Newsletter
Regulations Governing Foreign Investments by Insurance Companies amended to implement differentiated management of foreign investment in insurance sector
An investigation by the Financial Supervisory
Commission of Taiwan ("FSC") found that a local insurance company had three major deficiencies in relation
to its significant losses on its equity investment in a foreign bank which
was involved in loan fraud: (1) failure to establish horizontal communication across the bank, the insurance
enterprise and the financial holding parent, reporting and related hierarchical responsibility and control mechanism
for the bank subsidiary, the life insurance company, and the financial holding company; (2) failure to implement
post-investment management operation; and (3) failure to properly manage the assigned personnel. Said local
insurance company was fined as a result.
Against this backdrop, the FSC believes that the risk
control mechanism for the insurance industry's investments in foreign insurance-related businesses should be
strengthened from the legal perspective. On February 16, 2023, the FSC promulgated amendments to the Regulations
Governing Foreign Investments by Insurance Companies (hereinafter referred to as the "Regulations")
for differentiated management of insurance companies' investments in "foreign insurance-related
businesses" (the "Amendment").
I
Scope of Insurance Related Businesses
According to Paragraph 4 of Article 146 of the Insurance Act, the "insurance-related
business" refers to insurance businesses, financial holding companies, banks, and businesses relating to bills
finance, trust, credit card, financial leasing, securities, futures, securities investment trust, securities
investment consulting, and other insurance-related businesses recognized by the competent authorities.
II
The Amendment strengthens the mechanism for insurance
companies to invest in foreign insurance-related businesses
1.
Enhanced eligibility criteria for insurance companies
to apply for investment under different circumstances
(1)
Foreign insurance-related businesses in which the insurance company
invests, controlled by the insurance company and with the director(s) and supervisor(s) appointed by the insurance
company
In accordance with Subparagraph 5 of Paragraph 1 of Article 13-1 of the Regulations,
the insurance company shall establish internal rules for the operation and management of investments in foreign
insurance-related businesses and other businesses invested by such businesses. Considering the nature of (1) having
controlling and subordinate relation; or (2) appointing directors or supervisors of foreign insurance-related
businesses, there should be a more immediate control mechanism; therefore, the Amendment stipulates that if the
insurance company meets the above conditions for the foreign insurance-related businesses it invests in, the
internal rules related to the operations and management should include a
control mechanism to obtain information such as business audit reports, CPA-audited reports and the financial
examination reports issued by the government agencies of the relevant jurisdiction of its invested insurance-related
businesses in a timely manner.
(2)
Foreign insurance-related businesses in which the insurance company
invests are "non-insurance businesses" (i.e. not foreign insurance companies, insurance agents and
insurance brokers)
Considering that an insurance company's investment in other insurance-related
businesses is non-insurance business, and is considered cross-industry operations, cross-sectoral and different in
nature from the business of insurance, and that each sector has different attributes, the professional capabilities
required shall be different. In order to implement the differentiated management mechanism of whether the investment
object is an insurance business or not, in addition to the requirement under Paragraph 1 of Article 13-1 of the
Regulations, under the Amendment, the original requirement that the risk-based capital adequacy ratio of the
insurance company which invests in banks must equal or exceed 200% in the past three years on average has been
extended to apply to investments in other insurance-related businesses which are non-insurance businesses, and the
original RBC requirement of 200% has been raised to 250%. The Amendment also requires that the insurance company
should possess the professional expertise and experience to operate and manage such insurance-related business in a
sound manner.
If the invested business is a foreign bank, the Amendment also requires the insurance
company should invest jointly with its parent financial holding company's bank subsidiary and the insurance
company's investment amount should not exceed that of the bank subsidiary.
2.
Strengthen the post-investment management mechanism of the
insurance companies under different circumstances
(1)
The insurance company should a dedicated project team
If the insurance company invests, either alone or jointly with its financial holding
company (and/or affiliated subsidiaries belonging to the same financial holding company), in foreign
insurance-related businesses other than "foreign insurance companies, insurance agents and insurance
brokers", and the total investment amount exceeds 10% of the total issued shares of the invested company, a
dedicated project team should be in place to oversee the relevant risks and business, and manage the team members,
operations and management responsibilities.
(2)
Reporting of significant financial, internal audit and risk management
activities of the invested foreign insurance-related business
a.
Principles - board of directors of the insurance company
The insurance company shall report or discuss at least on a quarterly basis at the Board
of Directors meeting of the insurance company on important financial, internal audit and risk management matters,
and appointment and removal of key personnel and other important matters relating to foreign insurance related
business.
b.
Exception - dedicated units authorized by the board of directors of
the insurance company
If the invested foreign insurance-related business is a "foreign insurance company,
insurance agent or insurance broker with a controlling and subordinate relationship with the insurance
company", the matters mentioned in the above (a) may be reported or discussed at the meeting of the dedicated
unit authorized by the board of directors of the insurance company.
(3)
Submission of important proposals of the board of directors of
invested foreign insurance-related businesses
In order to implement a professional management and corporate governance mechanism
with equivalent authority and responsibility, for the management of all of the foreign insurance-related businesses,
important proposals of the board of directors of the invested foreign insurance-related businesses shall be
submitted to the board of directors of the insurance company and its financial holding company. In particular,
differentiated management applies depending on whether the insurance company has control over the invested business.
That is, an insurance company is required to report in advance if it has controlling and subordinate relation with
the invested business, and to report afterwards if it does not have such controlling and subordinate relation but
has appointed directors and supervisors.
(4)
Related audit obligations
The Amendment additionally requires that the insurance company's annual audit plan
should include an audit plan for the invested business it controls and submit the audit report to the board of
directors of the insurance company and the financial holding company it belongs to.
In addition to the insurance company's existing obligations to submit to the
competent authorities the business audit reports, CPA-audited reports and the financial examination reports issued
by the government agencies of the relevant jurisdiction of its invested insurance-related businesses, the Amendment
stipulates that the same reporting obligations shall apply to (a) the subsidiaries with actual business activities
controlled by the foreign insurance-related businesses, which are controlled by the insurance company, and (b) the
subsidiaries with actual business activities controlled by the foreign insurance-related businesses, in which the
insurance company invests jointly with its financial holding company (and/or affiliated subsidiaries belonging to
the same financial holding company).