By Ted P. Torres (The Philippine Star) Updated August 03, 2010 12:00 AM Comments (0) View comments
MANILA, Philippines - Newly appointed Finance Secretary Cesar V. Purisima is in favor of a higher capital and risk weighting regime for the country’s insurance industry.
“Bigger is better in this industry,” Purisima said during the 60th anniversary of the Philippine Life Insurance Association (PLIA) last week.
The finance secretary was referring to the country’s insurance industry, which is struggling to raise sufficient capital to cover all risks as well as meet the claims of the insurer public.
There are 120 insurance companies, 34 life and another 86 non-life insurance companies, including one re-insurer. All are required to reflect a minimum P100-million paid up capital covering the period 2009.
Department of Finance Department Order (DO) 27-06 requires that all life and non-life insurance companies must reflect a paid up capital of P250 million (or a P500-million net worth capital) by 2011.
“I am encouraging them (insurers) to prepare for bigger competition,” Purisima said. “They have to be bigger, stronger, and better capitalized.”
Majority of the life insurance firms have actual capital well beyond the required P100-million paid up capital for 2009. But industry sources said that a handful of life insurers might not be able to reflect legitimate paid-up capital of P125 million for period 2010.
“That is fine since we want bigger, stronger, healthier, and liquid firms that can meet our standards as well as the claims of the insuring public,” finance officials said.
After all, increasing capital that is risk-weighted is a global standard. Last year, a significant number of large commercial banks already went to the capital markets to raise funds ahead of global standards.
“Our interest is a healthier insurance industry, I hope we can revitalize them,” the finance secretary said.
The life insurers ranked in the top 10 in fact account for roughly 80 percent of total premiums yearly.
Among the non-life insurers, only a third have reflected paid-up capital of more than P100 million. The next 20 or so players reflected a flat P100 million paid up capital based on data from the Insurance Commission (IC).
In terms of gross premiums, only a quarter of the non-life insurers account for 70 percent of the business.
Purisima also wants the insurers to invest in infrastructure although the methodology has still to be worked out.
“The very nature of their industry is long term, and infrastructure investments are not only long term but a direct benefit to the economy,” he said before the life insurers.
The finance secretary said that a vibrant insurance industry is a crucial component to savings and investment
generation.
