Gov’t relaxes forex insurance deposit rule

The China Post news staff

Lawmakers passed an amendment bill yesterday to designate locally deposited foreign currency-based insurance premiums as local investments, exempting them from the 45-percent investment cap applied to foreign investments. The new rule will free up at least NT$300 billion of capital for insurers, allowing them more flexibility in asset use, which will translate to an increased profitability of about NT$30-40 billion, said Hsu Shu-po (許舒博), Kuomintang Legislator and Director-general of the Life Insurance Association (LIA) who introduced the bill.

Cathay Life Insurance currently holds over NT$100 billion in foreign currency deposit reserve as required by law while Fubon Life Insurance holds over NT$90 billion, Hsu pointed out.

The policy will eventually benefit the public as insurers seeing increased profitability will provide better protection to policyholders and even helps stabilize Taiwan’s stock market, he said.

Article 146-4 of the Insurance Act currently stipulates that investments in foreign funds, including foreign currency deposits, “may not exceed 45 percent of the funds of any individual insurance enterprise.” Insurers are now required to let the huge amount of capital raised from forex-dominated local insurance policies sit still in banks, earning interest rates of lower than 1 percent. That makes forex-based policies that typically offer 2-3 percent interests to policyholders a money-losing business, Hsu explained. The amendment, however, does not automatically allow unrestricted investment of foreign currency deposits. Insurers are required to apply to the Financial Supervisory Commission (FSC) for increased investments, Hsu added. Although the LIA estimate shows that new rule will not directly lower policy premiums, it will make the forex-based policies more attractive to insurers. The forex-based policies will also be relatively cheaper for the public as the lowering of assumed interest rate for policy reserves next year is expected to drive up premiums for Taiwan dollar-based policies, he explained.