President Aquino III has signed into law the bill amending the country’s 38-year-old Insurance Code.
Finance Secretary Cesar Purisima said the new Insurance Code, which raises capital requirements for insurers among other reforms, will pave the way for a stronger insurance sector that can better compete with foreign counterparts.
He said the new Code would help prepare the country’s insurers for the integration of member-economies of the Association of Southeast Asian Nations (Asean) by 2015.
“We [Department of Finance] welcome the amendment of the 38-year-old Insurance Code which would not only improve the regulation and supervision of the insurance industry but, equally important, propel it to become more competitive in time for 2015 Asean market integration,” Purisima told the Inquirer.
Under the new Insurance Code, the capital requirement for insurance firms will increase every three years until 2022. The objective of the increases is to ensure that insurance firms have sufficient buffer against risks amid rising demand for financial instruments and a growing economy.
The required net worth—defined as the sum of paid-up capital, retained earnings, unimpaired surplus, and revalued assets—is set at P250 million this year, P550 million effective June 30, 2016, P900 million starting June 30, 2019, and P1.3 billion by June 30, 2022.
The new Insurance Code likewise institutionalizes bancassurance—the partnership between a bank and an insurance firm that allows sale of insurance products in the bank’s branches—and micro-insurance activities.
As such, Purisima said, the new law will help encourage more Filipinos to avail themselves of insurance products, some of which have savings and investment features.
“[The new Insurance Code is expected to] help the insurance industry become a stronger leg in savings mobilization and capital market development. Insurance funds, by its long-term nature, are natural sources for infrastructure funding,” Purisima said.
The law likewise allows insurance firms to invest in more financial instruments. Previously, they could only invest in virtually risk-free instruments, mainly government securities
The law also requires the use of modern, international accounting standards in reporting and auditing financial reports of insurance firms.
Insurance Commissioner Emmanuel Dooc earlier said there was a pressing need to amend the law to enhance regulation of the industry.
The law also gives a fixed six-year term to the Insurance Commissioner.
Dooc earlier this month filed a resignation letter, saying he wanted Malacañang and the DOF, the head agency of the Insurance Commission, to have a free hand in choosing who will head the agency under the new regime.
Purisima said he would suggest to the Palace that Dooc be reappointed to serve the fixed term.