PH Insurance company capital hike to PHP1 Billion deferred to 2020

The deferral for the PHP1 Billion capital requirement for insurance companies to 2020 makes the Philippines weaker compared to their ASEAN counterparts. Making a concession to local companies while satisfying their demands does not sit well with making the industry well capitalised to meet customer needs.

July 01, 2012

Extension OK’d for insurers

MUCH-AWAITED REVISIONS to a capitalization schedule for insurers have been issued by the Finance department, which on the whole deferred a P1-billion requirement to 2020 amid industry protests.

Department Order (DO) 15-2012, issued during the weekend, mandates all existing life and non-life insurance firms to raise their minimum paid-up capital to P250 million this year, P400 million in 2014, P600 million in 2016, P800 million in 2018 and P1 billion in 2020.

Reinsurers — firms that provide insurance for insurance companies — have a higher capital requirement of P2 billion by 2020. Microinsurance companies, meanwhile, must have P500 million by the same date.

No new company will be allowed to operate without following the capitalization schedule, the order states.

“The imposition of a higher minimum paid-up capital… shall ensure sufficient protection to the insuring public and further strengthen the integrity of the insurance industry,” it adds.

The Finance department initially wanted to set a 2016 deadline for the P1-billion capitalization requirement. This was met with fierce opposition from insurers who wanted a longer period to build up their paid-up capital.

Insurance companies were only mandated to have a capitalization of P175 million last year and the P1 billion represented a sharp jump that not many firms would be able to make, they claimed.

The Finance department later offered to move the deadline to 2018 but further consultations finally pushed it to 2020.

Some quarters of the country’s insurance industry are still expected to face an uphill climb. As of last month, eight out of 34 life insurers and 32 out of 86 non-life insurers failed to meet last year’s P175-million requirement.

In order to provide some leeway, DO 15-2012 offered ways to defer the capitalization increases.

Insurers that can raise their risk-based capital (RBC) to 150% will be able to postpone their compliance by two years, the issuance states. However, this option may be exercised only once.

Under the RBC system, the capital requirements of insurers are computed based on the amount of risk they take on.

Insurance companies that choose to merge in order to consolidate capital will also enjoy a deferment as long as their combined capital meets the current requirement.

“Hence, all existing insurance and professional reinsurance companies should have reached the capitalization requirements of P1 billion and P2 billion by 2022, at the latest,” the order states.

Industry reactions to the new insurance capitalization schedule was mixed.

Pru Life UK President and CEO Antonio G. de Rosas even called for more stringent requirements.

“I support this [schedule], but personally I would have stuck to the original schedule which required the P1 billion by 2014,” Mr. de Rosas said in a text message yesterday.

The top life insurance companies — representing almost 80% of the industry — are already “way ahead of the schedule,” he claimed.

Insular Life President Mayo B. Ongsingco agreed, pointing out that his company was already capitalized with P10 billion as of last year.

Mr. Ongsingco called DO 15-2012 a “compromise,” enabling regulators to set capitalization goals while also allowing insurers time to comply.

The opposite reaction came from the non-life industry.

Non-life industry group Philippine Insurers and Reinsurers Association (PIRA) rejected the department order, saying the capitalization hikes were “unnecessary.”

“This will only force perfectly viable companies to close down. The medium and big companies will survive but the smaller ones will disappear,” PIRA spokesperson Michael F. Rellosa said in a telephone interview.

He called on the government to implement the RBC system instead.

“Not all companies have the same risk appetite. If a small company only takes on a small amount of risk, why are they required to build up P1 billion in paid-up capital?” Mr. Rellosa pointed out.

Article location : http://www.bworldonline.com/content.php?section=TopStory&title=Extension OK’d for insurers&id=54424

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: