The Financial Supervisory Commission (FSC) is reviewing Shin Kong Life Insurance Co’s (新光人壽) application to use fair-value accounting to assess its investment properties, the commission said on Thursday.
The move came after Shin Kong Financial Holding Co’s (新光金控) board of directors on May 22 approved the insurance unit’s proposal to use fair-value accounting rather than cost accounting to assess non-self-use properties.
Fair-value accounting estimates real estate based on market value, while the cost method calculates assets based on their original cost.
“Life insurers would need our approval if they want to adopt different accounting standards. Shin Kong Life has filed its application, and we are still reviewing its documents,” Insurance Bureau Deputy Director-General Wang Li-hui (王麗惠) told a news conference in New Taipei City.
Wang did not say when the commission would complete its review.
The proposed change came after the life insurer saw its equity-to-asset ratio drop to 2.33 percent as of the end of March, below the commission’s requirement of 3 percent.
The regulator monitors life insurers’ equity-to-asset ratio twice a year: at the end of June and at the end of December.
If an insurer’s equity-to-asset ratio remains below 3 percent, the commission can limit their operations the following year, according to the Insurance Act (保險法).
Shin Kong Life hopes that its net worth will grow using the new accounting method.
By using fair-value accounting, the value of Shin Kong Life’s non-self-use real estate would rise to NT$186.3 billion (US$6.2 billion), NT$53.5 billion higher than the NT$132.8 billion it estimated using cost accounting, Shin Kong Financial told an investors’ conference on Thursday.
Shin Kong Life also plans to book NT$46.8 billion of the increase in its net worth, which would raise its equity-to-asset ratio by 1.5 percentage points, climbing above 3 percent, it said.
“It would be fairer to compare our net worth with those of other peers, as other major life insurers have adopted the fair-value method,” Shin Kong Financial senior vice president Sunny Hsu (徐順鋆) said by telephone.
Five major insurers have adopted the fair-value method — Cathay Life Insurance Co (國泰人壽), Fubon Life Insurance Co (富邦人壽), Nan Shan Life Insurance Co (南山人壽), China Life Insurance Co (中國人壽) and Mercuries Life Insurance Co (三商美邦人壽) — according to the commission.
“The shortcoming is that the value would be more volatile due to market conditions, and we need to hire experts to appraise the value every quarter,” Hsu said.
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