Purisima endorses proposed capital hike on all insurers

A proposal to increase the paid-up capital of life and non-life insurance received the endorsement of the Department of Finance (DOF) and major industry players.

And some of the major players in the life sector expressed their support to raise the competitive standard of the industry.

In an interview, Finance Secretary Cesar V. Purisima said that the bigger the capitalization of an insurer, the better for the insurer, the Philippine insurance industry, and the better protection for the insuring public.

"The capitalization of the regional players are in the millions of pesos, and since we are liberalizing and taking down borders, how can the local players compete with their regional counterparts especially when the regional players start moving into the local waters?"

Vietnam requires a minimum paid-up capital of P300 million while Malaysia ensures a capital of P1.5 billion from its insurers.

The Insurance Commission (IC) plans to increase the paid-up capital requirement of life insurance companies to P300 million and P150 million for non-life insurance firms by yearend.

It further proposes that it would be increased to P600 million for life insurers and P300 million for non-life insurers by end 2006.

At present, the minimum paid-up capital for both life and non-life insurance firms is a mere P50 million. It was raised to that level in 2002 from a mere P10-million.

Philippine Life Insurance Association (PLIA) president Jose L. Cuisia and newly-installed Sunlife Financials president Lorenzo Tan expressed support to the proposal.

"I fully agreee with Finance Secretary Cesar Purisima and Insurnace Commissioner Benjamin Santos. We have to increase the capital base to effectively compete with beyter capitalized Asean life companies," Cuisia said.

Tan said that globalization opens the doors to all players and the regional counterparts are better capitalized and technologically more equipped than the domestic players. A higher capital base would allow for a better competitive field.

In an earlier interview, IC Commissioner Benjamin S. Santos stressed that the planned increase was to ensure the financial health and viability of insurance companies. And the principal comcern of the commission is the unwieldy non-life insurance companies and the competitiveness of the industry in lieu of the Asian counterparts.

"This is a capital intensive industry responsible to millions of lives," Santos lamented.

A key implication to the hike in paid-up capital is the subsequent increase in capital investment.

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.

The poorly capitalized non-life industry remains unattractive even to the local market making it vulnerable to increased presence of foreign players. The size of insurance companies in the Asian region has been growing in terms of assets and capital base, although the Philippine insurers remain among the lowest in the region. – Ted Torres