Newsletter
Summary of the Amendment to Insurance Act passed by Legislative Yuan
On December 4, 2020, the Executive Yuan submitted the Draft Amendments to Insurance Act to the Legislative Yuan for its review. The Draft was passed at the 10th meeting of the 3rd Session of the 10th Legislative Yuan general meeting on May 4, 2021. Key points of this amendment to the Insurance Act are as follows:
1. Encourage insurance enterprises to invest in and finance domestic industries and public and social welfare enterprises:
(1) The calculation basis for corporate bond investment amount is amended from "paid-in capital" to "owner's equity", to increase insurers' investment amount in the domestic bond market; in addition, this amendment stipulates that insurance enterprises may invest in qualified unsecured promissory note. (Amendments to Article 146-1 and Article 146-3 of the Insurance Act)
(2) Ease restrictions on the appointment of director(s) and supervisor(s) of public and social welfare enterprises by insurance enterprises. The limitation on the number of seats of director(s) and supervisor(s) which can be appointed by insurance enterprises is increased from one-third to two-thirds. Moreover, if more than half of the directors of the invested public utility company are appointed by the insurance enterprise, the invested company should have at least one independent director, in order to encourage investment and financing from insurance enterprises, increase investment willingness, strengthen the supervision and management mechanism of the invested company, and promote social welfare and economic development. (Amendment to Article 146-5 of the Insurance Act)
2. Improve the financial structure of insurance enterprises and increase the companies’ risk tolerance:
To adapt in the international system, this amendment stipulates that the current benchmark, risk-based capital ratio, and in addition the net worth ratio, should serve as dual benchmarks for supervision and the classification of capital level standard to reasonably reflect risks. (Amendments to Articles 143-4, 143-5, 143-6 and 149 of the Insurance Act)
3. Improve and strengthen insurance supervision and regulation system:
(1) This amendment stipulates that the competent authority is authorized to formulate regulations related to "transfer or withdraw" of a branch unit, to strengthen the management of the transfer or withdraw of a branch unit of insurance enterprise. (Amendment to Article 137 of the Insurance Act)
(2) This amendment also stipulates that the competent authority shall dismiss the responsible persons who fail to meet the qualification required by the regulations formulated by the competent authority. When the responsible persons violate the concurrent serving restrictions and the conflicts of interest prohibitions, the competent authority may request rectification within a given period. In case of failure to comply with the rectification request within the given period and without reasonable justification, the competent authority shall dismiss the responsible persons, so as to clarify the consequences of non-compliance for the insurance industry to follow. (Amendment to Article 137-1 of the Insurance Act)
(3) The competent authority is authorized to stipulate rules related to insurance enterprises' internal processing procedure of real estate investment, conditions and restrictions on real estate, the standard to verify the immediate use and income generation as well as the processing principle of investment property as well as other compliance matters, in order to raise the legal status of current real estate investment and management regulations of insurance enterprises and to adjust the penalty components accordingly. (Amendments to Articles 146-2 and 168 of the Insurance Act)
Financial Supervisory Commission (FSC) stated that after the passing of this amendment to the Insurance Act, the relevant sub-laws and regulations should be amended accordingly. For example, for the relevant regulations on insurance enterprises' investments in real estate or public infrastructure, the FSC will solicit opinions from various sectors and stipulate the regulations as soon as possible, in order to achieve the relevant policy objectives of encouraging investment and finance from insurance enterprises to assist in developing domestic industries and improving the supervision of insurance industry.