THE FINANCIAL TURMOIL that has sent some corporate giants in the United States into a tailspin, has changed the way Philippine insurers view the local regulatory environment--something they used to describe as "absurdly tight."

Prior to the US financial meltdown and its spillover effects across the globe, insurance companies in the Philippines were up in arms over strict regulation. They claimed that the tight rules had hampered their efforts to generate profit. Both the life and nonlife insurance industries called for amendments to the Insurance Code so they could invest in more sophisticated financial instruments.

But now, insurance companies in the country are singing a different tune.

Witnessing how lax regulatory policies had pushed American firms to the edge of backruptcy, insurance firms here are thankful they are regulated a lot stricter than their foreign counterparts.

"Nonlife insurance companies in the Philippines are very stable," says Melecio Mallillin, trustee of the Philippine Insurers and Reinsurers Association (Pira), a group of nonlife insurance companies. "The Insurance Commission did well in steering us to this particular direction [away from the crisis]."

Similar view
Life insurance companies take the same view.

"The Insurance Commission is very strict in approving investment activities of insurance companies," says George Mercado, president of the Philippine Life Insurance Association (Plia). "Because of that, the industry is only minimally, if at all, affected by the US financial crisis."

Under regulatory rules laid down for the insurance sector, companies may not simply invest where they want. Investing in instruments apart from government securities entails stiff requirements. Take investing in stocks for instance: Insurance firms may only invest in blue chips that have gone public and have been distributing dividends for at least three years.

When investing offshore, Mercado says, insurance firms need to tap fund managers that have strong financial background as show by their financial statements for three consecutive years.

Because of tight regulation, Mercado says, investments of insurance firms are heavily focused on virtually risk-free government securities. These include peso-denominated treasury bonds and foreign-currency denominated ROPs.

In the case of Mapfre Insular, which sells nonlife insurance products, including those for motor vehicles, the jittery caused by the financial crisis in the West is a blessing in disguise.

Opportunity
"The crisis became an opportunity for us to gather more customers," says Glenn Tolentino, senior vice president for sales at Mapre Insular. "Because of our solid financial standing, we became more of the public's choice."

Tolentino says the crisis made people more cautious in investing their money. People now only trust companies that are known for relatively conservative investment choices.

Previously, the inability of insurance firms to freely invest in sophisticated and more complex securities was seen to reflect the backwardness of the country's capital market.

Despite the birth of various investment instruments in highly developed Western markets, government securities still compose about 90 percent of the instruments traded domestically.

But observers say that the "backward" practice here served as a blessing in disguise--it saved the insurance industry from a similar meltdown now torturing the industrialized economies of the United States and Europe.

Observers also cited how American International Group had to be bailed out by the US government from its huge debts, while its subsidiary in the Philippines--Philamlife Insurance--remained the strongest insurance company here due to strict domestic regulatory policies.

But of course, this doesn't mean insurance firms in the country will always be content with investing only in fixed-income instruments issued by the government. While they thank tight regulation for keeping them safe from harm, insurance firms will still be working on boosting income by trying out other investment instruments, although in moderation.

Vida Chiong, deputy insurance commissioner, says the Insurance Commission does not implement what is perceived to be strict investment policies for the sake of doing it.

"What we want is a balance between protecting policyholders and regulation in such a way that will not stifle growth of the insurance industry," she says.