Non-life insurers start mergers

MANILA, Philippines - Nine non-life insurance companies are reportedly in the process of merging their operations after Department Order (DO) 15-2012 was issued last month increasing the minimum paid up capital to P1 billion by 2020.

 Insurance Commissioner (IC) Emmanuel L. Dooc said that the nine insurers were broken down to four sets of proposals for merger. 

“We will give them only up to July to finalize and make official their merger,” Dooc said. 

Failure to comply with the minimum paid up capital of P175 million within the month will mean the non-issuance of a license to operate for the period July 2012 to June 2013. 

The minimum capital level of P175 million is embodied in Department of Finance DO 27-2006, which likewise increases the capital level to P250 million for the period 2012-2013. 

In early June this year, 10 non-life insurance companies, challenged DO 27-2006, through a request for temporary restraining order (TRO). As of presstime, the Quezon City regional court has not ruled on the request. 

Meanwhile, Dooc refused to name the nine insurers until the IC receives all the documentary requirements leading to the actual merger process. 

“They have to show proof of their sincerity to merger, and not merely to evade or delay following the law,” the IC commissioner said. 

The board of directors of each merging firm must pass a resolution expressing their desire to merge with their respective “partners.” A copy of the resolution must be sent to the government agencies, especially the Securities and Exchange Commission (SEC) and the IC. 

“We are willing to give our endorsement to the SEC of their merger program if we are satisfied of their sincerity and ability to pursue the merger,” Dooc added.

 Industry sources said that one set involves three non-life insurance companies, another set involves a non-life insurer seeking consolidation with its life subsidiary. “The latter may not get the approval of the IC, unless they seek a composite license or they may not get any leniency from government,” sources said. 

DO 15-2012, signed by Finance Secretary Cesar V. Purisima in June, mandated existing life and non-life insurers to raise their minimum paid-up capital every other year beginning 2014 until it reaches P1 billion by 2020. 

It likewise stated that “capital requirements may however be deferred for those companies undergoing merger and consolidation, or those which will meet the risk-based capital (RBC) hurdle rate of 150 percent. For merging insurers, suspension will depend on a favorable endorsement of the merger from the IC and the filing of articles of incorporation with the Securities and Exchange Commission. The combined capital of both insurers will also have to be “not less than the current capital requirement,” the order said. 

The new DO states that the first minimum paid up capital starts at P250 million this year, rising to P400 million by 2014, P600 million by 2016, P800 million by 2018 and P1 billion by 2020. 

A higher P2 billion is required for reinsurers or those companies that insure insurance firms by 2020, the order said, while companies engaged solely in micro-insurance should have at least P500 million. 

Meanwhile, the Philippine Insurers and Reinsurers Association  (PIRA), the trade organization of the non-life insurance industry, said it would continue to contest DO 15-2012.

In a position paper, PIRA said it was against the mandatory increase in capitalization because the size of the Philippine market and the current economic realities do not warrant it. 

“We remain to be against a one-size-fits-all capitalization build-up program. We have been pushing for a risk-based capital (RBC) framework along with the rest of the developed and developing countries and we are sticking with it. Under the RBC framework, the amount of capital to be required from an insurance company must be commensurate to the amount of risks it is willing to take.