Insurers now allowed to invest in REITs

MANILA, Philippines — The Insurance Commission (IC) is now allowing insurance firms and pre-need companies to invest in real estate investment trusts (REIT), providing them opportunities to diversify their investments and improve earnings.

On June 21, Insurance Commissioner Dennis Funa issued IC Circular Letter 2019-27, which qualifies REIT as admitted asset for insurance companies and mutual benefit associations (MBA), and allowable investment for pre-need companies.

 “While the Insurance Code specifically allows insurance companies to invest in REIT, it is not a self-executory provision. In other words, there is a need for the issuance of implementing rules and regulations,” Funa said.

REIT refer to listed companies that own and operate infrastructure facilities, such as toll ways, airports, and high-ways; and income-producing real estate such as condominiums, shopping centers, office spaces, hotels, and resorts, and hospitals.

According to Funa, REIT are expected to provide additional investment options for the insurance industry. It is also seen to strengthen the industry’s participation in the capital markets, thereby enabling them to boost their returns.

Under the new regulation, REIT must have prior approval of the Securities and Exchange Commission and shall be limited to publicly-listed REIT only for the investment to be treated as admitted assets of an insurance or pre-need company.

Funa said that the aggregate placement in REITs should not exceed 10 percent of the total admitted assets of a life insurance firm and MBA; or 20 percent of the total net worth of non-life insurance company or professional reinsurance firm. 

For pre-need companies, investments in REIT should not exceed 15 percent of their total trust fund.

Moreover, the new circular states that investments of insurers on REIT shall be subject to a risk-based capital charge of 25 percent, pursuant to the amended risk-based capital framework.

“Despite the fact that a decade has passed since the REIT lapsed into law, no Philippine REIT has been incorporated or established. This can be attributed to the claim of market players that legal and administrative requirements have made investment in the Philippine REIT market difficult,” Funa said. “However, we deemed it necessary to issue the new regulation on investments on REIT of insurance and pre-need companies.”

The insurance chief said the issuance of the circular is “timely” as it ensures that insurance and pre-need industry players are well prepared, considering the amendments to the implementing rules and regulations of the REIT Law, and the Build Build Build program of the Duterte administration.

 “The new regulation will allow the insurance and pre-need companies to hit the ground running as early as the first listing of a Philippine REIT,” he said.