IC prepares order raising insurance firms' capital

MANILA, Philippines - The Insurance Commission (IC) has issued draft memorandum circulars (MC) increasing the minimum capital requirement for both the insurance and the pre-need industries.

For the life and non-life insurance industry, the minimum paid-up capital will be P1 billion. For the pre-need industry, it will increase five times to P250 million, or an additional P200 million to the existing capital structure per product.

Insurance Commissioner Emmanuel L. Dooc said they have already distributed copies of the draft MC to the respective industries, and in fact, already received feedback.

Dooc explained that the draft MC was necessary as Department Order (DO) 27-06, issuing instructions regarding the minimum paid-up capital for the insurance industry, will be expiring at the end of the year. Thus government would like to resolve and issue the new MC before the end of the first semester of 2012.

“At its expiration, the minimum capital required would be P250 million,” he said yesterday during public consultations held in relation to the proposed rehabilitation plan of Prudentialife Plans Inc.

He added that it was the mandate of the government to ensure a healthy insurance and pre-need industry.

That means firms must be well capitalized, with healthy reserves, and actuarial estimates for all its products. Likewise, good governance dictates transparency from the financial institutions that will maintain a high level of trust from the investing public.

Dooc explained however that the finance department was inclined to adapt recommendations from the insurance industry that the new capital requirements will likewise to be implemented on a staggered basis.

“Finance Secretary Cesar V. Purisima said that he is inclined to give the industry time and space to allow them to cope with the new regulation,” he said.

DO 27-06 was issued in 2006 increasing the minimum paid up capital to P50 million from P10 million. By 2011, the minimum capital would have reached P250 million.

However, the full implementation was delayed by a year due to changes in leadership in both the DOF and the IC.

For the pre-need industry, the proposed capital hike would likely be implemented within the year.

From the present P50-million minimum capital per product, it will be required to increase by an additional P200 million or to P250 million for one product, P275 million for two products, and P300 million for three products.

The three basic pre-need products are life or memorial, pension and education. And the present capital structure for a pre-need company is P50 million if it is selling one product, P75 million for two products, and P100 million for marketing all three products.