"We should revisit the results of the RBC end 2007 where we can agree on niche models with lower capital for some insurers," Ramon Y. Dimacali, chairman of PIRA, said.
The DOF ruling requires all life, non-life and reinsurance companies to raise their network capital to P100 million by end 2006. It will be increased by roughly P50 million every year until it hits P500 million by 2011.
The order also requires insurers to submit a net worth buildup plan for the next five years by Oct. 31 this year. Failure to meet this requirement would mean a non-renewal of its authority to operate.
PIRA claims that the order will result in the closure of several non-life insurance firms.
It claims that there are 35 companies with net worth lower than P100 million and they would need help and support to hurdle the P100 million targeted by year end.
Dimacali stressed that the non-life industry growth rate is a flat 3.2 percent and its return of equity (ROE) is 5.9 percent for the past 10 years.
PIRA noted that increasing the capitalization requirement of insurance companies would squeeze out the small players, said to serve the needs of individuals and small- to medium-size enterprises (SMEs) with very limited insurance budgets.
"It should be noted that about 88 percent of insurance company income comes from investments of their investible funds. Too much net worth would result to higher income but largely coming from investments. With a market size of P38 billion today, even if we double the rate of increase today in five years, the market then would just be good for the productivity of 35 to 40 large companies with a net worth of P500 million. There are already 19 insurers in that range today so only a handful who must raise capital are needed to serve the balance of the market," the association president said in the statement.
Dimacali added that given the movement toward consolidation, further study is needed on how the industry can use the RBC strategy endorsed by the Insurance Commission (IC) and deployed in advance countries like the United States and Australia.
The PIRA chairman added that this risk-based model along with regulatory reforms and improving economy will help attract investors into the industry.
"We can work for gradual reforms along with better regulatory programs to remove violators and enforce compliance. With an improving economy, we hope to attract investors. But today even our CTPL business which is nine percent market is at risk with a government insurer wanting to take over," he added.