Insurers urge IC to reconsider capitalization rules

(The Philippine Star) - January 25, 2021 - 12:00am

MANILA, Philippines — Life and non-life insurers are urging the government to once again consider foregoing the next and final tranche of increase in the industry’s capital requirement by the end of 2022.

In an e-mail to The STAR, Philippine Insurers and Reinsurers Association (PIRA) chairman Allan Santos said the umbrella group for general insurers was coordinating with its counterpart in the life insurance industry to tackle the matter with regulators.

“At this stage, PIRA is in discussions with the Philippine Life Insurance Association (PLIA) to come up with a common position on the issue as to jointly push for the reform,” Santos said.

PLIA president Benedict Sison, in a separate e-mail, said both industry groups are planning to approach this concern jointly to deliver a stronger message to regulators on behalf of vulnerable industry players.

Earlier, Insurance Commissioner Dennis Funa said regulators had already scrapped the proposal to stop the hike in capital requirement under the Insurance Code. The law states that existing insurers must have a net worth of at least P1.3 billion by Dec. 31, 2022, a P400 million increase from the end-2019 requirement of P900 million.

However, PIRA maintained that increasing the net worth requirement was unnecessary, as it could end up hindering competition within the industry and increase the cost of insurance in the country.

Santos said pushing through with the hike would also make the Philippines’ capitalization requirement the highest in the ASEAN region.

“Risk-based capital requirements and regulations have already been put in place by the Insurance Commission and we believe that such regulatory framework, together with the current minimum capital requirements, will be sufficient to protect the solvency of non-life insurance companies and the interests of the insuring public that the insurance companies will be there and able to pay their claims when they become due,” Santos said.

Sison, for his part, also said that some insurance companies may have difficulties in expanding their net worth given the impact of the coronavirus pandemic.

“The prevailing operating difficulties associated with the pandemic has impacted net worth progression plans of some companies to the end-state level in 2022,” he said.

According to the latest data from the IC, the local insurance industry’s total premium income in the first half of 2020 declined by 4.1 percent to P136.09 billion from   P141.91 billion   in the same period  in 2019.

On the other hand, total paid-up capital rose by 10.78 percent to P25.13 billion in the first half of 2020 from P22.69 billion in the same period in 2019, while net worth jumped to P102.44 billion from P87.92 billion.

Sison said the life insurance industry may see some degree of recovery in the second half of 2021 owing to the various regulatory relief measures implemented by the IC.

“This 2021 may signal signs of further industry recovery. The IC has allowed digital selling as a permanent sales process that addresses limitations on face-to-face selling. Imminent for launching is the IC’s digital agent examination facility that will remove constraints in agent licensing under the prevailing community quarantine,” he said.

The PLIA president said the expected recovery of the Philippine economy would also be conducive for the sales of variable unit-linked products, allowing insurers to improve their premium generation.

Non-life insurers are likewise bullish on their recovery prospects for this year as they expect an increase in demand amid the economic rebound.

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