MANILA, Philippines - Finance Secretary Cesar V. Purisima is standing pat on his stance that the country’s insurance sector must increase its capital base first before it can adopt the risk-based capital (RBC) formula.
“They have to increase the capital first before we can talk about the RBC,” Purisima said.
Based the on the Department of Finance’s order, the minimum paid-up capital for all insurers (life, non-life and reinsurers) is set at P175 million in 2011. This will increase to P250 million for 2012, and end when the minimum paid-up capital for the entire industry reaches P500 million.
Failure to comply with the annual minimum paid-up capital requirement will result in the non-issuance of the certificate of authority (CA) to operate.
A segment of the non-life insurance industry has been pushing for the adoption of the RBC in place of the graduated capital increase program laid out by the DOF and the Insurance Commission (IC).
Industry sources said that the smaller non-life insurance firms are favoring the RBC route over the capital increase.
The same sources said that the insurers are presently lobbying that a proposed bill in Congress seeking to amend the country’s insurance sector would include a provision limiting the minimum paid-up capital to just P175 million, and that the RBC would likewise be adopted.
In earlier interviews, IC Commissioner Emmanuel L. Dooc said that they were leaning towards the P250-million capital level, and an adoption of the RBC formula without prejudice to further capital increases.
The DOF and the IC remained firm on the belief that there are too many players vying for a small market. There are now 120 insurance companies, 34 life and another 86 non-life insurance companies, including one re-insurer, operating in the country.
In the non-life insurance industry, total gross premiums amounted to P43.7 billion, with the top 10 players accounting for more than P20 billion.
The insurers admitted that the competition was so stiff that premium rates were falling “at impossible levels.”
“The rates in the property insurance business are so low that margins are almost non-existent,” one insurer said.
The natural calamities minimum rate of 0.10 percent of the total insured amount for natural risks such as earthquakes and another 0.05 percent for typhoon and flood, or a total of 0.15 percent. The insurer must charge a premium of at least P15,000 a year to insure a P10-million house and lot against typhoon, flood and earthquakes.
However, several non-life insurance companies have dropped their minimum rate to 0.7 percent in an attempt to get a piece of the action.
In the event of a major catastrophe the insurers may not be able to pay claims since its collection of premiums would suffer in terms of real value.