance Co

The nation's insurance companies are lukewarm about the government's plan to boost their investments in the stock market, due to the plan's lack of detail and the local bourse's poor returns.

On Thursday night, Premier Frank Hsieh (謝長廷) announced a package of incentives designed to lure insurers into the ailing local bourse. They include lifting the regulatory ceiling of overseas investment in insurers to 40 percent of working capital, from the current 35 percent, if the firms raise their holdings in local markets.

"The plan is still too obscure and lacks enough specifics for us to make an evaluation for the moment," Victor Hsu (許澎), spokesman of Shinkong Life Insurance Co (新光人壽), the nation's second-largest life insurer, told reporters yesterday.

Poor returns

It will be difficult to get insurers such as Shinkong to pour more money into the local stock market since the bourse offers less than ideal returns, and the level of government support for such investments is unclear, he said.

"We will probably maintain our local stock investment at the level of around 5 percent [of available funds]," Hsu said.

Shinkong Life, the flagship unit of Shinkong Financial Holdings Co (新光金控), sold over NT$2 billion (US$60 million) in shares on the local stock market last month, reducing the value of its domestic stock investment to NT$48.2 billion, or 5.34 percent of its total NT$902.3-billion investment, the company said yesterday. In the same month it boosted its more lucrative overseas investments to NT$319.9 billion, reaching the regulatory limit of 35 percent.

More incentives

The government also relaxed its rules on share buybacks by financial holding firms, cutting the required capital adequacy ratio to 120 percent from the 150 percent set last year, as part of its bid to revive the moribund local bourse.

This offered financial holding companies a chance to stabilize their share prices, Hsu said, but he added that Shinkong Financial, which has a capital adequacy ratio of over 140 percent, has no buyback plan yet.

For the first nine months of this year, Shinkong Financial yesterday posted unaudited earnings of NT$7 billion, or NT$2.07 per share. The company raised its earnings forecast to NT$7.41 billion, or NT$1.83 per share, from NT$6.08 billion, or NT$1.78 per share, after making smaller lender Macoto Bank (誠泰銀行) its 100-percent owned subsidiary earlier this month.

The company plans to spend no more than NT$800 million on improving its operating conditions by the end of the year, Shinkong Financial's accounting manager Hsu Shun-yun (徐順鋆) said.

It aims to slash the non-performing loan ratio of its banking unit after the merger with Macoto to 2.5 percent, down from the current combined 2.73 percent, and raise the bad loan coverage ratio to 40 percent, up from 35 percent.

Bad loans

Despite the long-term potential of the merger, Macoto's consumer banking business is expected to see rising bad-loan pressure, which in the short term could be a downside for Shinkong Financial shares, Invesco Taiwan's fund manager Shirley Yang (楊慶祺) said.

The benefits of the merger may not become evident until the second half of next year, Yang said.
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