The Financial Supervisory Commission (FSC) is to lower the discount rates for savings-type insurance policies to help local insurers improve their financial strength, commission Chairman Wellington Koo (顧立雄) said on Thursday.
Discount rates are used by insurance companies to evaluate their liabilities at market value and a cut would increase their liabilities, the Insurance Bureau said.
As higher liabilities require a higher reserve, insurers would have to raise premiums for new policies to ease the impact on their bottom line, it said.
That means customers have to pay higher premiums for savings-type policies going forward, it added.
The bureau, which adjusts the discount rate on an annual basis, is to announce the new rates next month and they are to take effect in January, Koo told reporters in Taipei.
The move would likely have a negative impact on the sales of savings-type policies and had been expected as regulators have frowned on savings-type insurance policies that offer higher yields at the cost of higher liabilities on the part of insurers.
Insurers would need to reflect lower discount rates in their savings-type insurance policies denominated in the local currency and the US dollar, the two most popular products among Taiwanese investors, Koo said.
The cut is merited because yields on 10-year US Treasuries and 10-year Taiwanese government bonds have been falling, bureau Director Tsai Huo-yen (蔡火炎) said by telephone.
“Although the cut might dampen sales, it is more important that insurance companies are financially strong enough to pay any compensation,” Tsai said.
Meanwhile, the commission said that it has doubts that Nan Shan Life Insurance Co (南山人壽) acting chairman Yin Chung-yao (尹崇堯) has to qualifications to take over as the company’s permanent chairman.
Yin, 36, is the son of Ruentex Group (潤泰集團) chairman Samuel Yin (尹衍樑), who is the biggest shareholder in Nan Shan.
Yin Chung-yao has only been a member of the Nan Shan board of directors for three years, two years fewer experience than the commission requires for the position of chairman, Koo said.
The commission plans to interview Yin Chung-yao again next month after he was first interviewed earlier this month, Koo added.
Nan Shan has still not solved outstanding problems with its information technology system and the commission plans to conduct a more comprehensive review, it said.
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