Taiwan: FSC to adjust RBC calculations for life insurers
Source: Asia Insurance Review | Apr 2019
The Financial Supervisory Commission (FSC) will amend the risk-based capital (RBC) calculations for life insurers by June, as some insurers had since last year been overbuying bond exchange-traded funds (ETFs).
Forty-six of the 48 ETFs traded on the local market in February were purchased by local life insurers in deals totalling NT$501.35bn ($16.23bn), or 98% of the total, reported Taipei Times citing FSC statistics.
The commission might lift the risk weighting of ETFs from the current 8.1%, which means that insurers would need to hold more capital to improve their risk profiles, FSC chairman Wellington Koo said.
The commission might also consider setting a new minimum equity-to-asset ratio for insurers, which would force the firms to pay more attention to their equity value, he said.
Life insurers’ overseas investments, including global bonds, are capped at 65.25% of their working capital to reduce risks, but their purchases of NT$-denominated ETFs do not fall under that category, Insurance Bureau deputy director-general Wang Li-hui said.
However, bond ETFs, which track the performance of foreign bonds, are still exposed to forex volatility and insurers would suffer losses if the NT dollar appreciates markedly, because the value of the ETFs would decline, the bureau said. A