Capitalization reprieve for insurance firms
A TWO-YEAR deferment of the P1-billion capitalization requirement for
insurance firms has been approved by the Finance department, regulators
claimed.
"The initial proposal of the Insurance Commission (IC) is to extend the
compliance period of insurance companies for the P1-billion
capitalization to 2018," commissioner Emmanuel F. Dooc said in a
telephone interview last week.
Deputy Commissioner Vida T. Chiong, in a separate phone interview, said:
"We had a meeting with Finance department officials last [May 18] and
the Finance department decided to further extend the implementation of
the P1 billion capitalization from 2018".
She said a Finance department order formally adopting the IC proposal
could be issued this week or next week.
Confirmation was not immediately available from the Finance department.
Under the existing Department Order 27-2006, all insurers must hike
their minimum paid-up capital to P1 billion by 2016 as part of a
schedule starting with an increase to P175 million as of end-2011, P250
million by the end of this year, P450 million in 2013, P625 million in
2014 and P800 million by end- 2015.
Under the IC proposal, this year's P250 million paid-up capital
requirement will be retained. Subsequent increases will be reduced, to
P300 million by end-2013, P400 million by 2014, P500 million by 2015,
P600 million by 2016, P800 million by 2017 and the P1-billion final
requirement by end-2018.
"We also included some incentives in our proposal," Mr. Dooc said.
"For instance, insurance companies who plan to merge to meet the P1
billion paid-up capital would have to submit a plan of merger to the IC.
The applicable paid-up capital requirement for the year they apply of
the merger will be suspended as an incentive," he said.
"But they would have to comply with the required paid-up capital
requirement for the following year."
Ms. Chiong said two non-life insurance firms had already submitted a
merger plan, identifying these as Stronghold Insurance Company, Inc. and
Utility Assurance Corp.
"The two companies will be exempted from the P175 million paid-up
capital requirement for 2011, they will be given a temporary certificate
of authority to operate for the July [2012] to June [2013] period as
they undergo the process of the merger. But they should be compliant
with the P250-million capital requirement by the end of this year," she
said.
Representatives of the two firms were not available for comment.
Another proposed incentive, said Mr. Dooc, is the adoption of a
risk-based capital framework.
Ms. Chiong explained: "The fixed capitalization requirement for a given
year may be suspended for insurers who are able to comply with the
required risk-based capital hurdle rate for that year… [they will] be
given a certificate of authority to operate."
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