THE Insurance Commission (IC) has issued a circular allowing nonlife insurers to invest in real property that effectively allows them access to a new revenue stream. Such an avenue, however, had been capped at only 20 percent of insurer asset holdings.
According to Insurance Commissioner Dennis B. Funa, the implementing guidelines under Circular Letter 2017-43 had been so crafted to help particular insurers exploit options that boost their capacity to boost their capital base.
“The new guidelines now allow nonlife-insurance companies to invest their money in income-producing real property other than those utilized as their main place of business or office, provided that the applicant nonlife-insurance company satisfies the conditions stated therein,” Funa said.
Under the guidelines, only those nonlife companies with a minimum net worth of P550 million, and have complied with the liquidity requirements of the IC, may invest in income-producing real properties.
Applicants are required to adopt a comprehensive liquidity risk framework duly approved by their respective board of directors. Liquidity risks relate to the possibility that an insurer is unable to fund its obligations as or when they fall due.
“Easing the investment policy on real property will create a new revenue stream for the nonlife-insurance sector,” Funa quickly added.
The IC said the comprehensive liquidity risk framework must contain strategies, policies and products that take into account any mismatch between the expected asset and liability cash flows, the inability to sell assets quickly, and cash-flow positions of the nonlife company, among others.
Funa said such investment is subject to a 20-percent ceiling.
“The aggregate book value of investments in any income-producing real property shall not exceed 20 percent of the total net worth of a nonlife-insurance company as shown in its latest financial statement approved by the IC. Included in the computation of the threshold is the cost of improvement or development of the real property,” he said.
An application for approval of investment in income-producing real property to be submitted to the IC must be accompanied by a five-year projected income, intended occupants, copy of the proposed lease contract, and a copy of the certificate of title covering the property that must be in the name of the insurance company.
“As traditional fixed-income investments have generated declining returns in the low-yield environment, nonlife-insurance companies have been spurred to search for new investment opportunities,” Funa said.