Insurer Shirking From Long-term Committment

The Financial Supervisory Commission (FSC) plans to require foreign insurance companies to set up subsidiaries, rather than just branches, for the sale of individual insurance policies in Taiwan.  Foreign firms need only operating fund of NT$50 million for the establishment of a Taiwanese branch, compared with NT$2 billion for a subsidiary. The high capital requirement will make foreign firms more cautious in entering or exiting the Taiwanese market. Meanwhile, subsidiary possesses an independent legal status, while branch is subject to foreign parent company.

Since the outbreak of the global financial tsunami in 2008, five foreign life insurance firms have withdrawn from the Taiwanese market, including ING of Holland, Aegon of Holland, Mass Mutual of the U.S., AIG of the U.S., and Metlife of the U.S. Meanwhile, New York Life of the U.S., Manulife of Canada, and Aviva of the U.K. also reportedly plan to leave Taiwan. In the past three years, eight life insurance firms have exited the Taiwanese market or plan to do so.

An FSC official noted that since Taiwan opened up its life insurance market to foreign firms 20 years ago, the government has been adopting a “super national treatment” to foreign firms, allowing them to set up either subsidiary or branch, both of which can undertake all businesses.

This, however, is not the case in many foreign countries. Mainland China, for instance, requires that foreign life insurance companies can enter the Chinese market only in the form of joint-venture subsidiary, while Malaysia has also asked foreign life insurance branches to transform into subsidiaries in recent years.

The FSC official pointed out that life insurance firms are mainly for the sale of individual insurance products, such as life insurance policies, and thus must have commitment for long-term management. A branch company has limited capital and is subject to more lax regulation by the regulator. In addition, life insurance firms must establish multiple outlets to serve clients, for which NT$50 million of capital is relatively insufficient.