Malinis, Philamlife call for more mergers, acquisitions

An executive of the country’s leading insurance company favors the further consolidation of the Philippine insurance industry.

Jose L. Cuisia Jr., president and chief executive officer of the Philippine American Life and General Insurance Co. (Philamlife) threw in his hat on a campaign by the Insurance Commission (IC) to further consolidate the insurance industry.

"There should be a consolidation. These companies are taking money from the public thus they must be adequately capitalized," Cuisia stressed.

"I think that companies must be adequately capitalized to protect the interest of the public whose life savings and investments they are taking," he added.

The former governor of the Bangko Sentral ng Pilipinas (BSP) is referring to an order by the Department of Finance (DOF) and the IC for life and non-life insurance companies to register a minimum capital of P50 million to continue operating and selling policies to the public.

The deadline for the minimum capital rule was July 1 this year. Based on data from the commission, only 15 non-life companies have not complied with the capitalization ruling.

Cuisia said that the minimum capital is actually small compared to the responsibility of the insurers to protect the investing public. The minimum capital not only ensures that financial ability of insurers to pay any claims or maturities of the public but also creates public savings.

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 reserve requirement of banks deposited with the BSP.

That means that effective end-June this year, each insurer must deposit a minimum amount of P12.5 million in government securities.

The contingency surplus likewise serves as a reserve in the event that a particular insurer experiences huge claims or maturities. Or it could serve as emergency funds in case an insurer is placed under receivership or liquidation as in the case of TICO Insurance Co.

Meanwhile, the IC is studying possible incentive schemes for insurers looking to enter into merger activities.

One such incentive is an extension of the July 1 minimum capital deadline up to the end of the year. Insurance Commissioner Eduardo T. Malinis recently wrote the finance department seeking to move the deadline in two phases. First deadline is in September wherein the insurance company must have at least a paid-up capital of P30 million. By end 2002, the insurer should have moved this up to P50 million.

Malinis said that more than half of those unable to meet the July 1 deadline are close to achieving the P30 million level. Malinis made it clear however, that those who fail to meet the September deadline will be issued a cease-and-desist order (CDO) and its certificate of authority will be revoked.

Cuisia favored possible incentives for mergers or acquisitions. But he stressed that government must be strict in the enforcement of its policies to protect the investing public.

"I don’t know what kind of incentives the IC can offer, but they are empowered to stop companies from selling policies until they meet the capitalization requirements. That is what they have to be consistent in the regulation like limiting the amount of policies and coverage that they (under capitalized insurers) can issue," the Philamlife chief executive added.

The IC called on the insurance industry, particularly the non-life sector to consolidate in order to remain competitive in the face of globalization in the finance sector. The banking sector has been consolidated over the past years and the IC followed suit.

"We must achieve the bigness in both services and financial health to compete with our Asian neighbors, or else be relegated to the sidelines," Malinis said. "It is a trend in many countries especially the Asia Pacific region to maintain a competitive edge."