News Life and Health27 Nov 2018

Taiwan:Limit re-imposed on insurers' Formosa bond investments

27 Nov 2018

Revised regulations that re-impose limits on Formosa bond investments of insurance companies have come into effect since 23 November.

Under the amended rules, which had been expected for several months, insurers are required to include Formosa bond holdings in calculating whether they meet overseas securities investment limits.

The financial regulator, the Financial Supervisory Commission, said last week that the combined total for Formosa bonds and overseas securities holdings should not exceed 145% of the overseas investment limit stipulated for an insurer.

In other words, if a particular insurer has an approved overseas investment limit of 45% of its funds, the combined ceiling for it to invest in Formosa bonds and other overseas securities would be 65.25% of its funds. If it has already reached the 45% ceiling in its investments in foreign securities, other than Formosa, that will mean it can only invest 20.25% of its funds in Formosa bonds, Reuters reported.

In 2014, the financial authorities had excluded Formosa bonds–foreign-currency bonds from overseas issuers sold in Taiwan–from the insurers' overseas investment quotas. Since then, insurers in Taiwan have increased significantly their holdings of Formosa bonds in the search for higher yields, leading to concerns over foreign exchange losses on the bonds with the appreciation of the Taiwanese dollar.

Insurers posted foreign exchange losses of NT$176.9bn ($5.7bn) in 2017, according to FSC data. Insurers' currency losses stood at NT$122 billion for 2016.


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