Regulators consider higher capital base for RBC framework

MANILA, Philippines - Encouraged by the ongoing consolidation efforts of Empire Insurance Co. and CCC Insurance Corp., the Insurance Commission (IC) and the Department of Finance (DOF) is reportedly mulling making the P175- million minimum paid-up capital for 2012 as the baseline capital.

The baseline capital for the Risk-based Capital (RBC) framework is presently pegged at P125 million, the required minimum paid-up capital level required for all insurers covering the period 2011.

The adoption of the RBC framework will most likely replace the capital build-up program of the IC and the DOF, designed to peak at P250 million minimum paid-up capital for the entire insurance industry by 2015.

IC Commisioner Emanuel L. Dooc said that representatives from the industry players, the finance department and the IC are presently reviewing and fine-tuning the proposed RBC framework.

Under the DOF order, the IC can review the capital build-up program and subsequent applications after three years of implementation of the program, which started in 2006. However, the industry must hurdle both the P125-million minimum paid-up capital and the 200-percent hurdle rate for the RBC.

“I know that the RBC will give some level of comfort for the industry players and the regulators,” he added.

The IC commissioner also revealed that the regulator had been approached by a number of non-life insurance firms implying their intention to start consolidating or outright acquisition.

“They are starting to realize that we are serious,” he added.

Regulators said that the ongoing consolidation efforts of Empire Insurance Co. and CCC Insurance Corp. must serve as a template or model for further consolidation of the industry.

There are over 83 non-life insurance firms in a market considered “over-crowded.” And while the life insurance industry is pegged at 34 players, many say that reducing the players into few but strong ones was still desirable.

The Philippine insurance industry must be prepared for the opening of markets to all regional players with the full implementation of the Asean Free Trade Agreement (AFTA).

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 local insurers want to remain competitive among its regional neighbors.”

“The challenge for the Philippine insurance industry is to start putting down the walls and embrace competition and globalization. We need to be bigger. The small players must reach out to the bigger players,” Finance Secretary Cesar Purisima was often quoted when asked about country’s insurance industry in the light of 2015.

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, Kampuchea, Vietnam and the Philippines.

Regional insurers in both the life and non-life sectors are perceived to be highly-capitalized and resource-rich compared to the Philippine counterparts.