By Chino S. Leyco
The Department of Finance (DOF) is determined to implement the current law governing the capital requirements for insurance companies despite the appeal from the industry to review the country’s insurance code.
Finance Secretary Carlos G. Dominguez III said the series of increases in capital requirements for life- and non-life insurance companies should proceed as programmed by Republic Act (RA) 10607 or the amended insurance code of the Philippines.
Under the RA 10607, existing insurance companies need to have a paid capital of P900 million next year and P1.3 billion by 2022. Non-life insurers in particular are now requesting the government to suspend the implemention of the final tranche of increase.
But Dominguez is not inclined to suspend the implementation of RA -10607.
“We want an industry that is strong, resilient, and an industry that can really serve the public, so in the insurance business it is always good to have a healthy capitalization,” Dominguez told reporters.
“We are also preparing for competition for ASEAN so how can you compete with the big boys if your capital is only $10 million,” he added.
Instead of suspending the law’s implementation, Dominguez suggested that insurance companies should consolidate or merge if they cannot meet the minimum capital requirement.
“We want the industry to be competitive and strong and that is the way to do it to require them to have more capitalization. In other words, it’s required to have them merge, or consolidate the industry to be more stable, just like the banking sector,” Dominguez said.
The finance chief said that capital of every insurance firm in the country should be at least P900 million next year and P1.3 billion by 2022.
“This is also part of our program to strengthen the capital markets, this is an important part of capital market,” he added.
Meanwhile, Reynaldo A. de Dios, an insurance expert believes the local insurers are “over capitalized,” citing among ASEAN, the Philippines has the highest net worth requirements by 2022.
“In addition, Philippine insurers are subject to the risk-based capital system,” De Dios said.
Last week, Insurance Commissioner Dennis B. Funa said that seven insurance companies — six non-life and one life insurance firm — voluntarily surrendered their licenses to engage in the business of insurance.
These insurance companies are: Centennial Guarantee Assurance Corp., CAP Life Insurance Corp., FLT Prime Insurance Corporation, Manila Surety and Fidelity Co., Inc., Meridian Assurance Corp., The Solid Guaranty. Inc., and United Insurance Co., Inc.
As a consequence of the surrender of their licenses to act as insurance companies, these companies were issued individual Servicing Licenses for the orderly “run-off” of their insurance businesses.
“The existing policyholders of these companies numbering to more or less one hundred seventy thousand will not be affected by this as all existing contracts issued by these companies will remain effective,” Funa said.
He added that the insurance companies are still bound to honor their contractual obligations and settle the insurance claims that may be filed,” he said.
Funa said that the commission continues to closely monitor the limited business activities of these companies, specifically to ensure that all their liabilities to their policyholders are paid and settled as they become due.
According to Funa, majority of these companies voluntarily surrendered their licenses to act as insurer due to their inability to comply with the P550-million minimum net worth requirement.
“While these companies are not compliant with the present P550-million net worth requirement, the net worth of these companies are positive which means that they have sufficient assets to settle their obligations to their policyholders,” he added.