DOF defers capital hike for insurance firms

The finance department has postponed anew its decision on a proposal to increase the capital base of insurance companies.

The minimum capital build-up proposal has been in the discussion stage since late last year. The proposal include the implementation of the risk-based capital (RBC) formula in line with the international accounting standards and the Basel II convention.

"I will meet with my technical staff and (Insurance) Commissioner Evangeline Escobillo next week or before Sept. 8," Finance Secretary Margarito Teves said over the weekend.

The plan calls for all life, non-life and reinsurance businesses to increase thier capital base to P100 million by the end of the year. Every year, this will be increased by another P100 million to peak at P500 million by end 2010. The existing regulation calls for a minimum paid-up capital of P50 million for all industry players.

For new entrants, the commission will require a capital base of P1 billion (approximately $53 million).

The life insurance sector is batting for a minimum capital base of P100-million including the RBC by end 2006 while the non-life sector prefers to remain in the P50-million level with RBC.

The finance department is also asking the insurance industry to submit their position papers, as it is set to sign the memorandun circular implementing the new capital structure and the RBC.

Government wants the industry to be financially capable to meeting all claims, and that it should be at par with its regional counterparts.

Life insurers said that while majority of the industry players may meet the P100-million networth minimum capital requirement, the subsequent build-up to P500 million by 2010 may be too stiff.

Non-life insurers said the 100-million capital build-up may not be attainable, and that the immediate impact would be the closure of 35 companies.

But government from the start had insisted that there were too many players in the non-life sector and that "a reduction in number coupled with a firm regulatory environment should result in more financially-stable insurers with better products to protect the insuring public."

Regulators insisted that all the financial sectors in the region are consolidating, and the Philippines should not be an exception.