The Financial Supervisory Commission (FSC) said yesterday it would consider easing accounting and operating rules further for insurance companies, including the establishment of reserve funds to hedge against foreign exchange losses.
The commission also pledged to study whether to exclude foreign currency-based insurance policies from insurance firms’ overseas investment quotas so they can better utilize their funds, FSC Vice Chairman Wu Tang-chieh (吳當傑) told a media briefing.
The series of promises came after an afternoon meeting between FSC Chairman Chen Yuh-chang (陳裕璋) and the heads of domestic insurance firms in the final leg of a three-week campaign to gain a better understanding of the nation’s financial firms.
“The commission will consult experts and accountants on the legality of setting up a regime on foreign exchange hedges so insurers can better manage their long-term funds,” Wu said.
Foreign exchange hedging poses a big challenge to the profitability of domestic insurance companies, as the macro-environment favors a stronger local currency, thereby weakening their foreign currency-based assets. The NT dollar’s appreciation is also backed by a domestic economic recovery and expectations of an influx of foreign funds after the Economic Cooperation Framework Agreement (ECFA) with China was signed.
The local currency closed at NT$31.91 against the US dollar yesterday, rising 3.57 percent from an average of NT$33.049 last year, according to the central bank’s Web site.
Ken Shih (施耕宇), a financial analyst at Primasia Securities Co (亞證券), said recently that Fubon Life Insurance Co (富邦人壽), the insurance arm of Fubon Financial Holding Co (富邦金控), was less vulnerable to foreign exchange risk given its relatively conservative hedging approach.
In contrast, Cathay Life Insurance (國泰人壽), the insurance subsidiary of Cathay Financial Holding Co (國泰金控), has a higher exposure to foreign exchange risks because of its relatively high hedging position conducted in forward contracts, Shih said.
The insurance industry also pressed for greater flexibility in risk-based capital recognition and looser overseas investment restrictions, Wu said.
He said the commission would give favorable considerations for the pleas that do not entail rule changes.
The insurers welcomed the commission’s decision on Thursday allowing them to buy real estate properties in China as long as the properties are intended as their offices, Wu said.
The real estate properties in China must not cost more than 10 percent of local insurers’ net worth and at least 50 percent of the property bought has to be used as office space, the commission said.
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