Despite the sector’s pressure, the Philippine government has maintained the minimum share capital requirements for local insurers.
Currently set at 900 million PHP ($18.57 million), the capitalisation requirement is expected to reach 1.3 billion PHP ($26.84 million) by 2022
For the Insurance Commission, this requirement is no longer necessary. The increase to 1.3 billion PHP ($25.42 million) would provide the Filipino market with the highest minimum capital requirement in Southeast Asia.
According to AM Best, such a decision will surely impact the insurance companies. Due to the pandemic-related economic crisis, insurers may find it hard to meet the government’s requirements.
The Philippine Life Insurance Association Inc. (Plia) revealed that it will be working with the Philippine Insurers and Reinsurers Association of the Philippines (Pira) in getting regulators to keep the capitalization requirement for insurance companies at P900 million.
Plia President Hans Loozekoot state that he wants collaboration with the Pira as both sectors of the insurance industry have shared goals, including improving the image of the insurance industry to consumers.
“For both the Pira and Plia, there is a shared interest to build the image [of insurance] and again that helps us not only to gain trust from the public but also to position ourselves as a good sector for employment,” Loozekoot, who is also the president and CEO of Troo Corp., said.
Besides enhancing the image of insurance, the shared interest of both sectors also touches on keeping the capitalization requirement for insurance companies at P900 million, in order to allow the players to invest more of their funds for other things like the digitization of insurance processes, among others.
“One of the areas is, of course, regulations. One of the things we want to raise again is the capital requirements where, as we feel together with the Pira, [that] P900 million should be kept and not further increased to P1.3 billion,” he added.
Loozekoot said rates for insurance companies in the Philippines should remain competitive with those in the Association of Southeast Asian Nations (Asean) member countries, pointing out that local insurance players are at a disadvantage if rates are too high.
“I think P900 million is probably enough to support the businesses and to give indeed the confidence to stakeholders that we are strongly capitalized, to have a buffer for our obligations to policyholders. We feel that we should not necessarily be at a stricter regime than other countries in the Asean sector. You want to still be able to compete,” he said.
On the collaboration with Pira, he also said that discussions on the capitalization requirement will be reported to the Insurance Commission (IC), as the regulator for the industry.
“We are going to talk about that, of course, informally we have talked about that, but it’s important now that we may raise this. I think we have strong arguments. And so this is something that as I said, we will enter into a dialogue with the different parties involved and see where we end up,” he added.
Under Republic Act (RA) 10607, or the Amended Insurance Code of the Philippines, new insurance industry players are required to have P1 billion in paid-up capital, while existing insurance companies need a paid-up capital of P550 million by December 2016, P900 million by December 2019 and P1.3 billion by December 2022.
Loozekoot said that it is also important for insurance companies to invest in different capabilities like data analytics, as changes like digitization are always being presented to the industry, which must adapt to stay competitive.
“We need to find more capital, even to invest in the future in a way, so for us it will be very helpful if we find ways and can agree with the various parties involved in this discussion. If we can cap it at P900 million, that we can use instead of trying to find traditional capital, that we can invest our money to make sure that it [our businesses] will be future proof…. And if we are very busy with meeting the capital requirements, it means that you have less money to spend on those things,” he added.
While complying with the P1.3-billion capitalization requirement by 2022 is doable for the insurance industry, it is important for companies to be able to invest their funds in the process that makes them ready for digitization.
As Plia president, he sees most life insurance companies in the country being able to comply with—or may have already met—the P900-million capitalization requirement for this year.
“Of course, I cannot speak for every individual company, but from what we know, we don’t expect…problems as of now [in meeting the P900-million capitalization requirement]…I think the majority of the companies have already complied with it,” he added.