The Financial Supervisory Commission (FSC) said yesterday it planned to tighten requirements for domestic life insurance companies to purchase real estate properties to improve their profitability.
The commission is scheduled to meet with life insurance companies this week for talks on the need to raise thresholds for property purchases to insure their asset allocation strategies match earnings forecasts, Insurance Bureau Deputy Director-General Joanne Tseng (曾玉瓊) said by telephone.
The move came after commercial property prices in prime-spots of Taipei repeatedly hit new highs as a result of competition among insurance firms to park idle funds.
The competition is likely to intensify with more centrally-located properties due to be auctioned off next week and in the coming months, which may further weaken returns on real estate investments.
“We deem it necessary to revise regulations on property purchases by life insurance companies, in keeping with the latest market conditions,” Tseng said. “We aim to make sure the insurers meet fair earnings targets when channeling funds to real estate properties so that the promised benefits for policyholders will be better protected.”
To that end, the insurance bureau intends to raise the minimum yields on real estate investments by 25 basis points to 2.125 percent, from the current level of 1.875 percent — on par with the interest rates of two-year postal savings plus 50 basis points, Tseng said.
The bureau is considering raising occupancy rates to 70 percent of office buildings acquired, from the present 60 percent, Tseng said.
“The higher the occupancy rates, the higher the investment returns,” she said. “The planned adjustment would help boost insurance companies’ financial proficiency,” she said
To prevent land hoarding, life insurers are not allowed to buy undeveloped plots of land unless they include building permits and generate yields within two years. The ban will remain in place, Tseng said.
While the meeting is consolatory in nature, the bureau will not accept any suggestion for opposite adjustments, she said.
Life insurance firms can always come up with other options that provide higher yields than real estate investments despite the economic slowdown at home and abroad, Tseng said, adding that the potential fallout of the tightening move on the property market falls outside the bureau’s jurisdiction.
Yuanta Asset Management Co (元大國際資產), a subsidiary of Yuanta Financial Holding Co (元大金控), plans to divest itself of an 18-floor office building on Jianguo N Rd Sec 2 next Monday, with floor prices set at NT$3.5 billion (US$116.28 million), said bidding organizer DTZ.
Yuanta Securities (元大寶來證券), the flagship unit of Yuanta Financial and its main source of income, intends to sell office space in Ximending (西門町) and Neihu (內湖) districts with a combined asking price of NT$1.58 billion, DTZ said.
MassMutual Mercuries Life Insurance Co (三商美邦人壽保險) plans to sell a 12-story office building on Xinyi Rd Sec 4 on Thursday the same week, a property half-owned by Horizon Securities (宏遠證券), according to auction arranger Savills Taiwan Ltd (第一太平戴維斯).
Many big insurance firms have shown an interest in the auctions.