Finance



By Imee Charlee C. Delavin, Reporter


Non-life insurers eyeing mergers, consolidation




Posted on June 13, 2016


MORE non-life insurers are expected to consolidate this year amid higher capital requirements as their operations can’t support the mandated hike.

There are currently 65 non-life insurers in the Philippines, down from the 90 players recorded in 2011 due to the higher requirements for minimum paid-up capital and stiffer competition with the entry of more foreign firms in the country.

“Distressed companies are having talks with healthy insurers for possible mergers,” Insurance Commissioner Emmanuel F. Dooc said in a text message.

“I hope they progress since we want to help ailing companies resolve their financial woes.”

Republic Act (RA) 10607 or the Amended Insurance Code of the Philippines signed in August 2013 required new life and non-life insurance companies to have P1 billion in paid-up capital when they set up shop here, while existing insurers must have a paid-up capital of P250 million by June 2013, P550 million by December 2016, P900 million by December 2019 and P1.3 billion by December 2022.

The minimum paid-up capital and net worth requirements must remain unimpaired for the continuance of the license.

The more stringent capitalization requirements were pushed to make the insurance industry stronger and more resilient to shocks, thus safeguarding the money entrusted by policyholders.

But non-life insurers said the volume of their current operations compared to increasing competition and higher capital requirements along with the implementation of the risk based capital (RBC) formula -- resulting in an increase in capital or reserves -- makes it more attractive to sell at a possible premium rather than raise additional funds to meet the regulatory requirements.

As of end-2015, only nine non-life companies had at least P500 million in paid-up capital among the non-life firms in the country.

Non-life industry group Philippine Insurers and Reinsurers Association, Inc (PIRA) former chairman Michael F. Rellosa said the minimum capital requirements and the RBC will be good for the industry but the review of the tax structure on the industry must result in lower tax burdens.

“The capital and RBC requirements can make the industry more competitive and financially sound but the tax burden will simply negate whatever gains,” Mr. Rellosa said.

Unlike life insurance companies that are levied only a 2% tax on their premiums, non-life insurance policyholders shoulder a 12% value-added tax (VAT) and a 12.5% documentary stamp tax (DST). Atop that, there is also an additional 2% fire service tax and 0.15-0.17% municipal tax for property insurance.

Mr. Rellosa, who is also president and CEO of Fortune General Insurance Corp., noted that many non-life companies are having difficulty shoring up capital to meet the requirement, adding that the companies “cannot get from operations the increased capital.”

In a related development, industry sources said recently that five non-life insurance companies are recently in talks over a possible “mega merger” deal by the end of the year.

The Insurance Commission did not confirm the said report.

Stronghold Insurance Co. Inc. was said to have initiated a merger deal with Milestone Guaranty & Assurance Corp. and BF General Insurance Co. Sources also said Stronghold initiated talks with Premiere Insurance & Surety Corp. and Country Bankers Insurance Corp. for the possibility of a similar deal.

Should the mega deal push through, the surviving company would have around P400 million in total premium portfolio, putting it among the top 20 industry players.