In its latest revision to insurance regulations, Taiwan’s Financial Supervisory Commission (FSC) has relaxed limits on how much capital Taiwanese insurers can invest in overseas property.
The new regime, which would regulate how much firms invest in offshore property based on risk-based capital rather than net worth, should significantly increase the amount of capital the top three local insurers can deploy overseas.
The new rule should give an additional quota of nearly $1bn for companies like Fubon Insurance, which has risk-based capital of between 250% and 300%, according to local media reports.
This is good news for Fubon which is reportedly in talks to acquire Cannon Place in London for $500m. The building, with an occupancy ratio of 75% and an annual yield of 4.4%, is seen as an ideal investment for the insurer hunting for higher yields, according to reports.
In response to requests from the insurers to lift the cap on offshore property, Taiwan’s FSC recently made a public announcement about a proposed amendment to offshore property cap from 10% to 30% of net worth. Previously, under the 10% net-worth rule, the government had set a special provision for those exceeding the ratio, though no such exemptions are made available under the 30% rule.
Local insurers, however, were not happy with the new rule and lobbied the regulators, suggesting that the authorities calibrate the offshore investment based on risk-based capital rather than net worth. Even under the proposed 30% net worth rule, Fubon would have only received an additional quota of NT$14bn ($430m), which would have fallen short of the amount needed to acquire the eight-storey Cannon Place.
The two other insurance firms, Cathay Life and Shinkong Life, should also benefit from the new regime. The new rules would leave Cathay and Shinkong with an additional NT$84.5bn and NT$18.9bn, respectively, in terms of how much they could invest in offshore property, according to media reports.
Local media hailed the new law as a major boost to the insurance companies in their strategy to increase their yields by further diversifying their assets overseas in the face of falling returns on domestic assets.