The Financial Supervisory Commission announced yesterday a further loosening of regulations governing insurance companies' investment in derivatives in a move to reduce insurers' hedging costs and help inject funds to the nation's capital markets.
"The relaxation is expected to increase investment in the nation's derivatives market by as much as NT$440 billion (US$13.88 billion)," the commission's spokesman Lin Chung-cheng (
Insurers are now allowed to invest in high hedge-related derivatives, in addition to the original four kinds of product, namely forward contracts, futures, options and swaps.
The commission also approved insurers buying derivatives for no more than 40 percent of their net worth for the purposes of speculation and arbitrage.
To undertake such speculative investment, insurers need to obtain advanced approval from the regulator and meet certain require-ments, Lin said.
These requirements include a risk-based capital adequacy ratio of 250 percent, establishment of a daily risk assessment mechanism and internal control of capital utilization, he added.
The commission also agreed to raise the quota of investment in structured financial products to 10 percent of working capital from 5 percent previously.
Local insurers had a combined net worth of NT$346.6 billion and working capital of NT$6.17 trillion at the end of last year, according to the commission's figures.
The Cabinet last month approved an amendment to the Insurance Law (保險法)
to raise the investment ceiling of Taiwanese insurers from 35 percent to 50
percent of their working capital for overseas investment.