Non-life firms buck capitalization rules | Inquirer Business

Non-life firms buck capitalization rules

/ 10:48 PM February 16, 2012

NON-LIFE insurance firms have voiced objection to “arbitrary” and “one-size-fits-all” capitalization requirements slapped on them.

However, officials of the Philippine Insurers and Reinsurers Association (PIRA) said in a briefing Thursday that most of their 86 members are intent on meeting the P175-million minimum by the end of this year.

PIRA spokesperson Michael F. Rellosa said the Department of Finance’s policy of imposing a uniform standard of capitalization could force some small and medium-sized companies to fold up despite being well-managed.


“Members that could not meet the minimum may invoke their right to question the regulation in court and seek legal remedy to prevent their demise,” said Rellosa, a past president of PIRA.


“We believe that DOF cannot just mandate a minimum capital level without a careful study of how much is really needed,” he said, “Capitalization should be determined by the market and decades of underwriting practice.”

Further, Rellosa said PIRA members are actually over-capitalized, considering the size of the non-life insurance market in the country.

Rellosa said the total paid-up capital of the domestic industry amounted to P15 billion in 2010 when total retained premiums reached P23 billion.

“Instead of requiring companies to raise capital, the DOF should instead promote insurance so more Filipinos would buy (policies),” he said.

Citing industry data, Rellosa said the Philippines insurance industry has one of the lowest penetration rates at 12 percent.

“One of the reasons is that the country has one of the highest taxes on insurance products in the whole world at 26 percent,” he said.


Even then, industry officials said they would support the government’s bid to raise capitalization if it switches to the risk-based capitalization standard, which pegs the amount of capital needed to the amount of risk a company is willing to take.

“This means no guesswork,” Rellosa said. “The bigger the risk, the bigger the required capital.”

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TAGS: Business, capitalization, Insurance, non-life, PIRA

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