The Financial Supervisory Commission (FSC) and the Central Bank of the Republic of China (Central Bank) issued the amended Offshore Banking Act Enforcement Rules ("Rules") and the new Regulations Governing Offshore Insurance Branches （"Regulations"）, respectively per letters Ref. No. Jin-Guan-Bao-Zong-Zi No. 10402567211 and Ref. No. Tai-Yang-Wai-She-Yi-Zi No. 1040021857 on 25 May 2015. Main points of the Rules and Regulations are as follows.
1. Amendments to the Offshore Banking Act Enforcement Rules
To accommodate amendments to the Offshore Banking Act (“Act”), which now allows insurance enterprises to set up offshore insurance branches, and in consideration of clearly differentiating securities firms, banks and insurance enterprises by nature of the business, the main points of the amendments are as follows:
- Set the conditions to set up offshore insurance branches, including compliance, financial condition and sound operations.
- Set forth the procedure and required documents to set up offshore insurance branches.
- Stipulate the minimum working capital (US$2 million) for setting up an offshore insurance branch.
- Articles 10 and 11 of the Rules shall apply mutatis mutandis to offshore insurance branches.
2. Issue the Regulations Governing Offshore Insurance Branches
The Regulations aim to increase business opportunities for insurance enterprises, enhance the international competitiveness of domestic insurance industry and strengthen the operation of offshore insurance branches; the main points of the amendments are as follows:
- Clearly stipulate the required contents and submission of status reports on business operations covering commencement of business, material change in business plan, occurrence of or foreseeable material loss, occurrence of material litigation and any violation of the Act or any order issued by the competent authority pursuant to the Act.
- To stay on top of the circumstance of outward remittance of earnings by foreign insurers, it is clearly stipulated that the outward remittance of earnings of offshore insurance branches shall be handled together with that of foreign insurance enterprises’ branches in the ROC on a consolidated basis, and no outward remittance may be made until after reporting to FSC.
- An offshore insurance branch's ratio of total adjusted net capital to risk-based capital shall be calculated together with that of the foreign insurance parent or its branches in the R.O.C., and shall not be lower than 200%. Moreover, an offshore insurance branch's net worth shall not be lower than US$1 million. Otherwise, the FSC may suspend the enterprise's offshore insurance branch's business or revoke the business permit of its offshore insurance branch, and notify the Central Bank accordingly.
- Stipulate the qualifications of manager of offshore insurance branches.
- Set the rules for applying for approval of insurance products. To encourage insurance industry innovation and attract offshore business, product-related rules are relaxed as summarized below:
- Submission of product for approval: After selling an insurance product, a report on the matter shall be filed with the FSC or an institution designated by it in 15 days.
- Provision of reserves: If the regulations governing the setting aside of various reserves by insurance enterprises or related regulations are not applicable to an insurance product, the offshore insurance branch may issue a declaration of conformity to certify that its provision of reserves conforms to the regulations promulgated by the authority in charge of insurance industry of the United States, Canada, United Kingdom, Germany, Switzerland, Australia or any other country named by the FSC, as well as the actuarial compliance guidelines issued bythe institute of actuaries of such countries, for reporting purpose.
- Principles of insurance product design: The denomination currency shall not be New Taiwan Dollars. The premium rate shall correspond to adequacy, rationale, fairness and actuarial principles, and reflect any and all costs and reasonable profit. Moreover, sound risk control mechanisms shall be established.
- Set the rules for provision of reserves and the methods of preparing actuarial reports of offshore insurance branches.
- Set forth the items, limits and other matters for compliance relating to fund utilization. The main points are as follows:
- Stipulate the regulations about fund utilization of offshore insurance branches, credit lines extendable by offshore insurance branches in making loans to and conducting other transactions with same person, same interested party or same affiliated enterprise and extending loans or conducting other transactions by offshore insurance branches to interested parties. Unless specifically approved by the competent authority, the denomination currency shall not be New Taiwan Dollars; the linked underlying portfolio shall not be a New Taiwan Dollar exchange rate, a New Taiwan Dollar interest rate index, or a New Taiwan Dollar denominated product, and no investment portfolio may involve any product denominated in New Taiwan Dollars.
- An offshore insurance branch of a foreign professional reinsurance enterprise may be exempted from the Regulations Governing Foreign Investments by Insurance Companies.
- An offshore insurance branch may be excluded from the calculation of the limit on the total amount of foreign investment.
- Set the rules that an offshore insurance branch of foreign professional reinsurance enterprise may apply the laws and regulations of its home country, or the relevant rules and systems of its head office, when those laws, regulations or rules are not less strict than the standards set out in relevant laws and regulations of the R.O.C.