The country’s life insurers want the retention of the risk-based capital (RBC) framework but insists that the networth capital build-up formula be suspended.
The Philippine Life Insurance Association (PLIA) argues that majority of the 26-licensed life insurers have already attained the risk cover of 150 percent as prescribed by Insurance Memorandum Circular (IMC) 6-2006. Likewise, the prescribed industry hurdle rate of 80 percent had been achieved.
PLIA president Gregorio D. Mercado explained that 23 of the 26 life insurers displayed 150 percent or more risk cover at the end of 2006.
“And our initial estimates indicate that we have also surpassed the hurdle rate of 85 percent required by the IC order covering the 2007 period,” Mercado, who is also the president of the Philippine Prudential Life Insurance Co., added.
The Insurance Commission (IC) is reportedly reviewing anew the records of the insurers for the period 2006.
Meanwhile, PLIA wants the Department of Finance (DOF) to revoke Insurance Memorandum Circular (IMC) 10-2006 which integrated the RBC and capital build-up formula.
Under the existing rules, all insurers are required to increase their networth capital from P50 million to P100 million in 2006. Minimum networth capital would amount to P500 million per insurer by end 2010.
However, conditions under IMC 10-2006 allow a temporary suspension of the annual increase in capital, if the industry can reflect that 80 percent have a risk cover of at least 150 percent.
“The RBC substantially minimizes the risk of company insolvency since it requires capital that is commensurate to the risks of a life insurance company. Systematically increasing the surplus unduly increases the cost of capital of a life insurance company,” PLIA argued.
So far, the DOF remained firm in implementing both the IC and its own regulations.
“The finance department wants the insurance industry to be at par with its regional counterparts in terms of capital and competitiveness. It also wants the industry to consolidate in the face of a still weak economy, and hope that the remaining capable players increase the number of insured in the population,” IC officials said.
Meanwhile, initial reports indicate that almost half of the country’s 96 non-life insurers were unable to comply with 150-percent risk cover, as well as the 80-percent hurdle ratio.
IC regulations indicate that a sector (life or non-life sector) achieves the hurdle will be exempt from the next annual capital increase. The insurers however that failed to meet the 150-percent risk cover would have to implement the capital build-up as well achieve the minimum risk cover.
Failure to achieve the RBC formula or the required minimum capital, will result in the suspension or non-issuance of the annual IC certificate to operate. – Ted Torres