Gov't eyes higher capital requirements for insurers

Posted at 01/10/2012 1:18 PM | Updated as of 01/11/2012 11:31 AM

MANILA, Philippines - After thumbing down the request of non-life insurance companies to suspend a scheduled increase in their capitalization requirements, Finance Secretary Cesar Purisima revealed on Tuesday that the Aquino government plans to further raise these requirements to align them with neighboring countries.

In a statement, Purisima said the P175 million (roughly $4.6 million) minimum paid-up capital required of all Philippine insurers is "very low" compared with Malaysia's $33 million, Singapore's $20 million, Indonesia’s $12 million, and Thailand's $6.44 million.

“Once the ASEAN insurance market opens up in 2015, there is a compelling need to increase our capital to be more competitive by achieving stronger underwriting capacity, improving economies of scale and greater operational efficiency,” Purisima said.

The Finance Department issued Department Order 27-2006 over five years ago, requiring the country's insurers to increase their minimum paid-up capital to P175 million at end-2010 and P250 million by the end of this year.

In an open letter to President Aquino that was published in major newspapers Monday, the non-life insurance industry organization, Philippine Insurers and Reinsurers Association (PIRA), asked the President to order the suspension of the increases, calling them "discriminatory and unreasonable." PIRA also warned that the higher requirements might result in the closure of the small companies.

But Purisima rejected the call. He said the capital build-up is necessary to safeguard the Philippine insurance industry against financial shocks. He said this will result in "bigger" companies that will have more capacity to accept risks and protect their policy owners.

“Insurance is a business of scale. It is highly capital intensive to be able to answer the substantial risks it confronts each business day."

“Insurance companies should be solvent enough to guaranty the performance of their obligations to the insuring public. Their capital basis should be expanded to improve their retention ratios and promote less reliance on reinsurance,” he added.

Purisima also noted that Department Order 27-2006 was held "valid and legal" with finality by the Supreme Court in 2008 after it junked a petition for review filed then by insurer Covenant Assurance Co. Inc.

He said at the end of the day, “Our primordial interest is to secure the investments of the insuring public which number into millions, provide better service to all stakeholders and enhance the solvency positions of the insurers."