The Financial Supervisory Commission (FSC) yesterday said that it would amend the risk-based capital (RBC) calculation for life insurers by June, as some insurers had since last year been overbuying bond exchange-traded funds (ETFs).
Forty-six of the 48 ETFs traded on the local market last month were purchased by local life insurers in deals totaling NT$501.35 billion (US$16.23 billion), or 97.9 percent of the total, the commission’s statistics showed.
The commission might lift the risk weighting of ETFs from the current 8.1 percent, which means that insurers would need to hold more capital to improve their risk profiles, FSC Chairman Wellington Koo (顧立雄) told reporters on the sidelines of an event in Taipei.
The commission might also consider setting a new minimum equity-to-asset ratio for insurers, which would force the firms to pay more attention to their equity value, Koo said.
The number of ETF products approved by the commission rose to 51 as of the end of last month, compared with 18 a year earlier, an indication of rising popularity in the local market.
Life insurers’ overseas investments, including global bonds, are capped at 65.25 percent of their working capital to reduce risks, but their purchases of New Taiwan dollar-denominated ETFs do not fall under that category, Insurance Bureau Deputy Director-General Wang Li-hui (王麗惠) said on Thursday.
However, bond ETFs, which track the performance of foreign bonds, are still exposed to foreign-exchange volatility and insurers would suffer losses if the NT dollar appreciates markedly, because the value of the ETFs would decline, the bureau said.
While some insurers’ purchases of bond ETFs were a suspected attempt at circumventing regulations regarding overseas investment, Koo said he would not forbid insurers from purchasing such products, as the practice does not breach any regulations.
However, the commission would monitor such transactions and amend regulations to reduce risk, he said.
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