The average equity-to-asset ratio at seven local life insurers last month dropped below the 3 percent minimum as investment value plummeted amid rate hikes, the Financial Supervisory Commission said on Monday.
The firms are Nan Shan Life Insurance Co (南山人壽), Cathay Life Insurance Co (國泰人壽), PCA Life Assurance Co (保誠人壽), Mercuries Life Insurance Co (三商美邦人壽保險), Hontai Life Insurance Co (宏泰人壽), Allianz Taiwan Life Insurance Co (安聯人壽) and First Life Insurance Co (第一金人壽).
Nan Shan’s equity-to-asset ratio — a solvency measure — sank to minus-0.59 percent, meaning it had a negative net worth last month.
The company on Monday blamed rising interest rates for a plunge in the valuation of its fixed-income investments.
The commission yesterday met with the companies to discuss whether they could reclassify their financial assets under current accounting rules, the International Financial Reporting Standards 9 (IFRS 9).
However, the meeting did not yield any conclusions.
Instead, the Accounting Research and Development Foundation would take into account the insurers’ opinions and decide whether the IFRS 9 allows such reclassification, Insurance Bureau Deputy Director-General Thomas Chang (張玉煇) said.
Cathay Financial Holding Co (國泰金控) president Lee Chang-ken (李長庚) yesterday said he supports reclassification, as it would help life insurers mitigate the effects of aggressive rate hikes by the US Federal Reserve on their financial reports.
“It is unprecedented that the Fed boosted its policy rate by 3 percentage points in seven months,” Lee said. “Insurers have faced problems from plunging investment valuations. It would be correct for regulators to be lenient.”
With risk-based capital ratio (RBC) still above 300 percent, Cathay Life has solid capital adequacy, Lee said, adding that if a life insurer’s equity-to-asset ratio and RBC are below the minimum requirements, the situation should be examined carefully.
Cathay Life is not in this situation, he said.
The commission would use life insures’ December financial reports to determine whether they should submit business improvement plans, Insurance Bureau Director-General Shih Chiung-hwa (施瓊華) said.
It would ask life insurers next year to calculate their financial reports under the IFRS 17, which is slated to take effect in Taiwan in 2025 and requires firms to adjust their liabilities with rate changes, Shih said.
The commission would assess the effects of the new rules on local life insurers, she said.
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