Newsletter
Summary of Draft Amendments to the Regulations Governing Use of Insurance Enterprise's funds in Special Projects, Public Utilities and Social Welfare Enterprises
The Regulations Governing Use of Insurance Enterprise's Funds in Special Projects, Public Utilities and Social Welfare Enterprises (the "Regulations") were enacted in accordance with the stipulation of Paragraph 1 of Article 146-5 of the Insurance Act, issued and implemented on December 26, 2001. The Regulations have been amended 12 times, and the latest amendment was made on December 31, 2019.
Following the amendment to Article 146-5 of the Insurance Act issued and promulgated by the President on May 26, 2021, to encourage insurance enterprises' investment in public utilities and social welfare enterprises up to a certain percentage, to strengthen the supervision and management mechanism of the appointment of director(s) and supervisor(s), and to adapt to development of domestic private equity fund ("PE Fund") market, the amendment to the Regulations (the "Amendment") was made. The Regulations currently include 12 articles, and 8 of which were amended in this Amendment. Key points of the Amendment are as follows:
1. To adapt to the development of domestic PE Fund market, the Amendment sets out that an insurance enterprise may set up a dedicated project investing in PE Fund that meets the conditions set by the competent authority and whose investment scope is in line with government policy. Also, considering that the risks of PE Funds and venture capital funds ("VC Fund") are similar in nature and to strike a balance between supervision and investment, the Amendment, by taking reference from the regulations for VC Fund, stipulates the limit of investment and other compliance matters for investment in PE Fund. In addition, considering PE Fund is a newly-permitted investment item, the Amendment also provides that the investment amount of the insurance enterprise in a single PE Fund may not exceed a certain percentage of the paid-in capital or paid-in capital contribution of such fund. (Amendments to Articles 2, 5, 7, and 9)
2. Considering the insurance enterprise may participate in infrastructure projects through equity investment and the invested company may receive investment ownership of the real estate based on the plan of the government authority, the Amendment specifies that if the insurance enterprise participates in the equity investment of the infrastructure project, the contribution ratio of the insurance enterprise multiplied by the residential real estate ownership received by the invested company shall not exceed 10% of the total real estate space, and the insurance enterprise may not acquire ownership of residential real estate so as to maintain the uniformity of laws and regulations governing insurance enterprises' investment in real estate and also take into account the government's urban development plan and the principle of generating long-term stable income from real estate investment by insurance enterprises. (Amendment to Article 3)
3. To strengthen the internal control procedures for insurance enterprises' investment made based on the Regulations and to follow the amendment to Article 146-5 of the Insurance Act, the Amendment stipulates that the internal procedures formulated by the insurance enterprise in accordance with the Regulations shall set forth the post-investment management measures, the mechanism and supervision and management system for appointment of director(s) and supervisor(s) representing the investment enterprise in the public and social welfare enterprises category. Furthermore, the Amendment also specifies the qualifying conditions for independent directors and the regulations the insurance enterprises shall follow when investing in VC Funds and PE Funds. (Amendments to Articles 6 and 8)
4. To enhance the comprehensiveness of insurance enterprises' investment appraisal and related application documents, the Amendment stipulates that the insurance enterprise shall submit the following information/documents for approval: the evaluation and plan for post-investment management and corresponding measures, related financing plan and management mechanism of the invested PE Fund or VC Fund, planning and management mechanism of the appointment of director(s) and supervisor(s), and the evaluation and planning documents in relation to the Environmental Impact Assessment Act, the Soil and Water Conservation Act, or the Cultural Heritage Preservation Act during the development stage. (Amendment to Article 9)
5. Considering the importance of environmental protection and cultural heritage preservation, the Amendment specifies that if the insurance enterprise's investment involves the Environmental Impact Assessment Act, the Soil and Water Conservation Act, or the Cultural Heritage Preservation Act during its development stage, the post-implementation review mechanism shall not apply. To strengthen the comprehensiveness of the insurance enterprise's legal compliance procedure, the Amendment newly stipulates that the chief compliance officer of the headquarters shall issue and sign an opinion statement that incidents permitted for post-implementation review comply with applicable laws and regulations as well as the internal rules. (Amendment to Article 10)