To enhance development of investment-linked insurance products with guaranteed benefits in response to the needs of the aging society, the FSC amended the "Regulations Governing Derivatives Transactions Conducted by Insurance Companies", per the letter Ref. No. Jin-Guan-Bao-Cai-Zi No. 10502500671 dated 17 February 2016. The main points are as follows:
- Insurance companies may engage in transactions for hedging purposes to hedge specific liabilities (Article 2 amended):
Since the insurance companies engaging in investment-linked insurance with guaranteed benefits shall set aside an amount as the guaranteed benefits reserve in the general account pursuant to the "Rules Governing Reserves Provisioned by Life Insurance Company Engaging in Investment-linked Insurance" and shall bear certain risks to the investment income from assets in such products' separate accounts, which is lower than the guaranteed income, at the maturity of the contract or during the agreed period, the amendments stipulated that insurance companies may engage in transactions for hedging purposes to hedge specific liabilities ("hedging transaction"). The term "specific liabilities" means the guaranteed benefits reserve set aside for such investment-linked insurance products with guaranteed benefits in the general account.
- Insurance companies may offer the same type of investment-linked insurance products with guaranteed benefits without another approval (Article 4-1 amended):
When an insurance company engaging in hedging transactions, if the type of hedging transaction has once been approved by the competent authority, the insurance company may conduct such hedging transaction pursuant to the approved or registered hedging plan; if not, the insurance company may not conduct such hedging transaction until having obtained approval of the competent authority.
- Amended the scope and cap of hedging transaction (Articles 7-1 and 9 amended):
To accommodate the rules permitting insurance companies to conduct hedging transactions, the amendment stipulated the type of the hedging transactions; moreover, when offering investment-linked insurance products with guaranteed benefits, since the maximum loss borne by the insurance company shall be the guaranteed benefits, the amendment stipulated that if the hedging transaction is to hedge specific liabilities, the amount of the hedging transaction shall be capped at the guaranteed benefits.
- Reporting obligation (Article 13 amended):
As structured products involve particular risk exposures, the amendment stipulated that when investing in structured products, the insurance company shall periodically report the related matters including the performance and risk assessment of such structured products to its Board of Directors and Risk Management Committee.