To strengthen the regulation of how insurance companies may deploy their funds, to enhance protection of their assets and the profit efficiency of their funds, and to accommodate the financial import substitution policy, the Financial Supervisory Commission (FSC) issued the amended Regulations Governing Overseas Investment of Insurance Companies ("Foreign Investments Regulations"), per the letter Ref. No. Jin-Guan-Bao-Cai-Zi No. 10402085521dated 14 August 2015 and required the Insurance Association to set self-regulation rules accordingly. The main points are as follows:
1. Insurance companies may conduct the business of foreign currency loans
Based on the principle of assisting insurance companies in raising the profit efficiency in deploying funds and to increase permissible investment items gradually, the Foreign Investments Regulations were amended that insurance companies may participate in foreign currency syndicated loans and stipulate the required credit ratings, classification of securities, the loan ceiling and the allowance for doubtful accounts, etc. of the arranger. An insurance company which conducts the business of foreign currency loans shall establish the process of credit assessment and the guidelines on risk management which must be passed by the board resolution. An insurance company which conducts the business in relation to the abovementioned foreign currency loans shall obtain the approval of the Central Bank. To comply with the Insurance Act, the total outstanding loans including domestic loans and foreign currency loans shall not exceed 35% of an insurance company's funds.
2. Stipulate related measures to encourage insurance companies to repatriate offshoare assets back to Taiwan to accommodate the financial import substitution policy
(1) Incentive measures: raise the investment ceiling of corporate bonds
In the case of an insurance company with over 30% of its investment in foreign securities placed under custody of a domestic custodian, the investment ceiling on corporate bonds, convertible bonds and warrant bonds issued by non-domestic companies with a credit rating equivalent to BBB+ to BB+ as rated by foreign credit rating agencies (including Moody's, Standard & Poor's and Fitch) is raised to 13% of the approved foreign investment limit of that insurance company. Should the proportion under custody exceed 50%, the investment ceiling may be raised to 13.5%.
(2) Mandatory measures: require insurance companies to repatriate offshore assets back to Taiwan
- Where the RBC Ratio is below 200%, the insurance company shall authorize a domestic custodian to take custody of its offshore assets within half a year from the promulgation date of the amended Foreign Investments Regulations.
- Where the RBC Ratio is above 200%, the insurance company shall authorize a domestic custodian to take custody of its foreign currency denominated listed or over-the-counter certificates of domestic stocks or bonds pursuant to the Regulations Governing Book-entry Operations for Centrally Deposited Securities within 2 years after the promulgation date of the amended Foreign Investments Regulations.
- To ensure the safety of insurance companies' assets placed under custody of thecustodian, the Foreign Investments Regulations added the qualification requirements of the custodians to be entrusted by insurance companies.
- To conform to the principle of specialization, to prevent conflicts of interest and to strengthen supervision, the Foreign Investments Regulations added compliance matters and the mandatory provisions to be included in the custodial agreement for custody of offshore assets by the foreign custodian which is authorized by insurance companies.
- In view of the increase in offshore investment assets of insurance companies and to ensure safety of the assets, the Foreign Investments Regulations added that insurance companies shall engage certified public accountants for audit and attestation of overseas investment.