DOF ups minimum capital of insurance companies

The Department of Finance (DOF) has issued an order raising the minimum paid-up capital of life and non-life insurance companies from P10 million to P50 million effective June this year.

Under Department Order 31-01, life and non-life insurance companies will not be issued a license to operate or to renew their expiring licenses starting June this year unless they can show proof that they have met the capital requirement.

Insurance Commissioner (IC) Eduardo T. Malinis said the move to raise the minimum capital is meant to ensure the ability of insurers to pay claims. "P10 million today is too small," he said.

Likewise, insurance companies must increase their capital investment based on the new capital requirement. Under Section 203 of the Insurance Code, insurers must set aside as part of the investment portfolio one-fourth of their paid-up capital in government securities.

The amount is deposited with the IC as a contingency surplus, much like the reserves which banks are required to deposit with the Bangko Sentral ng Pilipinas (BSP).

This means that effective June this year, each insurer must invest a minimum of P12.5 million in government securities.

Companies that are unable to meet the new capital requirement are encouraged to merge with other firms. "They should merge if they want to continue operating," Malinis said. "Or they can sell their policies to more stable insurers."

IC records show that there are six life and 24 non-life insurance companies that do not meet the new requirement.