Insurance firms req’d to raise their capital

The Insurance Commission (IC) has released a draft department order that increases the new minimum capital requirements on all insurance, life, non-life and reinsurance firms.

The draft order does away with the networth formula for the minimum capital requirement and reverts back to the previous standard of calculating paid-up capital. However, the issue of the risk-based capital (RBC) formula was not included in the draft order.

IC commissioner Eduardo T. Malinis said that the formula will likely be retained. “It is based on international standards of risk-weighting and accounting standards,” Malinis said. The RBC ensures the insurer’s ability to pay claims and build reserves for future claims.

However, the hurdle rate system will be removed under the new set-up.

Under the draft order, the minimum paid-up capital starts at P75 million starting end of 2008, and will be increased to P85 million by December 2009. By December 2010, the minimum paid-up capital will be increased to P100 million.

From thereon until 2015, the minimum paid-up capital will be increased by P25 million every year to reach P250 million.

For insurers with less than 40-percent foreign equity, paid-up capital must be at least P150 million by end 2008 and P300 million by end 2014.

For insurance firms with more than 40-percent foreign equity but less than 60 percent, the required minimum paid-up capital starts at P200 million starting 2008. This will increase to P350 million by 2014.

For insurers with at least 60-percent foreign equity, minimum paid-up capital must amount to P300 million end 2008 and at to P500 million by December 2014.

For reinsurance firms, minimum paid-up capital must reach P500 million by  end 2008 and at to P1 billion by December 2014.

Life insurance companies admitted that the proposed minimum capital requirement was agreeable and achievable. In fact, most of the life insurers were already capitalized well above the proposed level.