Taiwan frees derivatives use for insurance portfolios
Insurers can expect a freer rein on managing their assets as all rules regarding derivatives are to be annulled today.
TaiwanÆs Financial Supervisory Commission says it is annulling all rules on the use of derivatives for insurance firms, effective today. Taiwan's insurers have already been proactive users of structured products and the government is now encouraging the trend û an unusual exception at a time when regulators in the United States and Europe are trying to tighten regulation in areas such as credit derivatives.
Taiwan's rules were first issued in May 2006, laying out required credit ratings, circumstances under which derivatives could be employed, limits on asset exposure to such instruments, qualifications for investment professionals handling these, and risk-management procedures.
Initially derivatives were only allowed for hedging purposes but the rules were relaxed in May 2007. Requirements on risk-based capital were eased, as were maximum allocations to overseas-issued instruments or structured products. This allowed insurance companies to use derivative products to enhance investment returns.
Earlier this year, the FSC also raised the percentage limit allowed on overseas investments and allocation to alternative investments.
However, insurers have complained that the FSCÆs relaxation measures had opened up new investment possibilities on paper, while tying up their hands through tighter risk-based capital requirements.
With the removal of these rules for once and for all, insurers will be given a free rein on how they wish to implement portfolio investments without the fuss of filing detailed proposals or seeking the FSCÆs approval.
FSC Commissioner Lee Shyan-Yan notes the regulatory agency is keen to revamp how it regulates financial institutions. As has happened recently in Japan, and will be formalised in Korean law early next year, Taiwan is moving towards a UK-style principles-based rulebook. This is intended to enhance the Taiwanese insurance sector's regional competitiveness, as well as to make Taipei a genuine financial-services hub within Greater China.
New rules and further relaxation on private equity and hedge fund investments are expected to be introduced later this year.
Taiwan's rules were first issued in May 2006, laying out required credit ratings, circumstances under which derivatives could be employed, limits on asset exposure to such instruments, qualifications for investment professionals handling these, and risk-management procedures.
Initially derivatives were only allowed for hedging purposes but the rules were relaxed in May 2007. Requirements on risk-based capital were eased, as were maximum allocations to overseas-issued instruments or structured products. This allowed insurance companies to use derivative products to enhance investment returns.
Earlier this year, the FSC also raised the percentage limit allowed on overseas investments and allocation to alternative investments.
However, insurers have complained that the FSCÆs relaxation measures had opened up new investment possibilities on paper, while tying up their hands through tighter risk-based capital requirements.
With the removal of these rules for once and for all, insurers will be given a free rein on how they wish to implement portfolio investments without the fuss of filing detailed proposals or seeking the FSCÆs approval.
FSC Commissioner Lee Shyan-Yan notes the regulatory agency is keen to revamp how it regulates financial institutions. As has happened recently in Japan, and will be formalised in Korean law early next year, Taiwan is moving towards a UK-style principles-based rulebook. This is intended to enhance the Taiwanese insurance sector's regional competitiveness, as well as to make Taipei a genuine financial-services hub within Greater China.
New rules and further relaxation on private equity and hedge fund investments are expected to be introduced later this year.
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