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MANILA – Despite a court complaint filed by insurers seeking to maintain the status quo, the Department of Finance has issued an order requiring them to build their capital to at least P1 billion by 2020.
In a statement, the DOF said it issued Department Order 15-2012 requiring insurers to hike their minimum capital to P250 million by the end of this year.
Insurers’ minimum capital should be raised in the succeeding years according to the following schedule:
- P400 million, 2014;
- P600 million, 2016;
- P800 million, 2018; and
- P1 billion, 2020.
The same order requires re-insurers to hike their capital to P2 billion by 2020, and micro-insurers to increase their buffer to P500 million.
DO 15-2012 requires the minimum capital of P1 billion, P2 billion, or P500 million for new insurers, re-insurers and micro-insurers, respectively.
Companies that are merging however may opt to defer compliance with the required minimum capital for two years provided they have 150 percent risk-based capital.
The DOF however requires merging firms to meet the minimum capital by 2022 at the latest.
“This was the result of several consultations conducted by the Department of Finance and the Insurance Commission with industry players,” Purisima said of DO 15-2012.
The Philippines Insurers and Reinsurers Association had been holding negotiations with the DOF in a bid to put off the increase, insisting that the capital buildup program was unnecessary for companies that take on small risks.
Failure to make headway in talks with the DOF however led PIRA to seek court intervention.
Purisima said the capital buildup is meant to protect consumers and prepare the industry for the integration of Asean financial markets by 2015.
“The imposition of a higher minimum paid-up capital to further supplement DO 27-2006 after December 31, 2012 shall ensure sufficient protection to the insuring public and further strengthen the integrity of the insurance industry,” Purisima said.
Citing World Bank data, the DOF chief said local insurers were lagging their peers in Asean. In 2010, the Philippines required a minimum capital of $2.77 million for life insurers, below Malaysia’s $33 million, Vietnam’s $29 million, Thailand’s $16.10 million, Indonesia’s $7.8 million, and Singapore’s $4.3 million.
In non-life, the Philippines’ $2.77 million also was lower than Malaysia’s $33 million, Vietnam’s $14.5 million, Thailand’s $9.8 million, Indonesia’s $7.8 million and Singapore’s $3.83 million.
“By 2015, assuming other countries do not call for higher capital requirements, the Philippines will still be lagging behind Malaysia, Vietnam, Thailand and Indonesia, even as we implement the new order. It will only be by 2016 that the Philippines will improve its ranking to fourth place, and by 2018 to third place within the same peer group,” Purisima said.
“Based on the average capital requirement in the region, it will only be by 2018 that Philippine life insurance companies and by 2016 for non-life insurance companies would be able to catch up with their regional counterparts,” he said.
The same World Bank data showed that the combined penetration rates of life and non-life insurance industries stood at 1.2 percent of Philippine gross domestic product, way below Thailand’s 3.6 percent, Malaysia’s 4.7 percent, Singapore’s 5.92 percent, Indonesia’s 1.43 percent, and Vietnam’s 1.36 percent.
“On life insurance penetration rate, the Philippines ranked fifth after Malaysia, Thailand, Indonesia and Singapore, while for non-life the country ranked lowest along with Indonesia,” Purisima said.
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