The Financial Supervisory Commission (FSC) has imposed a record fine on Farglory Life Insurance for breaches of corporate governance regulations in a series of real-estate development projects.
The FSC fined Farglory Life Insurance NT$14.4 million (US$494,000) — the steepest fine it has ever imposed on a life insurer, reports The Taipei Times.
The regulator also barred the company from launching new property development projects, extending loans to interested parties and extending loans on unsold property units for three years.
Farglory Life Insurance is a unit of the Farglory Group whose core businesses are land and property development, and construction.
The FSC also ordered the removal of Far Glory Group founder Chao Teng-hsiung from the life insurer’s board of directors.
Farglory Life Insurance president George Chao, Chao Teng-hsiung’s second son, was also ordered to leave his post along with two other executives, the commission said, adding that both Chaos would be barred from holding positions at financial institutions for the next five years.
A routine financial examination revealed that Farglory Life Insurance did not follow the rules for transactions and lending between insurance enterprises and interested parties, disregarding its internal controls, the commission said.
The FSC found that from 2007, the life insurer had favoured its conglomerate affiliates and had awarded contracts for 14 property development projects on its land holdings to affiliates, instead of letting third-party bidders compete for them.
Farglory Life had failed to assess the risks of using premiums paid by policyholders in pursuing its property development projects, Insurance Bureau Deputy Director-General Chang Yu-hui said.
The life insurer has a total exposure of NT$4.9 billion from unsold property units, Mr Chang said.
The breaches represent a total breakdown of internal controls at the life insurer, as contracts for all phases of property development projects were awarded to its affiliates instead of letting third-party bidders compete for them, he said.
In addition, about 10.3% or NT$40 billion of the life insurer’s assets are tied up in ongoing property development projects, and the company’s operations would not be affected in the absence of new projects, Mr Chang said.
The life insurer reported that its net income last year rose by 123% to NT$1.93 billion, with a risk-based capital ratio of 300%.