400 Million and up by 2014

Insurance like Banking is a huge numbers business. And it takes a huge challenge for Philippine Finance Secretary Cesar Purisima to make the mom and pop size companies either cough up the cash to meet the big numbers required to operate or sell, merge, or get out of the business. Another interesting opportunity.

May 31, 201232 insurers may close shopMORE THAN a third of non-life insurance firms are in danger of closing shop after failing to comply with the P175-million minimum paid-up capital requirement for 2011, as the government stands firm on setting high standards for insurers to protect the public.

“Beginning (June 1), the Insurance Commission will send letters to insurance companies that have not complied with the P175-million paid-up capital requirement,” IC Commissioner Emmanuel F. Dooc said in an interview last Tuesday.

Thirty-two out of 86 non-life insurers given a license to operate from July 2011 to June 2012 have not complied with the requirement, compared to eight out of 34 life insurers.

“I don’t think the life insurance companies will have difficulty complying but a lot of non-life companies, I believe, will have,” Mr. Dooc said.

“Companies that will not be able to comply by end-June will no longer be renewed their certificate of authority,” he added.

All insurers must have P175 million in paid-up capital by end-2011, which should have been deposited in banks last March and reported to the IC by the end of this month. Those that fail to comply will not be allowed to operate starting in July.

The capitalization requirement is in line with Department Order 27-2006 that envisions strong insurance firms able to compete with players in the Association of Southeast Asian Nations.

The Finance department, seeking to protect the public, is insistent on P1 billion in minimum paid-up capital but has softened on the 2016 implementation date in view of opposition by insurers who’ve said it would be difficult to come up with the amount.

The Philippine Insurers and Reinsurers Association (PIRA) — the association of non-life insurance companies — has lobbied for the deferment of the higher paid-up capital requirement.

“If small and medium-sized players close shop, thousands of policyholders would be exposed to losses or damage without insurance protection, while employees of affected firms will lose their job,” PIRA General Manager Mario C. Valdes has argued.

Mr. Dooc reiterated that a number of non-life insurers had attempted to consolidate but their plans stalled when they had to decide on the president of the new company.

Only Stronghold Insurance Company, Inc. and Utility Assurance Corp. have submitted a merger plan to the IC.

“I believe there would be more mergers for the non-life companies that cannot meet the Finance department’s P1-billion capitalization,” Mr. Dooc said.

The commissioner also said the IC has proposed to the Finance department to implement the P1 billion requirement by 2020, in addition to a plan to reach this by 2018.

“This is a proposal from both the IC and representatives of the industry,” he said.

Under the 2020 proposal, insurers should have P400 million in paid-up capital by 2014; P600 million by 2016; P800 million by 2018; and P1 billion by 2020. The P250 million requirement by 2012 is retained.

Under the 2018 plan, this year’s P250 million paid-up capital requirement should be increased to P300 million by 2013; P400 million by 2014; P500 million by 2015; P600 million by 2016; P800 million by 2017; and the P1 billion by 2018.

The same set of incentives will apply under the two proposals. The applicable paid-up capital requirement for the year will be suspended for insurance companies that merge. It will also be suspended for companies that comply with the required risk-based capital hurdle rate for that year.

“The final decision really depends on [Finance Sec. Cesar V. Purisima’s] evaluation of our proposal,” Mr. Dooc said. “We expect him to issue the final department order before he leaves [for the US], I think, next week.”

Asked about the status of the closed Prudential Plans, Inc. (Prudentialife), Mr. Dooc reiterated the IC hoped to reach a decision soon on the corporate rehabilitation plan of the troubled pre-need firm.

“Currently, there are three concrete proposals on the table,” he said.

“We met with Mr. [Christopher] Concepcion of Loyola Plans [Consolidated, Inc.] this week,” Mr. Dooc said. “Mr. Concepcion gave two options. One, he assumes all obligations of Prudential Plans’ life and pension funds, and two, he assumes the obligation for all three lines — the life, pension and education fund.”

Proposals have also been forwarded by the Manila Bankers Life Insurance Corp., a pre-need firm that is into the life, accident and health insurance businesses, as well as a group of pre-need plan holders that has suggested the “equity conversion” of Prudential Plans’ assets. — Ann Rozainne R. Gregorio

Article location : http://www.bworldonline.com/content.php?Section=Finance&title=32 insurers may close shop&id=52736

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