The nation’s new Insurance Capital Standard (ICS) — set to take effect next year — would feature a four-tier framework to categorize insurance companies’ capital sufficiency, the Financial Supervisory Commission announced on Tuesday, alongside draft amendments to the Regulations Governing Capital Adequacy of Insurance Companies (保險業資本適足性管理辦法).
The new capital regime would replace the Risk-Based Capital system in January next year, introducing higher capital requirements on insurers to enhance their solvency capacity as well as requiring them to adopt a mark-to-market valuation for assets and liabilities, the commission said in a statement.
It also aligns the domestic insurance market more closely with global standards, it added.
Photo: Kelson Wang, Taipei Times
The four tiers for capital adequacy are defined as “adequate capitalization,” “insufficient capitalization,” “significantly insufficient capitalization” and “severely insufficient capitalization,” it said.
Under the current system, an insurer in Taiwan is classified as having adequate capital if its risk-based capital ratio — calculated by dividing the insurer’s working capital by its risk-weighted assets — is at or above 200 percent.
A ratio of 150 to 200 percent indicates inadequate capital, with significantly inadequate at 50 to 150 percent and severely inadequate at less than 50 percent, the commission said.
The regulator uses the capital adequacy ratio as well as the net worth value to determine whether it would need to impose regulatory sanctions, take over, suspend operations or order the dissolution of an insurer if it fails to meet the statutory standards.
After the implementation of the ICS system next year, the definition of “adequate capitalization” would be a capital adequacy ratio at or above 100 percent, while a ratio of 50 to 100 percent indicates “insufficient capitalization,” from 25 to 50 percent means “significantly insufficient capitalization” and below 25 percent would be considered “severely insufficient capitalization,” the commission said.
It said it would give insurers more flexibility to gradually adjust to the stringent requirements under the ICS system, as the new capital regime not only substantially changes capital requirements and risk management, but also affects investment strategies, asset allocation and product design for insurers.
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