INSURANCE companies in the country have been given the go-ahead by regulators to invest their funds in state-led infrastructure projects, in a bid to boost the growth of the Philippine economy and help these firms meet the higher net worth requirement imposed on them for this year.
Insurance Commissioner Dennis B. Funa has issued Circular Letter 2018-74, which enumerates the guidelines on how local insurance companies can invest their funds in the infrastructure projects of the government under the Philippine Development Plan (PDP).
Under Circular Letter 2018-74, insurance and reinsurance firms may now invest in debt or equity security instruments for infrastructure projects under the PDP, participating either through the project proponents, financiers or sponsors, or through operation and maintenance contracts.
“This circular is aimed at encouraging insurers to invest in domestic infrastructure projects to boost our economy and to reap the benefits of portfolio diversification and higher return,” Funa said.
The circular creates a new investment channel for insurers and opens new opportunities for insurers to improve risk-adjusted returns, portfolio diversification and asset-liability matching.
“With the administration’s ‘Build, Build, Build’ program in full swing, insurers can take advantage of investing their assets in infrastructure projects to aid them in improving their revenue that would address their compliance with the statutory net worth requirements under the Insurance Code,” he added.
This year, insurance companies are required to comply with the increased net worth requirement of P900 million, coming from P550 million in 2016.
Under Republic Act 10607, or the Amended Insurance Code of the Philippines, new insurance 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.
Based on the latest data from the IC, the total net worth of the local insurance industry as of end-September 2018 is at P318.562 billion.
As reported by the IC in August 2018, there are 54 nonlife companies and 27 life-insurance firms currently operating in the country.
For purposes of determining the net worth of an insurance and reinsurance company, investments in infrastructure projects duly approved by the Insurance Commission shall now be considered as admitted assets.
Furthermore, an important feature of the new regulation is methodology in calculating the risk factors of the investments in infrastructure, in order to encourage insurer investment while still safeguarding their financial stability.
Before an investment in infrastructure is approved by the insurance regulator, insurers are required to submit the financial statements of the infrastructure projects which will be evaluated by the regulator to determine the risk impact on the capital of the insurer.
“Lack of sufficient funding for infrastructure presents an opportunity for investors with long-term horizon, such as insurance companies, that are positioned to provide capital or funding for infrastructure projects. Taking into consideration the need for insurers to increase their net worth and the clamor for alternative investment channels, we see that the insurance industry can provide for provision for stable and adequate financing to close the infrastructure funding gap,” he said.
The activities which may be undertaken as provided under the PDP include highways, railways, nonrail-based transit facilities, port infrastructure, airports, warehouses, environmental and solid waste management-related facilities and climate-change mitigation and adaptation infrastructure projects.
The circular states that investments in infrastructure projects without guaranty or contingent liability fund may be considered as reserve investment.
“For life-insurance companies: The total allowed investments in infrastructure project shall not exceed 40 percent of the investing company’s total admitted assets as per the latest approved annual statement; and for nonlife insurance and professional reinsurance companies: The total allowed investments in infrastructure project shall not exceed 40 percent of the investing company’s net worth as per the latest approved annual statement,” the circular read.