IC defers higher capital requirement for insurance firms

The Insurance Commission (IC) has agreed to suspend its requirement for insurance companies to increase their capitalization on the condition that the industry as a whole could meet certain requirements.

IC commissioner Evangeline Escobillo told reporters yesterday that they are in negotiations with insurance industry leaders to determine the conditions where the required capital increase could be suspended.

She said the industry is still in a strong financial position that this could be possible although there are hurdles that the industry would have to meet as a whole.

Under existing rules, life, non-life and reinsurance companies are required to increase their capital to meet the risk-based capital (RBC) ratio of 250 percent, where the net worth of the company would have to be over two times bigger than its risk-based capital.

"We’re saying that if 90 percent of the industry has met the minimum risk-based capital ratio of 250 percent, then maybe we can suspend the capital increase requirement," Escobillo said.

However, should the industry performance dip below this hurdle, Escobillo said the IC would reimpose the capital increase requirement until the industry as a whole is able to comply with the RBC ratio.

She explained that the RBC ratio of 250 percent is considered an "international comfort level" where insurance companies are in a good position to handle maturing claims under calamitous circumstances.

Also on the table, according to Escobillo, is the possibility of lowering the RBC ratio benchmark for a period of at least two years where insurance companies would be allowed to slowly build themselves up to 250 percent.

She said the industry wants the RBC ratio hurdle to be lowered although it is still being discussed by how much lower and for how long.

"Our most recent calculations of the ratios were based on 2005 figures," she said. "We want to revalidate these calculations using the 2006 numbers. It will take a while," she said.

Escobillo said talks are ongoing between the IC and the Philippine Insurers and Reinsurers Association (PIRA), the Philippine Life Insurance Association (PLIA) and the Actuarial Society of the Philippines (ASP).

She said the IC is also re-evaluating and reformulating its RBC framework to determine whether the existing cap is still relevant or needed to be replaced with something more applicable to Philippine life insurance companies.