Mon, Oct 06, 2014 - Page 13 News List

FSC urges overseas investment

BALANCE:The Financial Supervisory Commission must consider both the potential for growth and also the downside risks when relaxing investment regulations

By Crystal Hsu  /  Staff reporter

The Financial Supervisory Commission (FSC) plans to ease capital requirements for overseas investments of domestic life insurance companies so they might have better financial flexibility to expand abroad.

FSC Chairman William Tseng (曾銘宗) announced the relaxation plans on the sidelines of a public function on Saturday.

Under the newest deregulation plan, the commission might lower risk ratios governing overseas investments of the insurance industry from the current 0.67 percent to 0.4 percent, when gauging their risk-based capital, Tseng said.

The higher the risk factors, the more provision insurance companies have to set aside to guard against harsh scenarios, limiting their leveraging leeway.

The capital easing would unleash funds sized at NT$200 billion (US$6.56 billion) for overseas investments, boding well for the sector’s effort to bolster its presence on the international stage, the nation’s top regulator said.

The commission has urged financial institutions to develop into regional players through mergers and acquisitions.

“Only life insurance companies that meet capital adequacy requirements are qualified to pursue the ambition,” as firms with weak capitalization should seek to improve asset quality first, Tseng said.

The commission intends to allow life insurance companies more flexibility in real-estate investment overseas, as many firms remain awash with idle funds, but have had difficulty finding proper investment objects domestically, Tseng said.

Commercial office properties in Taipei may generate rental returns of 2 percent to 2.5 percent due to steep price hikes in recent years, lower than the required 2.87 yielding minimum and funding costs.

The FSC is still working on deregulation details given that foreign markets with rapid economic growth generate higher returns at the cost of higher risks and uncertainty, Tseng said, adding that developed markets bear lower yields, but are relatively stable.

The commission needs to strike a balance between growth potentials and downside risks when loosening investment rules, Tseng said.

Cathay Life Insurance Co (國壽) recently bought an office building in London and Fubon Life Insurance Co (富邦人壽) is betting on commercial property in Munich.

Other firms are making inquiries for property investment in Europe, Japan and Southeast Asia, international broker Jones Lang LaSalle’s Taiwan office said last week.

More property funds might flow abroad in the coming years, as Taiwan tries to curb property price hikes ahead of mayoral elections next month and the presidential elections in 2016, analysts said.

The planned investment easing is positive for life insurance companies, which need to utilize funds gathered from customers to honor different coverage payments in the future, analysts said.

The sector’s financial health is important for society given the nation’s fast-growing elderly population, the FSC said.

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