Cathay Life Insurance Co Ltd (國泰人壽) yesterday won the auction for insolvent Global Life Insurance Co (國寶人壽) and Singfor Life Insurance Co (幸福人壽), with a lower-than-expected bid for compensation of NT$30.3 billion (US$961.8 million), the Financial Supervisory Commission (FSC) said.
The life insurance arm of Cathay Financial Holding Co (國泰金控) beat three other bidders. The commission did not specify their identity, but Fubon Life Insurance Co (富邦人壽) is rumored to be one of them.
Cathay Life will take over the assets, liabilities and operations of the two companies, with the semi-official Taiwan Insurance Guaranty Fund (TIGF, 財團法人保險安定基金) offering compensation totaling NT$30.3 billion for its takeover of the two insurers, including NT$8 billion in reserve assets.
“The request for a NT$30.3 billion subsidy from TIGF was surprisingly lower than market expectations of NT$60 billion. It is a fair deal for the government,” FSC Chairman William Tseng (曾銘宗) told a press conference after the auction.
Tseng attributed the bid’s success to the government’s right strategy, including timing, increased transparency and offering administrative forbearance to raise the incentives for potential bidders.
TIGF would arrange a syndicated loan to pay for the total compensation, Tseng said.
Within three years, TIGF is to pay off the NT$30.3 billion loan, along with a remaining debt of NT$26.3 billion for subsidizing Transglobe Life Insurance Inc’s (全球人壽) takeover of ailing Kuo Hua Life Insurance Co (國華人壽), Tseng said.
Tseng called the successful auction of Global Life and Singfor Life a “milestone” for the nation’s insurance sector, saying he expected it to be the last time the government has to use public funds to save a problematic insurer.
After an amendment to the Insurance Act (保險法) goes into effect on Jan. 1 next year, the commission will be able to mandatorily place an insurer with a less than 50 percent risk-based capital ratio under government receivership.
The amendment would allow the commission to help a failing insurer contain its problems early on, thus saving the government from spending money on it, he said.
In addition, without the drag of insolvent insurers, the government can accelerate its strategy of deregulation to attract more competitive global investors into Taiwan’s financial industry, he added.
As of the end of last month, Global Life and Singfor Life had a combined net worth of minus-NT$56.1 billion, with 500,000 policyholders, commission data showed.
Although the two insurers have negative net worth, Cathay Life has said that it is confident the takeover will not have an adverse impact on its operations, shareholders’ equity, solvency or policyholders, as the two companies are significantly smaller in size.
Following the takeover, policyholders of the two insolvent insurers need not complete any procedures, with the rights and obligations of all outstanding policies to remain unchanged, Cathay Life said in a statement.
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