LOCAL insurance industry players are confident about being able to comply with the P900-million minimum net-worth requirement imposed by regulators for this year, but are asking for more avenues to be able to do business.
Asked if the nonlife insurance industry can meet the increased minimum paid-up capital requirement of P900 million for 2019, Philippine Insurers and Reinsurers Association (Pira) Executive Director Michael F. Rellosa said he sees most nonlife companies in the country complying with it.
On Friday, Insurance Commissioner Dennis B. Funa had himself expressed confidence that the majority of the players will be able to meet the higher threshold. Funa spoke at the 70th anniversary celebration of the Insurance Commission (IC).
“We don’t think its going to be a problem for the nonlife insurance industry,” Rellosa told the BusinessMirror in a phone interview at the weekend.
Rellosa explained that, while he cannot speak for all nonlife insurance players, he is aware that some of the nonlife insurance companies are looking to merge with other companies to be able to meet the paid-up capital requirement. He was quick to add that for any increases in what is being required of insurance companies in the Philippines, new avenues to do business must also be presented, to achieve balance.
“If they increase the requirements, they should also enlarge the pie [for doing business],” Rellosa pointed out.
The funds that will be sourced in line with increasing the net-worth requirement will just remain idle if they are not invested, Rellosa said, adding that most insurance companies are waiting for the government’s “Build, Build, Build” infrastructure program to spur activity so that they can invest in new assets, and write more policies, as well.
Plia’s view
For his part, Philippine Life Insurance Association (Plia) General Manager George C. Mina also told the BusinessMirror he is hopeful that the life-insurance industry players will meet the P900-million net-worth requirement as the Insurance Commission (IC) deferred the adoption of the IFRS 17.
“We are equally hopeful, especially considering that the vulnerable companies had a respite from the significant financial demands of IFRS17 preparations and capacity building, given its implementation deferral to January 1, 2023, by the IC. This will enable them to focus efforts on meeting the net-worth challenge for the moment,” Mina said.
The IFRS 17 is an international financial reporting standard issued by the International Accounting Standards Board in May 2017 and was set to be implemented on January 1, 2021.
Mina said that the IC deferred the implementation of IFRS 17 in the Philippines by two years due to implementation issues.
“Because it is more complicated and requires more granular data, it requires strong IT [information-technology] support and increased technical competencies. Companies generally would need significant modifications in processes, data gathering, and systems support, in some cases may even require acquiring new application systems,” he explained.
It was learned that new application systems that must be bought to comply with the IFRS 17 would cost at least P8 million to P10 million.
Last week, the IC during its 70th anniversary celebration expressed hope that insurance companies in the country can meet the minimum net-worth requirement for this year, which is scheduled to increase to 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.
Funa said the IC has to be realistic in terms of the insurance industry meeting this goal, saying that the current net-worth of a number of insurance companies has yet to inch closer to the P900-million target.
In his speech at IC’s 70th anniversary, Funa listed among the most difficult challenges for the insurance industry today is complying with the statutory and regulatory solvency requirement, especially with regard to the minimum net-worth and risk-based capital ratios.
Image credits: Nonoy Lacza