Insurers now allowed to invest in FISTCs

MANILA, Philippines — Insurance firms are now allowed to invest in financial institution strategic transfer corporations or FISTCs, which are mandated to acquire soured loans of banks using their assets.

Under Circular Letter 2022-08, the Insurance Commission said life policy providers can invest in equity shares and investment unit instruments (IUIs) of FISTCs for up to 10 percent of its asset base.

Likewise, the order gave the green light to non-life insurers to invest in equity shares and IUIs of FISTCs for up to 20 percent of their net worth based on their annual financial statement.

Under the Financial Institutions Strategic Transfer (FIST) Act, FISTCs may sell IUIs to qualified buyers, including insurance firms, in the minimum amount of P10 million.

However, the IC reminded insurers that they are prohibited from buying IUIs of FISTCs that acquired their non-performing assets (NPAs). Aside from insurance firms, their parents and subsidiaries are barred from holding financial instruments offered by an acquiring FISTC.

“Selling insurance companies, as well as parent, subsidiaries, affiliates, stockholders, directors or any related interest, shall likewise not acquire or hold—directly or indirectly—the IUIs of the FISTC that acquired its NPAs,” the IC said.

Under the FIST Act, the IC said fiscal incentives and privileges can be availed by the FISTCs for the acquisition of NPAs.

FISTCs can secure exemption from capital gains tax, exemption from documentary stamp tax, exemption from creditable withholding tax on transfers of ordinary assets and exemption from value added tax.

They can also received reduced applicable fees of 50 percent for registration and transfer fees on the transfer of real estate mortgage and security interest to and from FISTC; for filing fees for foreclosure proceedings; and land registration fees.

“All sales or transfers of NPAs to a FISTC shall be entitled to the abovementioned privileges for two years from the effective date of the FIST Act. In the case of acquisitions of NPLs by FISTCs, FISTCs are eligible for exemption on income tax on net interest income, mortgage registration fees and documentary stamp tax,” the IC said.

IC commissioner Dennis Funa said the circular enables the agency to take part in the government’s efforts to recover economic damage from the pandemic. He added that the order serves as a reminder for insurers of their options in mitigating the impact of the health crisis on their finances.

“Moreover, the same circular letter was issued in recognition of the fact that it is essential for our regulated insurance companies to be able to maintain their financial health in order to cushion the adverse economic impact of the pandemic,” Funa said.