Non-life firms seen unable to meet capital rule

The minimum paid-up capital and net worth requirements must remain unimpaired for the continuance of the license.

Non-life industry group Philippine Insurers and Reinsurers Association, Inc (PIRA) chairman Michael F. Rellosa said many non-life companies are having difficulty shoring up capital to meet the requirement.

"Sa P550 million marami ang mamomroblema (For the P550- million requirement, many will find it difficult to meet)... the past two years have been benign in terms of losses. There was a respite, but that is not enough to meet the capitalization requirement of P550 million. We cannot get from operations the increased capital," Mr. Rellosa, who is also president and CEO of Fortune General Insurance Corp., said.

The more stringent capitalization requirements were pushed to make the insurance industry stronger and more resilient to shocks, thus safeguarding the money entrusted by policyholders.

But as of end-2015, only nine non-life companies had at least P500 million in paid-up capital among the 70 non-life firms in the country. The number of non-life insurers dwindled from around 90 in 2011.

Mr. Rellosa noted that those with minimum capital of P250 million can continue to operate up to end-2016 but will not get their licenses. They will have to continue as a "run-off," meaning they cannot write new business but continue to service existing policies and reinsurance exchanges.

"You notice there are a lot of venture capitalists around, they are looking at companies to invest in, but remember, they have a fixed date or term, they have an exit strategy... the original idea of the minimum paid-up capital was to weed out weak players, but do you want to have a non-life insurance industry run or dominated by foreign players? That is what is happening ... they are all waiting like alligators."

"What is happening now is that there are a lot of players in the auto insurance business as it requires smaller capital, while the bigger products like fire and building insurance, cyber insurance, marine insurance, et cetera, have only a few players, majority are foreign," the PIRA executive added.

The risk-based capital system should be implemented instead since not all companies have the same risk appetite, he said.

Under this system, the capital requirements of insurers are computed based on the amount of risk they take on.

"Some of the players are hoping that with the new administration, they can delay again the implementation of the law which includes capitalization plan," Mr. Rellosa said.

Source: B World Online