8 life insurance firms mull 'super broker'

MANILA, Philippines - Eight life insurance companies are putting their heads together in search of a permanent solution to the nagging capitalization issue. The target: To meet the proposed minimum paid-up capital level of P750 million to P1 billion for all insurance companies.

Last month Insurance Commissioner (IC) Emmanuel L. Dooc revealed a plan of the commission and the Department of Finance (DOF) to raise the minimum paid- up capital for insurers to between P750 million to P1 billion.

By the end of the year, the minimum paid-up capital requirement for all insurers is P175 million, up by P50 million from the P125 million required for the 2010-2011 period.

It is a program that started in 2006 with DOF Order 27-06, wherein the entire industry must undertake a series of capital escalations culminating in a P250-million minimum paid-up capital level by 2015.

The eight insurers in a serious brain-storming mode, include one major player (ranked between the sixth to 10th in terms of premium income last year), two medium-sized life insurers (ranked among the 11th to 20th), and the last five bunched among the small life insurers.

On the condition of anonymity, the insurers shared that the first option was to form a “super brokerage.”

That means all interested parties much infuse equity worth a minimum of P125 million, thus bringing its capital to P1 billion, the minimum required by the proposed ruling.

While the “super brokerage” will be addressed as a single entity, the individual stakeholders will still write their own policies.

“We agree that a higher capital environment should result in a stronger life insurance firm, which will offer better protection for the insuring public and allow the players to remain in the game. We also know that 2015 will poise a lot of challenges for the Philippine insurer,” they told The STAR.

By 2015, the Asean Free Trade Agreement (AFTA) will take effect thus breaking down barriers for doing business with the Asean member nations.

That would place Philippine insurers at a possible disadvantage since it is considered the second if not the lowest among the Asean members in terms of capital. It is ranked third from the lowest in East Asia in terms of premiums, and lowest in terms of the number of active and licensed sales agents.

“We could become a mutual company similar to Insular Life Assurance Corp.,” another member of the group said.

Still another option is working on consolidations or mergers and acquisition (M&A) between two to three insurers similar to what was experienced in the country’s banking industry.

“But we need incentives from the DOF and the IC similar to what the Bangko Sentral ng Pilipinas (BSP) offers to the banking industry,” they chided.

Finance Secretary Cesar V. Purisima is open to offering incentives if it will lead to a stronger Philippine insurance industry. “But where are the proposals? I would like to see it first,” Purisima often said when asked on the issue of incentives.

The Finance secretary in fact offered a suggestion in studying the case of Rabo Bank of the Netherlands.

Rabobank Group is an international financial services provider operating on the basis of cooperative principles. It offers banking, asset management, leasing, insurance and real estate services.

It has approximately 59,000 employees, who serve about 10 million customers in 48 countries. Two complimentary yet independent boards – the executive board and the supervisory board – govern the cooperative styled institution.

The executive board is responsible for the day-to-day management of Rabobank and its affiliates, and develops policy and strategy.

The supervisory board oversees and advises the executive board. It is also responsible for appointing executive board members and for their remuneration.

The two-tier structure ensures the proper checks and balances in place within its cooperative business system.

The country’s life insurance industry as a whole has hurdled the P125-million minimum paid up capital requirement.

Of the 32 players, it is however feared that two to five small players will be handicapped to meet the P175-million capital level starting the 2011-2012 period.

The top 10 players, who are mostly foreign-controlled and account for nearly 80 percent of total premiums, are already beyond the P1-billion level in terms of capital.

The next 10 players may not have a problem with the P175-million capital level, but the P750-million to P1-billion minimum paid up capital may just be too stiff.

The non-life insurance industry, which number over 80 players however is a different story.

Industry leaders as well as regulators agree, albeit in whispers, that trimming it down to just 35 to 40 highly capitalized and professional players could service the country’s requirements in that sector.

But that is indeed a different story.