Regulatory change boosts capital options for Taiwanese insurers

The move can potentially reduce the cost of capital and broaden their investor base.

The Financial Supervisory Commission (FSC) allowing Taiwanese insurers to issue bonds overseas through SPVs diversifies their capital-raising channels due to limitations in the domestic bond market, Fitch Ratings said.

This move is seen as credit positive, particularly for life insurers, as it helps them optimize capital structures and alleviate pressure from shareholders amid stricter regulatory requirements under the upcoming localised Insurance Capital Standards (TW-ICS) in 2026.

This regulatory change enables insurers to tap into larger and more diverse overseas capital markets, potentially reducing the cost of capital and broadening their investor base. 

Participating in international financial markets enhances their global credibility and reputation. Cathay Life Insurance is set to establish an SPV in Singapore, marking the first move to leverage this change.

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However, there are risks, including foreign exchange risk and compliance with international regulations, which require robust risk management. 

The FSC's amendments outline requirements for establishing SPVs abroad, including approval from the FSC, provision of guarantees, and adherence to credit ratings and issuance limits. Insurers must also manage their overseas investment limit, set at 45%, with restrictions if this limit is reached.

Despite support from the FSC, insurers' ability to maintain stable net asset growth in 2024 faces challenges from interest-rate and capital-market fluctuations. 

Whilst the life sector's unaudited equity surged by 41% in 2023, unaudited net income declined due to currency appreciation and increased hedging costs compared to 2022.