THE Insurance Commission (IC) will use third quarter 2019 financial statements as an initial gauge of the industry’s compliance with the P900-million net worth requirement, and hurry the process along ahead of the formal deadline of Feb. 28.
In an advisory dated Feb. 11, Insurance Commissioner Dennis B. Funa said the IC will use as its basis third-quarter financials, including any later transactions such as cash infusions and other adjustments, to evaluate compliance with the requirement that insurance firms have net worth of P900 million by the end of 2019.
Mr. Funa told BusinessWorld that taking a financial condition reading in third quarter is the IC’s way to “pressure” insurance firms to build up their cash for the higher solvency requirement after learning that some firms are “struggling” to comply.
“The Insurance Commission is aware that some companies are struggling with their capital build-up,” he said via mobile phone on Tuesday. “Our concern is to pressure them to expedite this cash build-up and at the same time, make sure that policyholders are not placed at a disadvantage while they are still in the process of complying.”
Republic Act No. 10607 required insurance companies to bring their net worth to P550 million in 2016, P900 million in 2019 and P1.3 billion in 2022.
The IC plans to issue show-cause orders for companies failing to comply, ordering them to “make good any such deficiency by cash,” from shareholders within 15 days upon receiving the order letter.
The regulator said the order will ensure that the company will not “take any new risk of any kind or character unless and until it make good any such deficiency pursuant to Section 200 of the Amended Insurance Code.”
A cease-and-desist order will then be issued to companies that still fail to comply with the P900-million minimum within the given period.
“We do not want to close companies that are in the process of building up their capital. That will also not be fair,” Mr. Funa said further.
Initially, the IC’s compliance gauge was 2019 financial statements and a compliance deadline of April.
Asked to comment, the Philippine Life Insurance Association and Philippine Insurers and Reinsurers Association, Inc. said they have not yet drafted a formal response to the order pending consultation with members.
The IC has also required the industry to submit capital build-up plans and five-year financial projections.
An advisory in December was issued to remind companies to comply and a follow-up letter was sent last month for those companies with net worths of below P900 million.
The IC said Monday that SGI Philippines General Insurance Co., Inc. reported a P1.35 billion net worth ahead of the 2022 deadline.
SGI Philippines’ majority shareholder, Shriram General Insurance Co. Ltd., injected P624 million in fresh capital.
According to preliminary IC data, the industry’s premium income rose 2.76% year-on-year in the nine months to September.
In the first half of 2019, premium income declined 2.62% year-on-year. — Beatrice M. Laforga
