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To enhance the supervisory controls over insurance companies' real property investment and internal regulation for the insurance industry, the Financial Supervisory Commission amended the Criteria and Principles for Determining Instant Utilization and Profitability from Real Property Investments of Insurance Companies (the "Principles"). The Principles came into effect on 19 November 2012, and the key amendments are as follows:
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1.
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The annualized return of real property for investment purposes shall not be lower than 1.5% plus the floating rate for two-year postal time deposits for small-amount savings announced by Chunghwa Post Co., Ltd. (i.e., not lower than 2.875%) This amendment does not apply to the properties acquired before its coming into force.
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Only properties that may be utilized and meet the criteria for determining instant utilization and profitability at the time of acquisition may be acquired.
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In principle, an insurance company's ownership of real property that may be utilized shall not be transferred within five years of acquisition.
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For insurance companies' investment in land without any improvements, aside from the existing regulations governing construction commencement and relevant applications, this amendment adds requirements including (a) the letter of intent for lease of property that indicates the lease will meet the criteria for determining instant utilization and profitability or documents that can prove such property will meet the criteria in the future shall be obtained before investment; (b) the development of such land shall observe the timetable prepared at the time of property acquisition, and the construction shall be completed and meet the criteria for determining instant utilization and profitability within five years of property acquisition; and (3) in principle, the ownership of the land shall not be transferred within 10 years of acquisition.
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Considering that superficies may be extinguished after a certain time, which is by nature unlike regular real property, the aforementioned timetable limitations are not applicable to superficies created based on government infrastructure projects with competent authority-prescribed development timetables.
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6.
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Whenever an insurance company intends to invest in real property, a proposal shall be submitted to and approved by the board of directors, unless the ratio of its total adjusted net capital to risk-based capital is 200% or above and the value of that single transaction does not exceed NT$300 million.
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If an insurance company reclassifies real property for investment as real property for private use, in principle, the ownership of such property shall not be transferred within five years of the reclassification.
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Insurance companies shall not invest in unfinished construction or construction to be completed in the future (presale housing).
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To sum up, while the aforementioned new measures help maintain insurance companies' stability of operation, the criteria for insurance companies to participate in real property investment have become more rigid.
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