FSC Assistance Measures for the Epidemic Prevention Insurance Policies of Insurance Enterprises
2022-09-20
The Financial Supervisory Commission (FSC) stated that due to the continuous increase in the claims of epidemic prevention insurance policies, insurance enterprises must proceed with capital cash increase and the Non-Life Insurance Association of the Republic of China has recently requested assistance from the FSC. The FSC will provide enterprises with the two following assistance measures to stabilize the insurance market and maintain insurance enterprises' capacity for business operations:
1.When calculating the capital adequacy ratio of risk-based capital (RBC), regulations are relaxed for "deferred income tax assets" which were recognized as RBC assets each year to be recognized in full. The explanation is provided below:
(1)According to Article 39 of the Income Tax Act, if a company keeps a complete set of account books and completes filing in accordance with regulations, it may deduct losses from net income for the next 10 years before the business income tax is calculated. The current RBC regulation only allows for the recognition of deferred tax assets each year. As the Income Tax Act allows companies to offset losses with the earnings in the next 10 years, deferred income tax assets may be realized in the next 10 years if they are certified by the company's CPA. Due to its future economic benefits, the FSC agrees to recognize the full amount of the deferred income tax assets arising from the losses due to the epidemic prevention insurance policies as gualifying capital resources.
(2)Assuming that the loss incurred by an insurance enterprise due to the epidemic prevention insurance policies is NT$10 billion, according to the current marginal income tax rate of 20%, the estimated deductible profit-seeking enterprise income tax is approximately NT$2 billion. Based on the profitability of the company in the past (2012 to 2021), the company may have earnings of approximately NT$8 billion in the next 10 years, and the estimated deferred income tax asset due to the epidemic prevention insurance policies is NT$1.6 billion. Therefore, the deferred income tax asset of NT$1.6 billion arising from the loss from the epidemic prevention insurance policies may be recognized in full as an increase in authorized RBC assets. However, the deferred income tax assets that may be included in the calculation of deferred income tax are different for each company and are determined by the realization of future income tax deductions.
2.Starting from August 1, 2022, insurance enterprises may reduce the amount of contribution to the insurance stabilization fund for provisions in epidemic prevention insurance policies that allow the retained payment of claims for home care to be the same as that of general hospitalization.
(1)In the "Home Care Management Guidelines for COVID-19 Confirmed Cases" announced by the Central Epidemic Command Center,Nation Health Command Ceter on April 8, 2022, confirmed cases are separated for care based on the severity of their symptoms. Home care was adopted to retain medical resources. The insurance enterprises also provided confirmed cases treated by doctors or treated in other medical services with the same amount of payment as general hospitalization.
(2)The insurance enterprises paid contributions to the stabilization fund in accordance with the Insurance Act each year. The current contribution rate of non-life insurance enterprises is approximately 1.8 thousandths to 2.3 thousandths. The FSC will amend the "The Standards for the levy rates of Life and Non-life Insurance Guarenty Fund" to allow the retained payment of claims for home care to be the same as that of general hospitalization, and reduce the difference contribution of the companies to the stabilization fund. However, the minimum amount may not be lower than 1 thousandth and the difference will be used to make up for the amount paid by the companies for home care claims. For instance, if Company A's current contribution rate is 2 thousandths and it is reduced to 1 thousandth, its contribution will be half the originally required contribution.
1.When calculating the capital adequacy ratio of risk-based capital (RBC), regulations are relaxed for "deferred income tax assets" which were recognized as RBC assets each year to be recognized in full. The explanation is provided below:
(1)According to Article 39 of the Income Tax Act, if a company keeps a complete set of account books and completes filing in accordance with regulations, it may deduct losses from net income for the next 10 years before the business income tax is calculated. The current RBC regulation only allows for the recognition of deferred tax assets each year. As the Income Tax Act allows companies to offset losses with the earnings in the next 10 years, deferred income tax assets may be realized in the next 10 years if they are certified by the company's CPA. Due to its future economic benefits, the FSC agrees to recognize the full amount of the deferred income tax assets arising from the losses due to the epidemic prevention insurance policies as gualifying capital resources.
(2)Assuming that the loss incurred by an insurance enterprise due to the epidemic prevention insurance policies is NT$10 billion, according to the current marginal income tax rate of 20%, the estimated deductible profit-seeking enterprise income tax is approximately NT$2 billion. Based on the profitability of the company in the past (2012 to 2021), the company may have earnings of approximately NT$8 billion in the next 10 years, and the estimated deferred income tax asset due to the epidemic prevention insurance policies is NT$1.6 billion. Therefore, the deferred income tax asset of NT$1.6 billion arising from the loss from the epidemic prevention insurance policies may be recognized in full as an increase in authorized RBC assets. However, the deferred income tax assets that may be included in the calculation of deferred income tax are different for each company and are determined by the realization of future income tax deductions.
2.Starting from August 1, 2022, insurance enterprises may reduce the amount of contribution to the insurance stabilization fund for provisions in epidemic prevention insurance policies that allow the retained payment of claims for home care to be the same as that of general hospitalization.
(1)In the "Home Care Management Guidelines for COVID-19 Confirmed Cases" announced by the Central Epidemic Command Center,Nation Health Command Ceter on April 8, 2022, confirmed cases are separated for care based on the severity of their symptoms. Home care was adopted to retain medical resources. The insurance enterprises also provided confirmed cases treated by doctors or treated in other medical services with the same amount of payment as general hospitalization.
(2)The insurance enterprises paid contributions to the stabilization fund in accordance with the Insurance Act each year. The current contribution rate of non-life insurance enterprises is approximately 1.8 thousandths to 2.3 thousandths. The FSC will amend the "The Standards for the levy rates of Life and Non-life Insurance Guarenty Fund" to allow the retained payment of claims for home care to be the same as that of general hospitalization, and reduce the difference contribution of the companies to the stabilization fund. However, the minimum amount may not be lower than 1 thousandth and the difference will be used to make up for the amount paid by the companies for home care claims. For instance, if Company A's current contribution rate is 2 thousandths and it is reduced to 1 thousandth, its contribution will be half the originally required contribution.
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Update：
2023-01-06