[Investment] Insurance Firm Investment in Real Estate Further Liberalized

The Financial Supervisory Commission (FSC) recently relaxed restrictions on real estate transactions by insurance companies and non-interested parties. In the future, insurance firms will be able to choose either stockholders' equity or enterprise funds to use as the measure of threshold for such transactions. When insurance firms carried out real estate transactions with the same person, the same interested party, or the same affiliated enterprise in the past, the amount of a single transaction could not exceed 35% of stockholders' equity and the total amount of all transactions could not exceed 70%. With many insurance companies experienced reduced net worth because of the financial crisis, the FSC indicates, the original rules led to an increased difficulty of real estate investment by insurance firms. In view of the relatively high threshold for real estate transactions compared with general investment tools, the relative stability of prices, and the problem of finding alternative investments, plus the differences in the characteristics of this type and other types of investment, the revision provides for the use of insurance enterprises' funds in calculating the amount of real estate investment in order to realize differentiated management.

The new provision stipulates that if the ratio of an insurance company's equity capital to risk-based capital (capital adequacy ratio) exceeds 200%, its ceiling for a single real estate transaction is 1.5% of the company's funds and the ceiling on the total amount of all such transactions is 3%. If a company's capital adequacy ratio is under 200% but stockholders' equity is positive and it proposes a capital-increment improvement plan and reports on actual capital increase, and if it conforms to accompanying conditions such as open tender or open sale procedures, then with the approval of the FSC, its ceilings on single and total transactions can be set at 1% and 2%, respectively. If a company's capital adequacy ratio is under 200% and its stockholders' equity is negative, after it proposes improvement measures and obtains the approval of the FSC, it can use 1% or NT$500 million, whichever is lower, as its ceiling for single transactions, and 2% or NT$1 billion, whichever is lower, as its ceiling for all transactions. Further, if an insurance company that has a capital adequacy ratio under 200% fails to carry out a capital improvement according to its plan, the FSC will cancel its approval or make other disposition. To avoid such situation causing the insurance company to incur losses as a result of breach of contract, the FSC will also ask that insurance companies include contract termination and exemption clauses in their real estate investment contracts.