Stricter regulations would be imposed on local life insurers from the second half of this year to improve their financial abilities and risk profiles, the Financial Supervisory Commission (FSC) said yesterday.
The announcement came after a meeting between FSC Chairman Wellington Koo (顧立雄) and 22 life insurance companies, which lasted about three hours.
“We are here to resolve companies’ three major problems: overheating, low equity-to-asset ratios and the implementation of the new International Financial Reporting Standards 17 [IFRS 17],” Koo said.
Life insurance companies have seen their combined premium income annually increase by more than NT$3 trillion (US$95.15 billion) over the past three years, of which NT$2 trillion was spent on investments to try to generate enough profit to fulfill their promise of high returns to policyholders, he said.
However, as insurers tend to invest their money overseas, they are vulnerable to fluctuating exchange rates and interest rates, he added.
Insurers had a low average equity-to-asset ratio of 5.85 percent at the end of March, Koo said, adding that companies need to prepare and set aside a larger special reserve before adopting the IFRS 17.
The commission is to set up new rules and amend existing regulations to curb these problems, he said.
The commission would also enhance reviews of insurance savings plans, which are among the most popular policies, and prohibit insurers from promising unrealistically high returns for consumers, as that would increase their operational risks, Insurance Bureau Director-General Shih Chiung-hwa (施瓊華) said.
The commission is to set a new lower limit on the death benefit-to-policy value ratio, which would incentivize insurers to sell fewer savings plans or policies linked with wealth management, as they provide fewer death benefits, she said.
“Although insurance savings plans are very popular in Taiwan, life insurers and consumers should remember that insurance is not intended for savings or wealth management,” Shih said.
Companies that concentrate on protection-type policies, such as injury or life insurance, and insurance aimed at older consumers, such as long-term care schemes, would be rewarded with priority to launch new products, she said.
Insurers whose equity-to-asset ratio is less than 2 or 3 percent would need to increase their capital within a given period, Shih said, adding that the commission would set the threshold soon.
Key players in the industry attended the meeting, including Shin Kong Life Insurance Co (新光人壽) vice chairwoman Catherine Lee (李紀珠), China Life Insurance Co (中國人壽) chairman Alan Wang (王銘陽), Nan Shan Life Insurance Co (南山人壽) chairman Du Ying-tzyong (杜英宗), Fubon Life Insurance Co (富邦人壽) chairman Richard Tsai (蔡明興), Taiwan Life Insurance Co (台灣人壽) chairman Huang Su-kuo (黃思國) and Cathay Life Insurance Co (國泰人壽) chairman Huang Diao-kuei (黃調貴).
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