SUMMARY AMENDMENT TO INSURANCE LAW

09/01/2001

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An amendment to the Insurance Law was adopted by the Legislative Yuan on 26 June 2001 and promulgated by the President on 9 July 2001. Key features of this amendment are as follows:

Protection of minors and mentally disabled

The amendment provides that for life insurance contracts where the insured is a minor under the age of fourteen (14) or person who is mentally disabled or retarded, the death payment ar-rangement is void except with respect to funeral expenses. The funeral expenses may not exceed the amount prescribed by the competent author-ity currently NT$1,000,000. (Article 107)

Engagement in casualty insurance business by non-life insurers

Non-life insurance companies may, having been approved by the competent authority, engage themselves in the casualty insurance business. In addition, insurers may now be engaged, subject to the competent authority's approval, in other "insurance-related" businesses not covered by the Insurance Law. (Article 138)

Before the amendment, the cross-operation of life insurance business by a non-life insurer was subject to the competent authority's approval and could only be effected by way of an extended coverage endorsement. As a result of the amendment to Paragraph 1 of Article 138, property insurers may now engage in the casu-alty insurance business by way of a main con-tract.

Previously, insurers were not permitted to con-duct businesses not covered by the Insurance Law. By adding a proviso to Paragraph 3 of Article 138, the amendment now permits insur-ers to engage in other "insurance-related" busi-nesses, subject to the approval of the competent authority. Pension fund management was cited as an example of such "insurance-related" busi-ness by the Executive Yuan.

Introduction of earthquake insurance

Insurance companies are now obligated to jointly offer residence insurance policy against earth-quake. For the risk exceeding the limit that in-surers are able to take, it can be shared by a residence earthquake insurance fund to be set up in the future or by the government or domestic or foreign re-insurance companies. (Article 138-1)

This article was added in response to the trau-matic September 21 Earthquake that shook Taiwan in 1999.

Relaxation of restrictions on use of fund by insurance companies

"Insurance-related businesses" and "deriva-tives" are included in the scope of fund utili-zation; also added to the scope are "other uses of fund as approved by the competent author-ity." (Article 146)

With this amended article, insurers may use their fund to invest in "insurance-related businesses" which are defined in Paragraph 4 of Article 146 as "banking, financing, securi-ties, futures, credit card, finance leasing, in-surance, and trust enterprises and other in-surance-related enterprises recognized by the competent authority."

As to the engagement in derivatives trading, it must be approved by the competent authority.

"Promissory notes guaranteed by banks" that insurance companies may purchase are now changed into "promissory notes guaranteed by financial institutions." (Article 146-1, Para-graph 1, Item 2)

The restriction that insurers could only pur-chase the shares in companies that have maintained a net profit margin of 6% for the most recent three (3) consecutive years has been scrapped. (Article 146-1, Paragraph 1, Item 3)

The investment ceiling for purchasing stocks, corporate bonds and beneficiary certificates has been raised from 5% to 10% of the total paid-in capital of the issuing company or the total beneficiary certificates issued by the fund. (Article 146-1, Paragraph 1, Items 3 to 5)

Insurance companies may now purchase beneficiary certificates issued by publicly is-suing mutual funds. (Article 146-1, Paragraph 1, Item 5)

The 19% ceiling for investment in real prop-erty by insurance companies is adjusted up-ward to 30%. (Article 146-2)

Insurance companies may now extend loans secured with chattels. (Article 146-3)

Qualified insurance companies may, with the approval of the competent authority and sub-ject to the limitation on the total amount of investment, invest in insurance-related busi-nesses. (Articles 146 and 146-6)

Introduction of variable life policies

Insurance companies may now offer variable life insurance policies, subject to implementation rules to be promulgated by the competent au-thority. (Article 123, Paragraph 2 and Article 146, Paragraph 5)