MANILA, Philippines - The Philippine Insurance and Reinsurers Association (PIRA) is making a last ditch effort to stop the implementation of the P175-million minimum paid-up capital requirement for the insurance industry starting 2012.
PIRA is the only trade organization of the non-life insurance industry, which writes insurance policies as protection against fire, fraud, auto-related accidents, and the like. Its counterpart in the life insurance industry is the Philippine Life Insurance Association (PLIA).
Last week, the insurers appealed to legislators to help them block the capital-raising ruling of the Department of Finance (DOF) and the Insurance Commission (IC) through DOF Order 27-06.
“With the drastic increase in capitalization, we estimate about 35 insurance companies out of the existing 84, might close down due to their inability to raise capital,” Pedro P. Benedicto Jr., chairman and president of PIRA, said in a letter to House Speaker Feliciano R. Belmonte.
Benedicto also said that the new minimum paid-up capital of P175 million will negate provisions in the proposed Revised Insurance Code, or House Bill (HB) 4867. The proposed legislation may peg the capital to P125 million, the present capital required level, and adopt the risk-based capital (RBC) formula of determining the appropriate capital level.
In a separate letter to Sen. Sergio R. Osmeña III, PIRA said that the abrupt and sweeping upward adjustment of capital “would be a total indictment and persecution of the industry.”
The smaller-capitalized companies would have to cough up substantial capital infusions “under a business environment still plagued by an onerous tax structure, considered the highest in the region.”
They further argued that the capital build-up program was “unfair and counter-productive to investments.”
Actually the capital build-up started in early 2001 (under Department Order 31-01) when the IC implemented a gradual increase from P10 million to P50 million.
Then DOF Order 27-06, issued in 2006, implements a multi-year increase in minimum paid up capital for all insurance companies, starting from the P50 million to P100 million. By 2014, all insurers and re-insurers must have a minimum paid up capital of P250 million or P500 million minimum statutory net worth.
Since last year, the IC has been encouraging insurers to consolidate similar to what was done in the country’s banking system.
So far, there had been several consolidation efforts although none has yet been consummated. The most recent report involved non-life firms Empire Insurance Co. and CCC Insurance Corp.
In the life insurance sector, several small players have initiated talks of multi-company consolidation or the formation of a cooperative-type consolidation. But similar to their counterparts, none has been consummated.
The IC remains firm in implementing DOF 27-06, and pledged to actively lobby that the Revised Insurance Code would have provisions mimicking the said department order.
IC officials said that they were for an RBC formula but that the capital base must start with P175 million, not P125 million as sought by the insurers.
“I know that the RBC will give some level of comfort for the industry players and the regulators,” IC Commisioner Emanuel L. Dooc said.