Fubon Financial Holding Co (富邦金控) yesterday said it would adjust its investment in bond exchange-traded funds (ETFs) based on new rules regulators are likely to implement.
Fubon and several other local life insurers have made substantial investments in the bond ETF-tracking indices of foreign bonds on the expectation that such investments could help generate greater profits than regular domestic investment tools.
However, Financial Supervisory Commission (FSC) Chairman Wellington Koo (顧立雄) last week said that bond ETFs are still exposed to foreign-exchange volatility and buyers could suffer losses if the New Taiwan dollar appreciates markedly.
The commission would work to amend the risk-based capital calculation for life insurers or set a new minimum equity-to-asset ratio for them, he said.
Fubon, named by Koo as the second-biggest buyer of bond ETFs earlier this week, said that it became more interested in the financial product in 2017.
“The money we put into bond ETFs only accounted for 3 percent of our working capital, which is really a small ratio. We are not concentrating our funds in one area,” Fubon president Jerry Harn (韓蔚廷) told an investors’ conference in Taipei.
Local peers have taken advantage of NT dollar-denominated bond ETFs, as they would not fall under the category of overseas investment, which the regulator highly monitors, Harn said.
Fubon would keep the ratio of bond ETFs to its working capital unchanged at 3 percent for the time being, he said.
However, the incentive to purchase more bond ETFs would be decreased if the FSC would implement higher risk weighting of ETFs, as it would need to hold more capital to improve its risk profile, he added.
“We will comply with the regulations, and we also hope to raise equity holdings of domestic firms that provide greater cash dividends and stable profitability,” Harn said.
The FSC on Thursday said that it would amend regulations to prohibit a single investor from buying more than half of the value of new bond ETFs.
As for bond ETFs that were already sold, securities investment trust firms need to make plans to diversify their customers or face the worst-case scenario of not being able to launch new bond ETFs, the commission said.
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