The Life Insurance Association of the Republic of China (壽險公會) yesterday warned of “drastic” stock market volatility if the Financial Supervisory Commission (FSC) tightens investment rules for life insurers in an effort to curb their influence over the companies they have invested in.
Life insurers own about NT$800 billion (US$27.02 billion) of shares in listed companies and would have to trim their positions if the commission presses ahead with plans to lower the cap from 10 percent to 5 percent of an invested company’s capitalization, association chairman Hsu Shu-po (許舒博) said yesterday by telephone, ahead of a public hearing on the issue on Tuesday.
“The adjustment will surely have a negative impact on the local bourse,” Hsu said.
The commission wants to tighten investment rules for insurers to prevent them from turning into gigantic holding firms, given that many corporate chairmen own stakes of less than 10 percent.
The proposal comes in the wake of Global Life Insurance Co (國寶人壽) angering the commission by voting on Long Bon International Co’s (龍邦) board reshuffle, even though the commission had warned it not to do so.
“It is not necessary to punish the entire sector because of a few minor unruly peers,” Hsu said.
Insurers are willing to come up with self-disciplinary measures and refrain from interfering in management decisions of invested companies unless they receive prior approval from the commission, Hsu said.
The commission could also raise capital adequacy hurdles for insurers with stock investments to deter rogue behavior, he said.
Stock investments have generated stable, long-term returns of about 6 percent in the form of annual cash and stock dividends, Hsu said.
If the commission moves ahead with its plan, insurers will have no choice but to channel the funds abroad in search of fixed income, which could hurt the local stock market, he said.
In the past, the government had asked insurers to help support local firms through investment during “surprise external shocks” Hsu said.
“The Financial Supervisory Commission would severely curtail insurers’ rescue role if it pushes through the investment changes,” he added.
The stock portfolio of insurance companies accounts for 10 percent of the local stock market’s capitalization.
Insurers would keep their investment in individual firms at between 3 percent and 4 percent, giving themselves some maneuvering space in the face of a lower cap, Hsu said.
In today, insurers hold more than the 5 percent threshold of stocks in 81 companies, he said.