TAIWAN Law and Practice Contributed by: Daniel T H Tsai, Lee and Li
7. Alternative Risk Transfer (ART) 7.1 ART Transactions In the capital market, ART management mechanisms can be used to diversify or transfer risks to those who are more capable of bearing the risk, rather than con- centrating on a single insurer, insurance company, reinsurance company or capital market investor. To some extent, therefore, ART transactions may func- tion in a similar way to insurance or reinsurance. Consequently, it is possible that the regulator in Taiwan may recognise ART transactions as part of insurance or reinsurance, although the authors are not aware of any cases of this actually happening in Taiwan. The FSC currently prefers to encourage providing diversi- fied financial products, responding to the needs of the market, and improving the efficiency of the traditional insurer. The FSC might supervise ART transactions in a more flexible way if it considered how they can As mentioned in 7.1 ART Transactions , the authors are not aware of any actual cases of ART transactions in Taiwan. In general, ART transactions written in other jurisdictions may be treated as reinsurance contracts, given their similarity to the method in which an insurer shares its insurance risk with another insurance entity. It is worth noting that the insurance entity is normally required to undergo a solvency assessment in a timely manner, which includes: • assessment of provisions for various kinds of reserves; • evaluation of asset quality; • the match of assets and liabilities; • resolution of overdue loans and non-accrual loans; assist the current insurance market. 7.2 Foreign ART Transactions • management of investment and fund liquidity; • assessment of financial conditions and capital adequacy; • insurance entity risk management; and • self-assessment of the insurance entity’s risks and solvency. Therefore, the authors tend to believe that the regu- lator in Taiwan should accept ART transactions for
solvency purposes, given that they do not introduce or increase risk. Nevertheless, it is uncertain whether ART transactions written in other jurisdictions will be wholly recognised as reinsurance contracts in Taiwan, as this remains at the discretion of the FSC. 8. Interpreting an Insurance Contract 8.1 Interpretation of Insurance Contracts and Use of Extraneous Evidence Generally speaking, insurance law in Taiwan tends to favour the insured. Article 54 of the Insurance Act provides that “the interpretation of insurance con- tracts shall seek the true intent of the parties and may not adhere blindly to the language employed; where there is doubt, interpretations should, in principle, be favourable to the insured”. Furthermore, according to Article 54-1, such part of the contract clause will be considered void if the insurance contract contains either: • any term or condition that is unfavourable towards the consumers; or • provisions that are unreasonably advantageous towards the insurance company. In court practice, both parties to the insurance con- tract are allowed to provide extraneous evidence to the court in order to interpret the insurance contract. In addition, according to Article 7 (2) of the Financial Consumer Protection Act, provisions under a contract entered into by a financial services enterprise and a consumer are invalid if they are clearly unfair. There- fore, where there is doubt, the interpretation should favour the financial consumer. Hence, under most circumstances, interpretation of insurance contracts is sought based on the true intent of both parties. However, the insurance contract is usually drafted by the insurance entity and the law provides that the provisions of such contract must be interpreted in favour of the consumer where the word- ing is ambiguous. In order to eliminate any ambiguity, the court will usually allow the extraneous evidence in addition to the wording of the contract itself.
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