Domestic life insurance companies yesterday filed a petition with the Financial Supervisory Commission (FSC) calling for flexibility on yield requirements for real-estate investments.
The Life Insurance Association of the Republic of China (壽險公會) submitted the proposal, which recommended the use of “progressive rates,” instead of a flat 2.875 percent, to regulate real-estate investments by life insurers, association chairman Hsu Shu-po (許舒博) said by telephone.
In November last year, the commission raised the required minimum yield on real-estate investments by insurers from 2.125 percent to 2.875 percent, after raising it in August from 1.875 percent to 2.125 percent. It also asked domestic insurers to show restraint in property investments, after they accounted for 60 percent of commercial property deals with their record-high offers.
“We believe a progressive scheme is more reasonable and allows the commission to better supervise risks associated with property investments,” Hsu said.
The proposal suggests a progressive yield range of 2.375 percent to 2.875 percent, with insurers subject to higher risk factors if their property investments generate lower yields, Hsu said.
That means insurers with marginal capital adequacy ratio — ie, near the minimum 200 percent — would have to raise new capital if they intend to make risky property investments that could weaken their capital structure, Hsu said.
Compared with other international cities, Taipei has the lowest rental yields — averaging 2 percent, though they are slightly higher in central and southern Taiwan, real-estate brokers said.
Insurers favor properties in Taipei where it is easier to attract corporate tenants and benefit from capital gains later.
The low yields have raised concern over negative interest spreads, which have plagued life insurers because of the higher costs associated with older policies that were sold when interest rates were higher. The proposed scheme would have no impact on companies with strong capital adequacy ratios of 250 percent or more, so they would enjoy more leeway in property investments, Hsu added.
More flexible yields could thaw the property investment freeze as most commercial properties in prime locations have difficulty meeting the 2.875 percent rate given their price levels, brokers said.
Life insurers are still awash with idle funds amounting to NT$2 trillion (US$66.83 billion) for top insurers alone, property consultancy Jones Lang LaSalle said.
Joanne Tseng (曾玉瓊), director-general of the commission’s Insurance Bureau, said the bureau needed more time to review the proposal before forming an opinion on the recommended change.
Asked when the bureau expects to make a decision, Tseng said by telephone: “There is no timetable for the review.”