The Financial Supervisory Commission (FSC) yesterday said it would not increase the 2.875 percent minimum return on real-estate investments made by domestic life insurers.
The commission said raising the minimum return would pose a higher risk for insurance companies.
The commission in December last year said it might consider relaxing real-estate investment rules for domestic life insurers after it enacted various regulations in November 2012 covering the life-insurance sector.
One of the regulations that was expected to be relaxed was the minimum yield on investments, which the commission raised from 2.125 percent to 2.875 percent to curb life insurers’ investment in commercial properties.
EVALUATION
However, after a month of evaluation the commission decided to keep the rule unchanged, saying research showed that average investment yield of grade-A offices in Taipei was still more than 4 percent, while in other cities it was 3 percent or higher.
FSC Chairman William Tseng (曾銘宗) said two uncertainties prompted the commission keep the minimum yield unchanged: the timing of the government’s launch of a new capital gains tax on property investments and the timing of the central bank’s policy rates rise.
“The commission might reopen discussions on [the feasibility of lowering the minimum yield] after confirming the timing of these two factors,” Tseng told reporters by telephone.
RISKS
Tseng said recklessly lowering the required minimum might lead life insurers to undertake higher investment risks if they accelerate real-estate investments at the wrong time.
When asked if firms had invested more capital overseas, the commission said that last year the life insurance sector invested NT$40 billion (US$1.27 billion) in local real estate.
INTERNATIONAL DATA
Citing data offered by an international institution, the commission said the price-to-rent ratio in Taiwan was 64 — No. 1 in the world — beating the levels recorded in Hong Kong and Singapore, an indication of the need to maintain the minimum yield.
However, the commission is to relax some investment rules on usable buildings and land, which it had asked local life insurers not to sell within five and 10 years respectively.
PUBLIC PROJECTS
The commission plans to allow life insurers to sell land purchased for public projects within 10 years, while relaxing the five-year restriction for certain buildings.
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