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Amendment to the Regulations Governing Use of Insurer's Funds in Special Projects, Public Utilities and Social Welfare Enterprises



To enable insurers to mobilize and deploy funds to participate in investment in public utilities and social welfare enterprises, relieve government of some financial burden, enhance quality of public infrastructure and social welfare services and promote development of related industries, the Legislative Yuan enacted the Regulations Governing Use of Insurer's Funds in Special Projects, Public Utilities and Social Welfare Enterprises (the "Regulation") on December 26, 2001, as authorized by Article 146-5 of the Insurance Act to govern the scope of investment and cap the amount of insurers' funds in special projects, public utilities and social welfare enterprises. The Regulation also stipulates the relevant documents, procedures and other matters for insurers to apply for regulatory approval, such as the investment targets of an insurer shall be profitable and the types of registration shall be restricted to companies limited by shares or limited partnership; insurers can, without prior approval, invest in special projects, public utilities and social welfare enterprises directly and report to the Financial Supervisory Commission (FSC) as a post-filing under certain circumstances. The Regulation has been revised several times, and the latest amendment was issued on December 29, 2017.
 
The latest amendment aims to accommodate government policies and ensure alignment with the latest Regulations for Long-Term Care Service Institutional Entities (the "Long-Term Care Regulation") to encourage and guide insurersy, to to deploy their t Hence, according to this amendment, an insurer may invest up toits
 
A.      In order to protect the rights and interests of people who receive long-term care services, and to create mechanisms to bring sustainability to long-term care service institutions, the Legislative Yuan passed the Long-Term Care Regulation in January 2018, allowing not only legal foundations and aggregate corporations but also for-profit companies including insurers to participate in investment in and operating care homes, i.e. institutional residential long-term care service institutions through investment in non-charity aggregate corporations.
 
B.      According to Article 36 of the Long-Term Care Regulation, there is no ownership cap on insurers investing in institutional long-term care service aggregate corporations; however, profit allocation is regulated, e.g., first allocate 10% of profit for social welfare and personnel training, then 20% as working capital, then the remaining profit, if any, to members. Besides, with respect to the appointment of directors, according to Article 33 of the Long-Term Care Regulation, for-profit companies may appoint up to one-third of the total number of directors but cannot appoint the chairman of the board of the institutional long-term care service aggregate corporation.
 
C.      Although insurers can invest in social welfare enterprises under current Article 146-5 of the Insurance Act, insurers are not permitted to appoint directors, which impacts on insurers' willingness to participate. To ensure alignment with the Long-Term Care Regulation, the FSC has submitted draft amendments to Insurance Act to the Executive Yuan, proposing to allow an insurer to appoint up to one-third of the total number of directors and supervisors of an investment target which is a social welfare enterprise or a public utilities company. This helps insurers break the investment barriers and gain a deeper understanding about the operations and However, some insurers pointed out that the Long-Term Care Regulation is a compromise between the insurers and social welfare organizations: although an insurance company can, as a member of aggregate corporations, invest in long-term care service institutions, the above profit allocation limits (reserve 10% for social welfare and personnel training, and 20% as working capital) under Article 36 of the Long-Term Care Regulation means 30% less funds available for investment, which means lower Return on Investment (the "ROI") and would affect the insurers' willingness to participate.
 
In sum, the enactment of the Long-Term Care Regulation and the submission of the draft amendments to the Insurance Act are the first step in perfecting long-term care service institutions, and provide opportunities for insurers to participate in the operation of long-term care service institutions. Under current Insurance Act, insurers may invest up to 10% of their total assets in social welfare enterprises. Assuming the total funds available for investment are TWD21 trillion, trillions of dollars would be invested in long-term care service institutions, which will help improve domestic long-term care services and strength the policy of Long-Term Care Plan 2.0.
 

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