INSURANCE COMPANIES DERIVATIVE INVESTMENT RULES RELAXED
The Financial Supervisory Commission issued a number of directions on June 1, 2006, that were meant to expand the scope of derivative trading for insurance firms. Entitled “Directions Governing Insurance Industry Engaging in Financial Derivatives Trading” and based on NT$ 6.17 trillion of insurance capital and NT$ 346.6 billion for all of Taiwan;s insurance companies at the end of 2005, the new measures will add approximately NT$ 400 billion to the amount of insurance firm investments
Highlights of the new Directions are as follows:
1. The insurance companies’ ability to hedge risk was strengthened by adding financial derivative products highly correlated with items for risk hedging to the four types of derivatives trading now allowed, namely: forward contracts, futures, options, and swaps.
2. Insurance companies (with the approval of the FSC) are permitted to engage in derivatives trading to increase their investment efficiency. The accumulated total (nominal) contract value of such investments in domestic and foreign derivatives can reach as high as 40% of owners’ equity in the insurance company. This measure will increase insurance companies’ investments by an estimated NT$ 138.6 billion.
3. The maximum amount of investments in structured financial products will increase from the current 5% of an insurance company’s insurance funds to 10%. This is expected to boost investments by insurance companies by around NT$ 308.5 billion.
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