Insurance Commission allows insurers to invest in infrastructure projects

MANILA, Philippines — The Insurance Commission (IC) is now allowing insurance firms to invest in the government’s infrastructure projects, enabling them to take part in nation building while diversifying their investment portfolio.

Insurance commissioner Dennis Funa issued IC Circular Letter 2018-74, dated Dec. 28, 2018, which states that insurance and reinsurance firms may now invest in debt or equity security instruments for infrastructure projects under the Philippine Development Plan (PDP).

According to Funa, the circular aims to provide a new investment channel for insurers that would allow them to improve returns and assist in the country’s economic growth at the same time.

“This circular is aimed at encouraging insurers to invest in domestic infrastructure projects to boost our economy and to reap the benefits of portfolio diversification and higher return,” Funa said.

“With the administration’s Build Build Build program in full swing, insurers can take advantage of investing their assets in infrastructure projects to aid them in improving their revenue that would address their compliance with the statutory net worth requirements under the Insurance Code,” he said.

Under the circular, insurers may invest in infrastructure projects through various capacities – as project proponents, financiers or sponsors, or operation and maintenance contractors.

Projects that may be undertaken by insurance firms as provided under the PDP include highways, railways, non-rail-based transit facilities, port infrastructure, airports, warehouses, environmental and solid waste management related facilities, and climate change mitigation and adaptation projects.

For purposes of determining the net worth of an insurance and reinsurance company, Funa said investments in infrastructure projects duly approved by the IC would now be considered as admitted assets.

The circular states that investments in infrastructure projects with guaranty or contingent liability fund will be considered as reserve investment.

Infrastructure investments without guaranty or contingent liability fund may also be considered as reserve investment, as long as the total investments in infrastructure projects do not exceed 40 percent of the admitted assets of life insurance companies, or 40 percent of the total net worth of non-life insurance companies and reinsurance companies.

The IC chief said the new regulation also lays out the methodology used in calculating the risk factors of infrastructure investments to encourage insurer participation, while still safeguarding their financial stability.

Before an investment in infrastructure is approved by the IC, insurers will be required to submit the financial statements of their chosen infrastructure projects, which will then be evaluated by the regulator to determine the risk impact on the capital of the insurer.

“Lack of sufficient funding for infrastructure presents an opportunity for investors with long-term horizon, such as insurance companies, that are positioned to provide capital or funding for infrastructure projects. Taking into consideration the need for insurers to increase their net worth and the clamor for alternative investment channels, we see that the insurance industry can provide for provision for stable and adequate financing to close the infrastructure funding gap,” Funa said.

The Duterte administration is currently embarking on a massive infrastructure project, which will require up to P9 trillion in investments over the medium term.

Under the program, the administration lined up 75 big-ticket infrastructure projects.

Earlier, Finance Secretary Carlos Dominguez called on the insurance industry to participate in the administration’s massive infrastructure program, to support economic growth.