Taiwan: Regulator shrugs off concerns over new bond redemption rule
Source: Asia Insurance Review | Apr 2017
The Financial Supervisory Commission (FSC) has downplayed concerns about a new regulation that would require issuers of Formosa Bonds to wait at least five years before redeeming the bonds.
“The new rule is not expected to have a significant effect on issuance volume and liquidity, due to overwhelming demand for the debt instruments among local life insurers,” Taipei Times reported Insurance Bureau Deputy Director-General Ms Shih Chiung-hwa as saying.
She explained the change is aimed at ensuring that life insurers have the ability to meet yield targets to fulfil ratings requirements and obligations to policyholders with their NT$67 billion (US$2.16 billion) in combined assets. The five-year rule would help minimise reinvestment risk, she said.
The FSC, which initially proposed a six-year timeframe for redemption, has decided on five years instead, in a new rule that is likely to take effect before the end of June.
“While we feel that the ideal bond duration for life insurers is six years, the proposed change is five years to accommodate issuers’ concerns,” Ms Shih said.
A feature of the Taiwanese bond market is that it is easy and relatively cheap for companies to redeem debt before its due date. Most of these bonds mature in one to seven years, but issuers have often redeemed them early, giving rise to concern about the stability of bond investments and difficulties with investment planning by insurers.