IC adopts new policy for reinsurance of policies of firms under rehab

MANILA, Philippines — Conservators and receivers of insurance companies or mutual benefit associations (MBA) under rehabilitation may opt to reinsure the outstanding policies of the companies they handle if warranted, according to the Insurance Commission (IC).

Liquidator of a company under liquidation, likewise, is required to reinsure the firm’s outstanding policies provided that the financial circumstances of the company permits it.

Insurance commissioner Dennis Funa issued Circular Letter 2018-32 adopting the new policy for the reinsurance of the outstanding policies of companies under conservatorship, receivership or liquidation pursuant to Republic Act 10607 or the Amended Insurance Code of the Philippines.

“Section 256 of RA 10607, otherwise known as the Amended Insurance Code of the Philippines, provides that a duly appointed liquidator of an insurance company of MBA placed under liquidation shall reinsure all its outstanding policies,” the circular indicated.

“This commission recognizes that the duly appointed conservators and receivers of insurance companies or MBAs under conservatorship or receivership may likewise reinsure said companies’ outstanding policies as part of a rehabilitation strategy to restore said companies to financial viability, in accordance with Sections 255 and 256 of the same Code,” it said.

Under the new policy, the IC said conservators and receivers should include a proposal to reinsure or increase the reinsurance coverage in the respective rehabilitation plans of the companies they handle.

In cases of liquidation, the assigned liquidator should also submit a proposal to reinsure or increase the reinsurance coverage in the liquidation plans to be submitted for approval by the IC.

In lieu of reinsurance, the IC said the conservator, receiver or liquidator may also enter into assumption reinsurance agreements (ARA) or similar contracts with reinsurers, provided that it is approved by the commission.

“No ARA or similar contract shall bind the conservator, receiver, or liquidator; the company under conservatorship, receivership or liquidation and its policyholders; and/or the reinsurers, unless said ARA or similar contract is duly approved by the insurance commissioner,” according to the circular.

According to data from the IC’s website, 44 insurance companies have been placed under conservatorship, receivership and liquidation as of November 2016.

In March alone, the IC placed five non-life insurance companies under conservatorship due to their failure to comply with the industry’s capital requirement as set by the Insurance Code.