The government plans to carry out additional hikes in the capital requirements of insurance companies to enable the insurance sector to raise its resources to at least a third of those of the banking industry within 10 years.
According to Finance Secretary Cesar Purisima, the government wants the insurance sector to grow by a much faster pace, in step with the country’s own rate of growth.
Currently, combined resources of life and nonlife insurance companies in the country range from P600 billion to P700 billion—less than 10 percent of the P9.3 trillion in total resources of universal, commercial, thrift, and rural banks in the country, the Finance chief told reporters.
One way to boost its resources is to further hike the capital requirements of the sector, on top of the one implemented in August when the new Insurance Code was enacted, he said.
“An increase in capital normally comes with an increase in resources,” Purisima explained.
With higher capitalization, insurance firms tend to become bigger and more financially stable—able to offer more financial products.
Under the new Insurance Code, an insurance company’s net worth must be at least P250 million this year, P550 million by June 2016, P900 million in 2019, and P1.3 billion by June 30, 2022.
The Department of Finance and its attached agency, the Insurance Commission, believe that the insurance sector needs to boost its capital requirements.
The Insurance Commission is inclined to implement a risk-based capitalization system where companies are required to set aside additional capital every time its risk exposure increases, said Emmanuel Dooc, head of the commission.
The risk-based capital requirement will be on top of the regular capital requirement provided for in the Insurance Code.