Shin Kong Life's Asset Increase Tied to Forex Reserve Provision Raises FSC Scrutiny Over Appropriateness

(CNA, Taipei, May 19, by reporter Su Su-yun) Shin Kong Life Insurance's move to provision an additional NT$475 billion for its foreign exchange valuation reserve while also increasing its "other assets" by nearly NT$475 billion has drawn attention. The Financial Supervisory Commission (FSC) has stated that it has requested the company to clarify whether this practice of equally increasing both liabilities and assets complies with Generally Accepted Accounting Principles (GAAP) and will review and assess the matter upon receiving relevant documentation.

Shin Kong Life responded in the evening that it has set aside the foreign exchange valuation reserve as required by the competent authority, and the related practice was confirmed by its accountants. Regarding this accounting treatment, Shin Kong Life stated that it will continue to communicate with the regulator to seek a satisfactory and appropriate resolution.

The FSC noted that Shin Kong Life's foreign exchange valuation reserve is set to decrease from NT$996 billion to NT$521 billion by the end of 2025. The FSC considers this reserve a statutory requirement, and both its provisioning and withdrawal are subject to specific regulations, with withdrawals requiring FSC approval. Therefore, Shin Kong Life recently made an additional provision of NT$475 billion, booking it under liabilities. However, the company also recorded NT$475 billion under assets, causing liabilities and assets to increase by the same amount, thus leaving its net worth unaffected.

Chen Ching-yuan, Deputy Director-General of the FSC's Insurance Bureau, pointed out that Shin Kong Life had inquired about the reserve before a recent board meeting, and the FSC had clarified that it is a statutory reserve. Consequently, Shin Kong Life's board replenished the reserve by NT$475 billion on May 14. However, after the board meeting, the company sent another letter inquiring about the accounting treatment, asking if it was appropriate to add NT$475 billion to other assets. The FSC replied on May 15, stating that Shin Kong Life should handle the matter in accordance with the Regulations Governing the Preparation of Financial Reports by Insurance Enterprises, relevant laws, and GAAP, and confirm its appropriateness with its certifying accountant.

An Insurance Bureau official emphasized that the responsibility for preparing financial statements lies with the company itself. Shin Kong Life was required to assess the appropriateness of its actions before issuing its financial report. The practice is yet to be clarified, and the company has been asked to provide supporting documents explaining its assessment for further review.

Regarding whether Shin Kong Life would face capital-raising requirements if an adjustment leads to a reduction in net worth, the Insurance Bureau explained that it would depend on the final outcome of the financial reporting treatment. The bureau will also review the company's capital adequacy ratio and net worth in the second quarter.

As the filing deadline for financial holding companies' reports is the end of May, with a final upload date of June 1, any adjustments to Shin Kong Life's Q1 report would necessitate adjustments to the financial holding company's report as well.

Wang Yun-chung, Deputy Director-General of the FSC's Banking Bureau, noted that the financial holding company has not yet officially announced its financial report but should adhere to the principles explained by the Insurance Bureau. The accounting for the foreign exchange valuation reserve in its financial statements must be consistent with that of its subsidiary.

If the financial report is not announced on time, Huang Chung-hao, Deputy Director-General of the FSC's Securities and Futures Bureau, stated that besides possibly facing administrative penalties