More mergers among insurance players seen
Mergers and acquisitions in the insurance sector may soon take place following the recent hike in capital requirements, the Insurance Commission said.
According to Insurance Commissioner Emmanuel Dooc, consolidation is one of the natural consequences of the higher capital requirements and is something the regulator welcomes with open arms.
The commission prefers to have fewer but stronger players in the insurance sector, Dooc said, noting that there are far too many small institutions in the industry.
“We are now expecting more mergers and consolidation among insurance companies. This is something positive, especially with the integration of Asean (Association of Southeast Asian Nations) set in 2015,” Dooc said.
Under the new Insurance Code, which President Aquino signed into law last month, life and non-life insurance firms are required to increase their capital every three years until 2022.
In particular, an insurance company will need to raise its net worth from P250 million this year to P550 million in June 2016, to P900 million in June 2019, and finally to P1.3 billion by June 2022.
Dooc said that, as insurance companies grow stronger due to consolidation, industry players will be better equipped to survive the tough competition expected from the integration of Asean member economies.
The scheduled integration of will entail the lifting of as many barriers as possible to allow free flow of trade and investments across member countries.
The integration will likewise result in an increase in business activities, thereby boosting job creation and income across the region.
Tougher competition, however, may cause weak businesses to fold up.
Dooc believes that mergers and acquisitions are necessary so that insurance companies in the Philippines will become more competitive.
“The provisions in our amended code will make our insurance industry players more able to compete with counterparts in neighboring countries,” Dooc said.
There are a little over 100 insurance companies in the country, 68 of which are non-life insurance firms, he explained.
The number of non-life insurance companies at present has significantly been reduced from about 90 institutions reported two years ago, he added.
The decline in the number of industry players came about as some small institutions were compelled to surrender their licenses while others decided to undergo mergers.
Dooc said more mergers are expected to take place soon in the non-life insurance subsector as industry players strive to meet the higher capitalization requirements.