The Philippine insurance industry is likely over-capitalised, says Mr Reynaldo A de Dios, an insurance industry doyen.
The Insurance Code of the Philippines requires existing insurance companies to have a paid up capital of PHP550 million (US$10.6 million) by December 2016, PHP900 million by 2019 and PHP1.3 billion by December 2022.
As many of the Philippine owned insurance firms had a difficult time meeting the new capital requirements, seven Philippine non-life insurers voluntarily gave up their licence to operate and four non-life insurers had to merge, he wrote in an article published in Business Mirror in March.
“Highest net worth requirement in the region”
In response to a petition from several non-life insurers, the Insurance Commission undertook a study of the insurance capitalisation system in ASEAN. On initial findings, it appears that the Philippines would have the highest net worth requirement in the region.
Recognising the plight of the majority of Philippine-owned insurers, the Insurance Commission is planning to introduce legislation to amend the present Insurance Code and it is working on a draft Bill to implement this change in 2019.
Mr de Dios said: “This is a clear indication that the Insurance Commission recognises the plight of Philippine-owned non-life insurers and for this, it should be commended for its plan of action to remedy the present situation.”
“Always good to have healthy capitalisation” – Finance Secretary
In February, however, Finance Secretary Carlos G Dominguez III said that the series of increases in capital requirements for life and non-life insurance companies should proceed as stipulated in the insurance law. Mr Dominguez said: “We want an industry that is strong, resilient, and an industry that can really serve the public, so in the insurance business it is always good to have healthy capitalisation.”
Instead of suspending the implementation of the law, Mr Dominguez suggested that insurers consolidate or merge if they cannot meet the minimum capital requirement. He doubted that they would be able to compete in ASEAN if they had a capital of only $10 million.
At 29 June 2017, there were four composite insurers, 27 life insurers, 60 non-life insurers and one reinsurer in the Philippine insurance market serving a population of more than 106 million. A