The Manulife-CMG Life deal is merely a continuation of the consolidation of the country’s insurance industry in the face of a weakening Philippine economy, low interest rates, various levels of recession in the Japan, European and the US economies, and competition from other financial markets.
And as the external and internal conditions continue to weaken, the further consolidation of the industry becomes "as real of the sun will shine every morning."
"Yes, we will be seeing further consolidation of the industry up to next year," Eduardo T. Malinis, commissioner of the Insurance Commission said. "Mergers or acquisitions must be undertaken to achieve bigness."
"Bigness" means financial and agency growth. And to increase or speed up expansion, it becomes more profitable or economical to acquire existing players instead of spending huge amounts of money to recruit and train agents. "It becomes more economical to acquire or merge with an existing player."
Targets for acquisition are family-run insurance companies that tend to stagnate, and smaller niche players whose market are being encroached on by the bigger players.
New entrants to the Philippine insurance market will be practically nil due to the poor external conditions while others will be intimidated by the consolidation process.
"There will not be any new entrants despite the liberalized environment," Malinis said. "The prospective new players will be intimidated by the recent mergers or acquisitions, particularly if these mergers or acquisitions were between larger or medium sized players rather than just medium and small players."
Manulife Phils. president and chief executive officer Renato Vergel de Dios also anticipates further consolidation of the industry with the financial and agency issue taking principal consideration.
"It is a very expensive process to open up an agency. Some of the new players tried to compete with the old players who have built their agency business for 15 to 20 years. Some of them paid the price, a very expensive price," Vergel de Dios said during the formal announcement of their acquisition of CMG Life last week.
Manulife is one insurer that places prime importance to the agency force among its various marketing strategies. And that includes bancassurance.
"We see no advantage in tying up with a bank for bancassurance. Things may change, the tax climate may change. But given what we have today, we are mainly driven by our agency force."
Jose L. Cuisia Jr., president and chief executive officer of the Philippine American Life and General Insurance Co. (Philamlife) also believes the industry must and will further consolidate.
Cuisia emphasized sufficient capitalization for client protection and agency size to remain competitive. Philamlife has the biggest life insurance agency force numbering over 6,000 nationwide.
"There should be a consolidation. These companies are taking the public’s life savings and investments thus they must be adequately capitalized," Cuisia stressed.
He was also referring to an order by the Department of Finance (DOF) and the IC for life and non-life insurance companies to register a minimum paid-up capital of P50 million by end 2002. The minimum capital not only ensures that financial ability of insurers to pay any claims or maturities of the public but also creates public savings.
Under Section 203 of the Insurance Code, insurers must set aside as part of the investment portfolio one-fourth of their paid-up capital in government securities. The amount is deposited with the IC as a contingency surplus much like the reserve requirement of banks deposited with the BSP.
That means that effective June this year, each insurer must have deposit a minimum amount of P12.5-million in government securities.
The contingency surplus likewise serves as a reserve in the event that a particular insurer experiences huge claims or maturities. Or it could serve as emergency funds in case an insurer in placed under receivership or liquidation as in the case of TICO Insurance Co.
Recent mergers were between the financial giant Bank of the Philippines Island (BPI) and Japanese non-life giant Mitsui Sumitomo Insurance Company of Japan. The alliance formed BPI/MS Insurance, one of the biggest non-life insurance companies in the Philippines with consolidated gross premium of roughly P1.793 billion in 2001.
Then there was the Prulife of the UK and ING Life, which ironically had acquired Aetna Life. ATR Professional Life was formed from the acquisition of GE Life. Then it went on to gobble up All Asia Life.
The number of licensed insurance companies practically did not significantly increase since 1997 although there were some changes in the players. In 1997, there were a total of 145 players, 156 in 2000, then down to 151 last year.
In 2001, there were three composite (life and non-life) insurers, 37 life insurers, 107 non-life, and four professional reinsurers.
In end 2000, the total number of companies in the industry was 156 composed of life (39), non-life (110), composite (three), and professional reinsurers (four).