Newsletter
RULES FOR DERIVATIVES TRADING BY INSURERS
On 1 June 2006, the Financial Supervisory Commission issued the Guidelines for Insurance Enterprises Engaging in Derivative Financial Product Transactions, under which insurers are permitted to carry out such transactions. The main points are as follows:
Insurers are permitted to trade in derivative contracts for risk hedging purposes.
With authorization from the FSC, an insurer may trade in derivatives in order to enhance its investment performance.
The restrictions on investment in structured products are relaxed.
In order to enhance risk management meas-ures and establish internal reporting mecha-nisms, the Guidelines require insurers to (1) draw up procedures for handling their deriva-tives trading, which must be approved by their board of directors, and (2) to set up an inde-pendent risk management unit that must regularly present performance reports and risk assessment reports to the board. Insurers must also regularly submit audit reports and other information to the FSC.