Newsletter
INSURANCE COMPANIES NOT SUBJECT TO ARTICLE 211 OF THE COMPANY ACT
Article 211 of the Company Act requires that if a company's assets are obviously insufficient to compensate its liabilities, the board of directors should immediately declare bankruptcy. However, on 17 December 2007, the Financial Supervisory Commission issued a ruling to exempt insurance companies from the application of Article 211 for the following reasons:
‧An insurance company is an enterprise that collects insurance premiums from policyholders and performs obligations according to insurance contracts; it plays a role in public welfare, and is regulated under the Insurance Act as an industry requiring special permit. With regard to the financial aspect, Article 145 of the Insurance Act requires insurance companies to set aside various reserves; Article 143-4 requires that a capital adequacy ratio of at least 200% be maintained and prohibits distribution of earnings if the capital adequacy ratio falls below the aforementioned level. The competent authority may, at its own discretion, impose other necessary sanctions or restrictions depending on the severity of the situation.
‧If there is a likelihood that an insurance company's business or financial status may be detrimental to its sound operation, or there is an obvious deterioration in its business or financial condition that it is unable to pay its debts or to perform its contractual liabilities or there is a likelihood that the rights and interests of the insured may be adversely affected, the competent authority may impose sanctions under Article 149 of the Insurance Act depending on the severity of the situation.
‧The liabilities of insurance companies differ from those of other industries, mainly in the form of various reserves (70% to 80% for non-life insurers, and 80% to 90% for life in-surers), which should be regarded as contin-gent liabilities. Therefore, if an insurance company's assets are insufficient to compensate its liabilities, in order to assure the rights and interests of policyholders, the competent authority must order such insurance company to increase its capital as the first priority to enhance its solvency.