Are foreign insurance companies withdrawing only from Taiwan? Taiwan is an insurance market that can be entered and exited freely. As far as I know insurance companies have also terminated parts of their operations in other markets.

It's not appropriate for a supervisory agency to comment on behalf of companies about why they withdraw, but as far as I know, (Dutch firm) ING is a financial group with banks and asset management companies under its umbrella. ING hopes to maintain a good credit rating. Against this backdrop the insurance policies that ING sold in Taiwan with interest rates that were appropriate (in the high interest environment) at the time, today constitute an enormous (fiscal) burden. The situation is similar for (British insurance giant) Prudential.

Why has Taiwan become the first market they leave? This has to do with the fact that the European insurers entered the Taiwanese market somewhat earlier (than other countries). The main reason is of course the financial tsunami, which has made the mother companies reconsider their overall business strategies.

They've been in Taiwan for quite some time and probably feel they know this market well enough, and that it's about time to decide whether to stay or leave, so they've made arrangements accordingly. Each company has its own particular reasons. The supervisory agencies will provide careful oversight, to guarantee the interests of consumers. But actually there is still foreign investment flowing into our insurance industry. From another perspective medium-sized Taiwanese companies can grow and thrive through mergers, so mergers are not necessarily a bad thing.

Why can insurance companies with a negative book value still sell policies? This is because the business of insurance companies differs in nature from that of banks. Insurance firms are less likely to face liquidity problems because of a massive wave of contract cancellations. Most of these companies perform badly when it comes to (insurance) fund utilization, but they don't face an imminent cash flow problem at all.

There is also no problem with contract compliance, and the FSC will also continue to demand that they carry out capital increases or improve their financial position.

Taiwan's insurance laws are still being gradually developed. Unlike the Banking Act, they don't provide for immediate corrective measures. In accounting, a negative book value is definitely anything but ideal, but when we discuss how to deal with that problem, we also need to consider social costs. We need to safeguard insurance takers' interests and maintain financial order, too. In order to take over troubled insurance companies, we need resources. There needs to be a plan before one moves.

Before the middle of this year, the FSC will finish merging the Property Insurance Stabilization Fund with the Life Insurance Stabilization Fund, to form a new juridical person, the Insurance Stabilization Fund. After consolidation, the fund will become a permanent entity that will liquidate or take over troubled companies. After the merger the Insurance Stabilization Fund will still only have about NT$16 billion in funding – it must be strengthened. The FSC is currently examining whether it can find other sources of funding.

The FSC remains committed to implementing International Accounting Standards IAS 40 by 2011. In the first stage of IAS 40 implementation, we are required to categorize and disclose products. But Europe is still discussing whether to implement the second stage of IAS 40. The FSC will take into account the differences between national conditions and products in Taiwan and Europe, and make its decisions prudently.

(Compiled by b Yi-Shan Chen)

Translated from the Chinese by Susanne Ganz