Newsletter
Amendments to the Regulations Governing Foreign Investments by Insurance Companies
To expand the scope of fund allocation of insurance companies, enhance yields of fund utilization and strengthen the supervision and regulation of subordinated bonds, the Financial Supervisory Commission (FSC) amended the Regulations Governing Foreign Investments by Insurance Companies, per the letter Ref. No. Jin-Guan-Bao-Cai-Zi No. 10502501661 dated 31 March 2016. The main points are as follows:
1. Insurance companies may invest in bonds issued or guaranteed by a foreign local government. The transaction restrictions are as follows (Articles 2, 3 and 5 amended):
(1) the credit ratings of the issuer or the guarantor of the bond shall be A- equivalent or above;
(2) the home country of the issuer or the guarantor shall have a sovereign credit rating of AA- equivalent or above and shall be an OECD member; and
(3) total investment in bonds issued or guaranteed by a foreign local government shall not exceed 5% of the insurance company's approved foreign investment limit.
2. Insurance companies may invest in foreign currency negotiable certificates of deposit issued by a domestic bank, a branch of a foreign bank in Taiwan (including offshore banking unit) or a branch of a Mainland China bank in Taiwan. The transaction amount together with the total amount of foreign currency deposit placed in the same bank shall not exceed 3% of the insurance company's funds (Article 5 amended).
3. When investing in subordinated financial bonds issued or guaranteed by a foreign bank, the insurance company shall obtain a bond rating on such bonds from a foreign credit rating agency. The credit rating and investment limit of the issuer or the guarantor of such bonds shall be subject to the same restrictions on subordinated corporate bonds traded on the foreign securities centralized market or the over-the-counter market, subordinated convertible bonds or subordinated corporate bonds with warrant issued by a non-domestic company for calculation of the investment limit based on the credit rating of such bonds (Article 5 amended).
4. The credit rating of the issuer or the guarantor of the subordinated corporate bonds traded on the foreign exchange or over-the-counter market, the subordinated convertible bonds or subordinated corporate bonds with warrant issued by a non-domestic company invested by the insurance company shall be BBB+ equivalent or above in general (or BBB- or BB+ if certain requirements are met). The investment limit shall be calculated based on such credit rating. In addition, in cases that the insurance company may invest in said bonds whose bond rating is BB+ equivalent, the bond investment need not be reviewed by the Insurance Association in accordance with its standards and publicly announced and filed by the Insurance Association with the FSC for recordation (Article 7 amended).
5. When investing in foreign currency denominated subordinated corporate bonds or subordinated financial bonds exchange-listed or OTC-traded in the domestic securities market, the insurance company shall be subject to the requirements governing the credit rating and investment limit pursuant to the nature of the bonds (Article 10 amended).
6. The limits on investments by an insurance company in real estate overseas and in the Mainland China area shall be calculated based on the funds and equity of the insurance company. The investment limits shall be based on the risk-based capital ratio (the "RBC") of the insurance company at the end of the most recent fiscal period as follows. In addition, the investment shall not be approved by the FSC (Article 11 amended).
(1) The RBC is 200% or more: the total investment amount of the insurance company shall not exceed 1% of its funds and 10% of its equity.
(2) The RBC is 250% or more: the total investment amount of the insurance company shall not exceed 2.5% of its funds and 40% of its equity.
(3) The RBC is 300% or more: the total investment amount of the insurance company shall not exceed 3% of its funds and 40% of its equity.
7. When an insurance company invests in real estate overseas, the investment location, the amount and the profit and loss shall be reviewed by a certified public accountant. In addition, the insurance company shall publicly disclose relevant information on the real estate investment business and such real estate (Articles 11-1 and 11-3 amended).
8. The insurance company which has acquired other real estate in the same country or area and intends to invest in real estate overseas and in the Mainland China area may proceed with such investment by filing with the FSC for recordation (Article 11-4 amended).
(1) in its own name;
(2) through real estate investment business for special purpose of investment;
(3) through a real estate investment business for the special purpose of investment by way of loan; or
(4) through a trust.
9. The required credit ratings and investment limits applicable to insurance companies investing in subordinated corporate bonds and subordinated financial bonds traded on the centralized market or among banks in the Mainland China area are as follows (Article 12 amended):
(1) credit rating: credit rating of the issuer or guarantor of the bonds shall be A+ equivalent or above.
(2) investment limit: total investment amount may not exceed 1% of the insurance company's approved foreign investment limit.
10. Total amount invested by the insurance company pursuant to the Regulations Governing Permission for Establishment of Branch Units and Subsidiaries in Hong Kong and Macau by Taiwan-area Insurance Institutions shall be counted towards the total amount of investment in domestic and overseas insurance-related businesses of such insurance company (Article 13 amended).