The Financial Supervisory Commission (FSC) yesterday approved a series of measures to ease foreign exchange hedging costs for domestic insurance companies and mortgage payments for home owners who lose their jobs involuntarily.
The commission also gave the go-ahead to two Chinese banks to upgrade their representative offices in Taipei to branches.
Starting next year, life insurers may write down up to 50 percent of hedging losses, using funds earmarked for major mishaps and emergencies, FSC vice chairwoman Lee Jih-chu (李紀珠) said.
The nation’s low interest rate environment has driven insurance companies to increase holdings in long-term securities overseas and their values are subjected to short-term currency volatility, Lee said.
To address the issue, “we consider the establishment of a foreign currency exchange reserve both desirous and practical,” Lee said.
The measure, which still needs fine-tuning before its implementation in the first quarter, may save life insurers significant hedging costs, Lee said.
Life insurer-centric financial conglomerates led by Cathay Financial Holding Co (國泰金控) have pressed hard for the regulation change after seeing their earnings eroded by foreign exchange losses.
Foreign exchange hedging costs accounted for 3 percent of Cathay Life Insurance’s (國泰人壽) overseas investment in the third quarter, from 3.4 percent three months earlier, the company’s data showed. The nation’s largest life insurer has said it aims to reduce the expense to within the range of 1.5 percent to 2 percent.
Companies must not use saved costs to compensate board directors, but should use them for capital consolidation, the FSC said.
Life insurers and their parent companies have to publish two sets of earnings figures to reflect the impact of the policy change on their income statements, Lee said.
The FSC will review the measure three years after its implementation to see if it needs revision or abolishment, Lee said.
As global economic uncertainties push up the jobless rate, the commission further approved a provisional measure to ease the financial burden of affected home owners.
“Home owners who are laid off or fired may apply for a respite of six months to two years on their home loans’ principal payments,” FSC banking bureau deputy director-general Jean Chiu (邱淑貞) said.
Qualified home owners need only to pay interest on their home loans with a ceiling of NT$6 million (US$197,856) during the period, Chiu said.
In addition, the commission gave its go-ahead to applications by the Bank of China (中國銀行) and the Bank of Communications (交通銀行) to upgrade their representative offices in Taipei’s prime Xinyi District into branches.
The former sets its working capital at NT$1.2 billion and the latter at NT$1.5 billion, Chiu said.
Under present rules, Chinese lenders are allowed to open one branch each in Taiwan, Chiu said, adding that the two new Chinese branches could start operating within six months.