Amid high inflation, recent interest rate hikes as well as a weaker peso, the Insurance Commission has given pre-need companies relief from financial market volatility.
Insurance Commissioner Dennis B. Funa last November 14 issued Circular Letter (CL) No. 2018-58, which provided regulatory relief to the pre-need industry, citing “high volatility” in the domestic financial market.
This regulatory relief was allowed under Republic Act No. 9829 or the Pre-Need Code of the Philippines, which took effect in 2009.
“The Philippines is currently experiencing high volatility in the financial market because of the following factors: rising inflation rate; expectations of more interest rates hikes from Bangko Sentral ng Pilipinas (BSP); and weakening of the Philippine peso against the US dollar,” Funa noted.
Headline inflation in September and October hit 6.7 percent year-on-year, the fastest rate of increase in prices of basic commodities in over nine years.
The BSP’s policymaking Monetary Board last Thursday again hiked interest rates by 25 basis points, bringing the key policy rate to 4.75 percent after a total of 175-basis point increase so far this year.
The peso, meanwhile, fell to 13-year lows amid a widening current account deficit brought about by an also larger trade-in-goods deficit.
Funa said “the Philippine pre-need industry is significantly impacted by the volatility in the financial market.”
To stabilize the impact of a volatile financial market, Funa said that in the case of publicly listed equity securities acquired on or before December 31 last year, “pre-need companies shall have the option to use the prevailing market rate as prescribed by the Philippine financial reporting standards (PFRSs) or the market value as of Dec. 31, 2017 (the regulatory relief) in the valuation of the publicly listed equity securities.”
For equity securities acquired after December 31, 2017, pre-need firms “shall have the option to use the prevailing market rate as prescribed by the PFRSs or the acquisition cost (the regulatory relief) in the valuation of the publicly listed equity securities,” Funa said.
Also, pre-need industry players “may use the market value as of December 31, 2017 and/or acquisition cost provided that the equity securities are not intended for sale in short term,” he added.
As for fixed-income debt securities, they “shall have the option to value all the securities at amortized cost,” according to Funa.
In the case of pre-need reserves, Funa said there is the option “to use the prevailing market rate or the discount rate for the reserves under CL 23-2012,” referring to the earlier Insurance Commission issuance covering the valuation of transitory pre-need reserves. /kga