Insurance regulations to adopt a four-level structure
The Financial Supervisory Commission (FSC) of Taiwan has announced draft amendments to the Regulations Governing Capital Adequacy of Insurance Companies, marking a significant shift in the country's insurance sector. The new capital regime, known as the Insurance Capital Standard (ICS), is set to take effect next year and aims to enhance insurers' solvency capacity.
Under the current system, an insurer in Taiwan is classified as having adequate capital if its risk-based capital ratio is at or above 200 percent. However, a ratio of 150 to 200 percent indicates inadequate capital under the current system. The ICS system, on the other hand, features a four-tier framework for categorizing insurance companies' capital sufficiency.
The four tiers are labeled as "adequate capitalization," "insufficient capitalization," "significantly insufficient capitalization," and "severely insufficient capitalization." After the implementation of the ICS system next year, the definition of "adequate capitalization" would be a capital adequacy ratio at or above 100 percent.
From 50 to 100 percent means "insufficient capitalization" under the ICS system, while from 25 to 50 percent means "significantly insufficient capitalization." Below 25 percent would be considered "severely insufficient capitalization" under the ICS system.
The ICS not only substantially changes capital requirements and risk management but also affects investment strategies, asset allocation, and product design for insurers. The new capital regime will require insurers to adopt a mark-to-market valuation for assets and liabilities.
The ICS aims to align the domestic insurance market more closely with global standards. It is designed to provide insurers with more flexibility to gradually adjust to the stringent requirements. The authority that sets the new capital requirements standards for insurance companies in Taiwan is the Financial Supervisory Commission (FSC).
The announcement was made by the FSC on Tuesday. The ICS will replace the Risk-Based Capital system in January next year, introducing higher capital requirements on insurers. The regulator uses the capital adequacy ratio and the net worth value to determine regulatory actions for insurers failing to meet statutory standards.
The new capital regime aims to enhance insurers' solvency capacity, ensuring a more stable and secure insurance market in Taiwan. The ICS is expected to bring about a more competitive and efficient insurance industry, benefiting both insurance companies and policyholders.
