10 life insurance firms in talks for possible 'mega merger'

MANILA, Philippines – Facing the prospect of failing to meet new minimum capital requirements, 10 of the country’s life insurers are reportedly in talks for a mega-merger that is expected to shake up the industry, sources told The STAR yesterday.

The 10 insurers were earlier reported to be considering different modes of consolidation, but the sources said a merger would be more likely for these firms which are ranked among the lower half of the industry in terms of capitalization.

The respective boards of five of these firms had approved to seriously study their consolidation, while the other five are still in discussions.

The country’s life insurance industry deregulated in the 1980s, growing to nearly 50 players. The number has since dropped to just 34, as many had closed shop due to more stringent capital requirements.

The original plan of the 10 companies was to form a “super brokerage,” which means all interested parties much infuse equity worth a minimum of P125 million, thus bringing its capital to P1 billion.

While the “super brokerage” will be recognized as a single corporate entity, the individual stakeholders will still write their own policies.

The other option was to form a cooperative-type of entity, in the same mold as Rabo Bank of the Netherlands.

Insurance Commissioner (IC) Emmanuel L. Dooc had confirmed the reported consolidation, saying the move is a welcome effort over earlier proposals.

“We will not allow the life insurance industry to compete with a cooperative-type insurer, which may be limited to writing policies to its members instead of the general public. Likewise, the proposed cooperative-type insurance company would mean tax revenue loss for the National Government,” he pointed out.

He revealed that new insurers should be formed on or before April 2012, so that it can be issued a certificate of authority (CA) to operate by July of that year. Also by that time, the minimum paid-up capital would have increased to P250 million, which is the prime reason for the need to consolidate forces.

The increase in capitalization was required by the Department of Finance (DOF) to ensure the profitability and soundness of the country’s insurance industry, aside from the expected competition from regional players.

Competition from the regional players will be realized after the ASEAN Free Trade Agreement (AFTA) comes in full swing after 2015.

Last year, the 34 life insurers registered total premium income of over P70.7 billion, with the top 10 players accounting for roughly 80 percent of total. The lower half of the industry accounted for about P3 billion.