Non-life insurers cleared to invest in real estate

MANILA, Philippines —  Non-life insurance companies are now allowed to invest their assets in real estate properties, the Insurance Commission (IC) said yesterday.

Insurance Commissioner Dennis Funa has signed Circular Letter 2017-43 which prescribes the guidelines for non-life insurance firms interested to invest in real properties.

“The new guidelines now allow non-life insurance companies to invest their money in income producing real properties, other than those utilized as its main place of business or offices, provided that the applicant non-life insurance company satisfies the conditions stated therein,” Funa said.

Under the issuance, investments in real properties should not exceed 20 percent of the non-life insurance company’s total net worth, according to Funa.

“The aggregate book value of investments in any income producing real property shall not exceed 20 percent of the total net worth of a non-life insurance company as shown in its latest financial statement approved by the IC. Included in the computation of the threshold is the cost of improvement or development of the real property,” Funa said.

Funa said only non-life insurance companies with a minimum net worth of P550 million and have complied with the liquidity requirements of the IC may invest in income producing real estate.   

A company which wants to make such investments will also be required to adopt a comprehensive liquidity risk framework duly approved by its board of directors to ensure it would be able to realize enough assets to fund its obligations.

“To ensure compliance with liquidity requirements, an insurance company should adopt a comprehensive liquidity risk framework which contains strategies, policies and products that shall take into account any mismatch between the expected assets and liability cash flows, inability to sell assets quickly, and cash-flow positions, among others,” the IC said.

The IC said interested companies should submit to the regulator an application for approval of investment, accompanied by a five-year projected income, intended occupants, copy of the proposed lease contract and a copy of the certificate of title for the property, which must be named under the insurance company.

Funa said the new guidelines are intended to provide a new investment option for non-life insurance companies and enhance their capital build-up program.

“As traditional fixed income investments have generated declining returns in the low-yield environment, non-life insurance companies have been spurred to search for new investment opportunities,” Funa said.

“Easing the investment policy of non-life insurance companies in real properties will create a new revenue stream for the non-life insurance sector,” he said.