Flurry of M&As among insurers seen

The Insurance Commission (IC) expects at least three mergers and acquisitions (M&As) among local insurers this year, ahead of the mandatory hike in an insurance firm’s net worth to at least P1.3 billion next year.

Insurance Commissioner Dennis Funa told the Inquirer on Thursday that one undercapitalized non-life firm, which he refused to identify, was expected to be sold to a foreign investor.

“I was told the sale would be completed by March, and that there will be a change in company name. Parties requested nondisclosure at this time,” Funa said.

Last month, Funa disclosed that only two non-life insurers remained noncompliant with the end-2019 net worth requirement.

Under Republic Act (RA) No. 10607 or the Amended Insurance Code, all life and non-life insurance companies must have at least P900 million in net worth by Dec. 31, 2019.

When the COVID-19 crisis struck last year, the regulator gave more time to undercapitalized insurance players to comply with the requirement as the pandemic wrought harder times to the sector like all other sectors of the economy.

As for Empire Insurance Co., which the IC had placed under conservatorship, Funa said “some parties have expressed interest to acquire” it.

“But we will have to wait for developments there,” Funa said.

Besides these M&As involving undercapitalized insurers, Funa also pointed to the consolidation of the Lucio Tan Group’s non-life businesses under privately held Allied Bankers Insurance Corp.

Philippine National Bank (PNB) and PNB Holdings Corp. earlier sold all of its shares in PNB General Insurance Co. Inc. to Allied Bankers for P1.52 billion.

As the government was standing pat with the higher end-2022 capitalization requirement, global insurance credit rating agency AM Best in November last year projected a flurry of M&As among insurers in the Philippines.

“Many small- and medium-sized companies will need to bolster their capital bases to comply with the increasing minimum net worth requirements and given the remaining time period, AM Best expects that this will likely be achieved through capital raises with new/existing shareholders, rather than through internal capital generation,” it said in a Nov. 5, 2020 report.

“AM Best anticipates some potential M&A activity to also arise in the Philippine insurance market in the run up to the end of 2022, which will be credit positive for the overall industry,” it added.

However, “in view of the economic fallout from COVID-19, AM Best notes that there is a possibility that M&A momentum and the impetus to shore up capital positions may falter over the near term,” it said.

“Over the near to intermediate term, the recent rejection of a relaxation in minimum capital requirements is likely to pose continuing challenges to many local insurers that are facing significant pressure on underwriting growth and profitability amid the ongoing COVID-19 pandemic. As such, the balancing of priorities such as meeting licensing requirements and ensuring business survival during this critical period, which may be prolonged, is a difficult task for which a number of insurance companies will require further support from the regulator,” AM Best said. —Ben O. de Vera