AN insurance company is classified as either a life insurance company or a nonlife insurance company. Some jurisdictions, including the Philippines, allow an insurance company to conduct both life and nonlife insurance businesses concurrently or one that is called a “composite” insurance company. Interestingly, the words “composite”, “composite insurers” or “composite insurance company” are not used at all in the Insurance Code. Nonetheless, Section 193 of the Amended Insurance Code speaks of insurance companies that may be authorized to transact the business of life and nonlife insurance concurrently.

Section 193, paragraph 8, of the Amended Insurance Code provides: “No insurance company may be authorized to transact in the Philippines the business of life and nonlife insurance concurrently, unless specifically authorized to do so by the Commissioner.”

This concept of composite insurers was first introduced in the Philippines in 1974 under Section 187 of Presidential Decree (PD) 612. Section 187 provides: “No insurance company may be authorized to transact in the Philippines the business of life and nonlife insurance concurrently unless specifically authorized to do so xxx.”

Regulatory question

The regulatory question now is: should the capitalization or net worth requirement of a composite insurance company be imposed on each unit of business, meaning on each of the life and nonlife unit separately? Or should the capitalization or networth requirement be imposed on the combined businesses, life and nonlife, as one operating unit? In other words, since the current net worth requirement today (2018) for either a life or nonlife insurer is P550 million, should the net worth requirement for the composite insurer be P550 million for the life business and P550 million for the nonlife business each, for total net worth requirement of P1.1 billion, or should it be P550 million only?

The Insurance Code is silent on the matter. While Section 188 of PD 612 prescribed the paid-up capital of a single line insurance company, PD 612, however, never prescribed the capitalization requirement for composite insurance companies.

Computed separately

The first directive found pertaining to composite insurers is Department Order 27-92, issued on March 17, 1992, by Secretary Jesus P. Estanislao. As early as DO 27-92, dated March 17, 1992, it was already pronounced that a new composite insurance company shall have a paid-up capital of at least P150 million, P75 million of which shall pertain to the nonlife account and the other P75 million to the life account.

DO 27-92 required a new insurance company, either life or nonlife, to have a paid-up capital equal to at least P75 million and a contributed surplus fund of at least P25 million. New composite insurance companies, on the other hand, were required to have a paid-up capital of at least P150 million, P75 million of which shall pertain to the nonlife account and the other P75 million to the life account, and a contributed surplus fund of at least P50 million, P25 million of which shall pertain to the nonlife account and the other half to the life account.

In other words, as early as 1992, the capitalization requirement for composite insurers was already computed separately for the life and nonlife businesses.

This policy of separate treatment for the two units of businesses for composite insurers was reiterated 20 years later in DO 15-2012 dated June 1, 2012, issued by Finance Secretary Cesar V. Purisima. DO 15-2012 stated: “For an existing or licensed composite insurance company, the PUC of its life and nonlife units should each comply with the minimum PUC required under clause A.1 above.”

The said DO requires that each of the life and non-life units should comply separately with the minimum paid-up capital requirement.

DO 15-2012 likewise required the following: a) in case of an existing or licensed composite insurance company, the paid-up capital of its life and nonlife units should each comply with the minimum paid-up capital; b) in case of a licensed life or nonlife insurance company applied for a composite license, the capitalization required shall apply to the new unit in addition to its present capitalization for the business it is currently licensed; and c) in case of new composite license, it shall have a paid-up capital of P2 billion.

On November 12, 2015, the Amended Insurance Code was signed into law by then-President Benigno S. Aquino III, which retained the provision allowing insurance companies to engage in both life and nonlife insurance companies concurrently. Section 193 of the Insurance Code, as amended by Republic Act 10607 reads: “Section 193. xxx No insurance company may be authorized to transact in the Philippines the business of life and nonlife insurance concurrently, unless specifically authorized to do so by the Commissioner xxx.”

A significant change in the Amended Insurance Code is the shift of our statutory regime from the paid-up capital requirement to the networth requirement.

However, once again, the Amended Insurance Code failed to provide for the specific networth requirement for composite insurance companies.

On January 13, 2015, this Commission, under then-Commissioner Emmanuel F. Dooc, issued Circular Letter 2015-02-A on the minimum capitalization requirements under the Amended Insurance Code. However, the said Circular Letter was silent on the paid-up and net worth requirements of composite insurance companies.

It is to be observed that there was never a time when the capitalization requirement was the same for a single line insurer and a composite insurer.

As of 2018 there are only five companies licensed as composite insurance companies in the Philippines, they are: 1) Philippine American Life and General Insurance Co.; 2) AsianLife and General Assurance Corp.; 3) 1 Cooperative Insurance System of the Philippines Life and General Insurance; 4) CLIMBS Life and General Insurance Cooperative; and 5) Paramount Life and General Insurance Corp.

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Dennis B. Funa is the current insurance commissioner. Funa was appointed by President Duterte as the new insurance commissioner in December 2016. E-mail: dennisfuna@yahoo.com.