Rules on insurers’ investments in REITs finally out

The Insurance Commission (IC) has released the rules that will finally allow insurance companies to invest in real estate investment trusts (REITs), the rollout of which had been put on hold for a decade due to then unresolved tax issues.

“While the Insurance Code specifically allows insurance companies to invest in REITs, it is not a self-executory provision. In other words, there is a need for the issuance of implementing rules and regulations,” Insurance Commissioner Dennis Funa said in a statement.

Under Circular Letter No. 2019-27 issued on June 21, the IC said REITs could be admitted assets of insurance firms and mutual benefit associations (MBAs); for preneed providers, REITs can be allowable investments.

Funa said all REITs must first be approved by the Securities and Exchange Commission (SEC).

Also, insurance companies can invest in REITs but only if these were publicly listed.

For life insurers and MBAs, the aggregate placement must not be more than 10 percent of total admitted assets.

As for nonlife firms and professional reinsurers, the placement cannot be over 20 percent of net worth.

REIT investments of preneed firms, meanwhile, should not exceed 15 percent of total trust funds.

All insurers’ investments will also be subject to a 25-percent risk-based capital charge under the amended RBC framework.

“Despite the fact that a decade has passed since the REIT lapsed into law, no Philippine REIT has been incorporated or established. This can be attributed to the claim of market players that legal and administrative requirements have made investment in the Philippine REIT market difficult. However, we deemed it necessary to issue the new regulation on investments on REIT of insurance and preneed companies,” Funa said.

Republic Act No. 9856, or the REIT Law, was enacted in 2009.

“Taking into consideration much-anticipated amendments to the implementing rules and regulations of the REIT Law by the SEC and the ‘Build, Build, Build’ infrastructure program of the Duterte administration, the issuance of the investment guidelines for the insurance and preneed companies is very timely to ensure that insurers and preneed industry players are well-prepared,” according to Funa.

“The new regulation will allow the insurance and preneed companies to hit the ground running as early as the first listing of a Philippine REIT,” he said.

“REIT would provide for additional investment options for insurers in the country. It will also contribute to the enhancement of their participation in capital markets that will help them boost their returns,” he added.