Incoming Financial Supervisory Commission chairman Ding Kung-wha (丁克華) said that future policies would be aimed at bolstering the nation’s investment environment and stemming capital outflows.
Since President Ma Ying-jeou’s (馬英九) administration lowered the gift and inheritance tax from a maximum of 50 percent to a flat 10 percent in 2008, about NT$80 billion (US$2.47 billion) has flowed back to Taiwan.
Due to a lack of attractive options, the funds have done little to boost the nation’s investment market turnover or economic growth, Ding said.
Instead, most of the money ended up in the real-estate market, driving up housing prices, while the rest went into life insurers’ rapidly expanding investment portfolios, and eventually flowed out of Taiwan, he said.
“In light of rising fluctuations in currencies and markets around the globe, it is a good time for insurers to bring investments back home,” Ding said last week.
Taiwan’s publicly traded companies pay out an estimated NT$1 trillion in cash dividends per year, translating to yield rates of 5 percent, which should be attractive for risk-averse insurers and large institutions that are looking for stable returns, Ding said.
To raise investments in local shares, Ding said that in the past he proposed a re-evaluation of risk-based capital (RBC) requirements for life insurers and he intends to do so again.
RBC requirements limit the amount of risk an insurer can take. They require companies to hold an amount of capital appropriate to their risk profiles. Insurers have urged the government to lower the RBC requirement to give them greater flexibility in coping with volatility in the equities market.
Insurers have said that they have to take losses by selling weakening positions during a market downturn to satisfy the RBC requirement.
They have proposed the adoption of an alternative countercyclical design, in which the required ratio would be flexibly adjusted, in line with TAIEX fluctuations.
In addition, average daily stock trading turnover has dwindled below the commission’s ideal range of between NT$120 billion and NT$130 billion, as funds continue to flow overseas.
The trend has much to do with domestic life insurers, which saw their combined net worth swell to NT$20 trillion, with the value of policy products sold rising at an annual rate of NT$1.5 trillion, Ding said.
“The financial sector must reconnect with its mission of serving the nation’s industries and consumers, which are the backbone of the economy,” Ding said, adding that the paltry interest returns from immense overseas investments has cost of developing local companies.
He said that the commission would take steps to establish the required infrastructure for change.
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