The Financial Supervisory Commission (FSC) is considering tightening regulations on investments by domestic life insurance companies in other listed companies to prevent them from growing overly influential, FSC Chairman William Tseng (曾銘宗) said yesterday.
Tseng made the remarks on the sidelines of this year’s Asian Securities Forum in Taipei.
“There have been some concerns recently over unfair investment by life insurance companies and tighter restrictions have been suggested,” Tseng said.
Insurance companies are allowed to hold up to 10 percent of a listed company’s shares. However, some have expressed concern that insurers can easily reach this limit since most of them are flush with cash, allowing them to gain control over the companies, Tseng said.
Major shareholders in many firms own less than 10 percent of the shares, Tseng added.
The worry is not unrealistic, he said, citing a case in May in which Global Life Insurance Co (國寶人壽) ignored the commission’s warning and cast votes in Long Bon International Co’s (龍邦) board election, saying it did so to protect its investment in the firm, which specializes in hotel services and real-estate development.
LIMITS ON BANKS
Under current regulations, domestic banks can own only a 5 percent stake in a non-financial company. Tseng said that life insurers, which amass funds from the public, should be subjected to similar, if not stricter, regulations.
“We don’t want to create monster insurance companies that have control over multiple companies,” he said.
Tseng declined to set an agenda for the planned tightening, saying that he would first consult the concerned parties.
The commission would have to amend the Insurance Act (保險法) to lower insurers’ equity investment limit from the current 10 percent. Local media reports have said that the commission might implement the new rule by the end of the year and that it would not be retroactive.
The plan follows reports that the commission is also considering measures to increase risk weighting for insurers’ equity holdings.
The commission’s plans to tighten insurers’ domestic equity investments have caused shares in life insurers to underperform the TAIEX over the past few days.
“It seems that the FSC aims to prevent insurers from having a controlling stake in other corporations, as well as a concentrated investment risk,” Credit Suisse analysts Chung Hsu (許忠維) and Michelle Chou (周盈秀) said in a research note.
EQUITY INVESTMENTS
Credit Suisse said that insurers’ domestic equity investments have grown at a compound annual growth rate of 25 percent over the past five years.
As of July 31, life insurers had invested about NT$1.05 trillion (US$35.7 million) in local shares, accounting for 7.6 percent of their total portfolios, Taiwan Insurance Institute (保發中心) data showed.
Furthermore, the commission said it would carry out stricter reviews of life insurers’ financial statements as some have switched entries around to burnish their books.
For the past two years, Cathay Life Insurance Co (國泰人壽), Fubon Life Insurance Co (富邦人壽), China Life Insurance Co (中國人壽), Taiwan Life Insurance Co (台灣人壽) and Mercuries Life Insurance Co (三商美邦人壽保險) have reclassified sizable hold-to-maturity bonds as available-for-sale assets in the wake of Europe’s debt problems and recent bond yield hikes.
While such reclassifications do not need prior regulatory approval, the commission will carry out stricter inspections to avoid unfair value manipulations or profit-taking, Tseng said.
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