Closure of 4 insurance firms looms
The mandated increase in paid-up capital at end-2016 has taken its toll on insurance firms, resulting in the looming closure of four companies as well as mergers among at least eight non-life players, the Insurance Commission said.
Insurance Commissioner Dennis B. Funa disclosed that one life insurance firm on top of three non-life insurers had expressed intention to voluntary cease their operations, as they cannot comply with the minimum net worth of P550 million under Republic Act No. 10607 or the Amended Insurance Code.
Funa did not disclose the names of these companies.
Under the Amended Insurance Code, the paid-up capital of all domestic life and non-life insurance firms must have had more than doubled at end-2016 from the 2013 requirement of P250 million.
The capitalization requirement must again increase to P900 million in 2019, and further jump to P1.3 billion by end-2022.
Also, four pairs of non-life insurance firms plan to undergo mergers and acquisitions (M&As), while two non-life companies “manifested their intention of bringing in new investors who will acquire control over their company,” Funa said.
“We are now reviewing their formal proposals. However, we can only reveal their identities upon approval of their application for voluntary cessation or plan for merger/consolidation,” according to Funa.
The Insurance Commission chief also said that a number of companies were “looking into bringing in new investors in order to comply with the mandatory increase in capitalization requirements.”
“In fact, there are some companies who are now in the process of conducting due diligence,” Funa said.
Funa said that an Insurance Commission audit of the 2015 financial statements of industry players showed that all companies with composite license, 24 life insurance firms as well as 13 non-life insurance players were compliant with the end-2016 requirement, while only less than 10 non-life firms needed “a negligible amount to comply with the existing capitalization requirement.”
At end-2016, licensed with the Insurance Commission were 27 life insurers, 66 non-life insurers and four with composite license to engage in both life and non-life business.
Moving forward, “the compliance of all insurance companies to the statutory capitalization requirement will be verified and determined based on the 2016 financial statements to be submitted to the Insurance Commission,” Funa said.
According to Funa, “the imposition of higher capitalization requirement would be beneficial to the insuring public and enable our country’s insurance industry to compete with Asean counterparts as well.”
“In light of the increased financial stability in the insurance industry, better protection for and strengthened confidence from the insuring public is expected. Furthermore, with the increase in the required minimum capitalization requirement, the continued phenomenal growth of our country’s insurance industry is likewise expected,” Funa added.
Even as the number of firms will decline, the mandatory hike in capitalization will sustain growth in assets, according to Funa. As of end-September last year, total industry assets stood at P1.32 trillion, up by over a fifth from P1.08 trillion in the first nine months of 2015.
