No extension on capital hike - IC

MANILA, Philippines - The Insurance Commission (IC) is serving notice to all insurance companies in the country that it will not extend the March 31, 2011 deadline for the firms to increase their minimum paid-up capital from P100 million to P125 million.

New IC Commissioner Emmanuel L. Dooc said they will not allow any extensions as the new capital requirement is mandated by a Department of Finance (DOF) order.

“We are making a number of policy reviews that assumes a paid-up capital of P125 million of the industry,” Dooc added.

Under the DOF order, the insurance industry – composed of life, non-life and reinsurance sectors – must undertake a series of capital hikes culminating in a P250-million minimum paid-up capital level by 2015. Next year, the minimum paid-up capital base would be set at P175 million.

Dooc said failure to prove that an insurer had increased its paid-up capital to a minimum P125 million by end March will result to the non-issuance of a certificate of authority (CA) to operate. The certificate is renewed annually.

But he added that the DOF order may be overturned if the industry agrees to adopt the risk-based capital (RBC) formula.

“It (RBC) is something that the industry prefers, but we have to make sure that the formula ensures the health of the industry,” he said.

The RBC formula ensures that every risk or product an insurer markets must be backed up with reserves or capital by roughly 200 percent.

Thus, the more products an insurer markets, the higher the capital and reserves are required under the formula.

So far, a majority of the insurers said they prefer the RBC since it does not fix the capital base.

Dooc explained that if the RBC formula will be adopted, the earlier minimum paid-up capital requirement could be overruled. “But the minimum paid-up capital will still remain at P125 million even if the RBC is adopted this year.”

Authorities noted that every insurer must be well-capitalized and has the ability to pay claims immediately, specially as the industry prepares for the opening of markets with the full implementation of the Asean Free Trade Agreement (AFTA).

Last week, Finance Secretary Cesar V. Purisima said the full implementation of the AFTA in 2015 is one of the pressing reasons for the need to increase capital or to consolidate the industry “if Philippine insurers want to remain competitive against its Asean (Association of Southeast Asian Nations) neighbors.”

“The challenge for the Philippine insurance industry is to start putting down the walls and embrace competition and globalization,” he added.

AFTA is a form of regional integration effort by Asean member countries, which signed an agreement in 1992 to enhance economic cooperation. The accord covers Brunei, Indonesia, Malaysia, Thailand, Singapore, Myanmar, Laos, Cambodia, Vietnam and the Philippines.

There are presently 120 insurance companies in the country – 34 life, 86 non-life and one re-insurer.

Based on available 2009 data, over 20 life insurers are already well above the P125-million level but less than half of the non-life insurers were capitalized over the P125-million level.