The Insurance Commission (IC) last Friday acknowledged that local insurers have some of the highest capital requirements in the Association of Southeast Asian Nations and agreed to reevaluate the mandate for the industry to observe a progressively higher minimum base.
This developed in the wake of a petition from some of the nonlife players who argued for a reduction rather than an escalation in minimum capital on the ground that the mandate has rendered some of the businesses unviable.
According to Insurance chief Dennis B. Funa, he previously tasked a team to look into the net-worth capitalization system within the Asean as consequence of some lobbying from insurance companies proposing instead for a reduction in the required net worth of their respective businesses.
“Based on our initial findings, it really appears the Philippines has the highest net-worth requirement by law. On top of that, you have the risk-based capital [RBC] system. So I think having a second look at the net-worth requirement under the amended Insurance Code is worth doing,” Funa said at the sidelines of the agency’s 69th anniversary last Friday.
As a result, Funa, in a text message, bared a plan for an amendment to the Insurance Code allowing for a reduction in the net-worth requirement.
“We will most likely recommend legislation to the DOF [Department of Finance] and Congress to amend the pertinent provision of the Insurance Code. Meaning, we will probably draft a proposed bill to amend the net-worth requirement,” he said.
Under Republic Act 10607, or the Amended Insurance Code of the Philippines, new industry players are required to have P1 billion in paid-up capital, while existing insurance companies need a paid-up capital of P550 million by December 2016, P900 million by December 2019 and P1.3 billion by December 2022.
The IC had said the mandatory minimum net worth of P550 million for existing insurance companies, from the previous P250 million, assures the consuming public that all insurance providers are able to pay policyholder claims and other liabilities.
As for the RBC system, this helps determine the minimum capital of an insurer is enough to support its overall business operations given its size and risk profile. A specific formula is required in the computation of the RBC requirement.
Last year the Manila Surety and Fidelity Co., a nonlife insurance company, made good its planned exit from the insurance industry due to its inability to comply with the increase in paid-up capital.
Funa said at least five other insurance companies have volunteered to exit upon seeing that they cannot meet the minimum paid-up capital.
“I think about five or six have voluntarily decided to discontinue their insurance business,” he said.
Earlier, the IC reported that 2017 had been another banner year for the industry, with all sectors posting growth.
Based on unaudited statistics submitted quarterly by life, nonlife and mutual benefit associations (MBAs), the industry posted total assets of P1.5 trillion last year, which was 18 percent higher than in 2016 amounting to only P1.3 trillion.
“The three sectors—life, nonlife and MBAs—all posted positive growth in the four parameters of assets, premiums earned, net worth and paid-up capital or guaranty fund,” Funa said.
Total premiums earned reached P259.6 billion for 2017, or growth of 11.9 percent, from only P231.8 billion in 2016.
Total paid-up capital or guaranty fund also registered positive growth for the year of 10.4 percent amounting to P50 billion, from P45.9 billion in 2016.