Non-life insurers cautioned vs venture capitalists

MANILA, Philippines – The Philippine Insurers and Reinsurers Association (PIRA) cautioned non-life insurance companies from partnering with venture capitalists that are merely out to make a fast buck.

The Insurance Commission (IC) requires insurers to increase capital from P250 million this year to P550 million by next year, a situation feared to reduce the industry players from 70 as of end-2015 to an estimated 50 at the start of 2017.

PIRA vice chair Michael F. Rellosa revealed a large number of foreign venture capitalists are in town in search of investment opportunities.

“They are aware of the upward trajectory of the industry, based on a strong economy, and the thirst for capital,” Rellosa said on the sidelines of the recent 13th Philippine General Insurance Summit.

But he cautioned insurers to be selective as venture capitalists have profit targets.

“Venture capitalists have a fixed term, they have an exit strategy, say, in five years time it should have earned this much, then they could re-sell to the owners or list it,” he said.

The problem is the required profit may not fit with the needs of the insurer and their policyholders.

Last year, the industry registered losses from claims worth P13.5 billion, or a slight increase from the P12.8 billion in 2014.

In the same period, industry net earnings grew 36 percent to P3.28 billion, and investments grew 4.22 percent to P63.1 billion.

Net income which reached P3.33 billion in 2011, crashed in 2014 to P1.98 billion due to the number of natural catastrophes in 2013. In 2011, there were 84 non-life insurers.

Rellosa, who is also chairman of the ASEAN Insurance Council, said investors with strong insurance background, are seen as partners.

Industry-wide, the PIRA vice chair favors the risk-based capital (RBC) over the minimum paid-up capital presently implemented.

RBC basically means the more risks an insurer takes, the more capital must be raised (the more products you introduce, the more capital you have to raise to support the product). “RBC offers more protection than minimum capital,” he added.

The non-life insurance industry is also seeking a reduction of its tax burden, which accounts for over 26 percent of the premiums paid by the public. These include documentary stamp tax (DST), fire tax, municipal taxes, among others.

PIRA said higher capital requirements, a burdensome tax environment, the RBC, and the entry of foreign players work against domestic players.

“Do you want to have a non-life insurance industry run or dominated by foreign players? It is already happening in Singapore and Malaysia,” Rellosa said.