Media Reports

Takeover Period Extended a Third Time for Insolvent Kuo Hua Life of Taiwan

time:2011-11-07 source:Best Week

  TAIPEI, Taiwan - Taiwan's Financial Supervisory Commission has extended the takeover period  The takeover period will now expire Aug. 3, 2012. The extension will not affect Kuo Hua's

 policyholders and business operations, said the FSC in a statement.


 The regulator is now in talks with Taiwan Financial Holdings Co., a state-owned financial corporation, about investments in Kuo Hua, according to the FSC. Taiwan Financial owns

 BankTaiwan Life Insurance, Bank of Taiwan, Land Bank of Taiwan, Export-Import Bank of China  and BankTaiwan Securities.



 Kuo Hua failed to find an investor in a public bidding last year. The life insurer's balance sheet has been in deficit and it posted a loss of NT$6.9 billion (US$224 million) in 2010, according to the Taiwan Insurance Institute. Its total premium income amounted to NT$35.8  billion in 2010, with NT$20.1 billion in individual life policies.

 In August 2009, Kuo Hua failed to keep its capital adequacy ratio at the required level. The life insurer had a net deficit of NT$58.9 billion before the takeover by FSC (Best News Service, April 26, 2010).

 Taiwan's regulator has had difficulty finding a buyer for Kuo Hua due to its asset deficiency.


  It is "very difficult to convince an investor to swallow that," said Sam Radwan, partner and  co-founder of management consultancy Enhance International LLC.


 The regulator wants to keep Kuo Hua's contractual agreements with policyholders, with high  guarantee rates of 4% to 8%. Radwan said the regulator "does not want to see Kuo Hua broken up by investors" and wants to make sure any investor will keep the current policy promises.

 Overall, there is lack of investment interest on Taiwan's life insurance market, which is seen as overcrowded and saturated. More important is "the issue of the old legacy book of business


 with negative spread," due to high guarantee rates for life policies, noted Radwan. Radwan said newer books of business, which were written under lower interest rates, are profitable "especially if you expect rates to start rising." Investors can potentially "find diamonds in the rough as long as they are not saddled with old books of business." The Taiwan regulator's concern for the life market is with capital adequacy, especially with


 negative-spread books of business. Also, Radwan said if the regulator looks to implement the  International Financial Reporting Standard, it will add pressure to improve capital adequacy  for insurers.

 "Also, foreigners have all but exited Taiwan, and that does not bode well for promoting their  image of being an investor-friendly market," he said.


 In Taiwan, Kuo Hua was the first life insurer taken over by the regulator due to insolvency. It is now overseen by the Taiwan Insurance Guarantee Fund, a protection fund run by the industry and funded by a tax on premiums. (By Iris Lai, Hong Kong bureau manager: 1036 ET #(ttp://


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