With new rules to take effect in April, insurance companies will have to conduct a cash injection or submit an improvement plan regarding their capital adequacy if their equity-to-assets ratios remain below 3 percent for 12 months in a row, the Financial Supervisory Commission (FSC) said on Thursday.
Currently, the commission uses a calculation known as a risk-based capital (RBC) ratio, dividing a company’s total capital by its required risk-based capital to check if it has adequate capital.
FSC Chairman Wellington Koo (顧立雄) in March told reporters that he would set a new minimum equity-to-asset ratio for insurers to force them to pay more attention to equity.
The minimum has been set at 3 percent, Insurance Bureau Deputy Director-General Wang Li-hui (王麗惠) told a news conference in New Taipei City.
Even if an insurance firm’s RBC ratio meets the legal standard of 200 percent, it would still be considered to have inadequate capital if its equity-to-assets ratio is lower than 3 percent, Wang said.
The commission has amended the Regulations Governing Capital Adequacy of Insurance (保險業資本適足性管理辦法), which are to take effect on April 1. With the new rules, the commission would begin reviewing companies’ financial reports for each half of this year, she said.
If a company fails the FSC review twice, it would need to conduct a cash injection or submit a plan on improving its financial strength, she said.
The commission would punish insurers who fail to implement measures such as suspending part of their businesses, limiting the use of their funds or reducing management bonuses, Wang said.
If insurers’ equity-to-asset ratios remain below 2 percent, they would be given a more severe punishment if they do not improve, she said.
Given that insurance companies’ average equity-to-asset ratio was 6.94 percent at the end of September, the commission’s minimum is “realistic,” Wang said.
Hontai Life Insurance Co (宏泰人壽) was the only firm with an equity-to-asset ratio below 3 percent at the end of June, the bureau’s data showed.
Hontai Life has lifted its equity-to-asset ratio, but has not met the minimum, Wang said, adding that if the firm makes improvements by the end of this year, it would not be fined.
In a bid to comply with the commission’s stricter rules and the new International Financial Reporting Standards 17, six life insurers have conducted cash injections or are planning to do so by the end of this year, the bureau said.
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