Life insurers told to form ‘critical number’ for mergers

Business World
Finance
Posted on November 24, 2011 10:41:40 PM

LIFE INSURANCE companies mulling a merger need to form a “critical number” to secure the approval of the Insurance Commission (IC).

“Five insurers have already signified interest to merge,” Insurance Commissioner Emmanuel F. Dooc said in an interview yesterday, although he declined to identify the parties involved.

“We told them to come up with a critical number so they can better pool their resources. The ideal number for the merger is eight to 10 firms,” he added.

Talks of a merger among life insurers began last month, as smaller firms face higher capitalization requirements.

The IC has mandated all insurers to have a minimum paid-up capital of P175 million by the end of this year, increasing to P250 million by the end of next year.

The regulator is also eyeing a further hike in their capitalization to P750 million to P1 billion by the end of the Aquino administration in 2016.

“I don’t think many of the small companies can comply,” Mr. Dooc said.

But even the larger players hesitate when it comes to a merger, as some are family-owned or closely-held, and the owners do not want to let go their businesses, he added.

Some insurers also enjoy niche businesses that they will have to give up in a merger as products and services will have to be pooled in the surviving company, Mr. Dooc said.

Nevertheless, the IC is holding talks with the boards of insurers to ask them to consider a merger. It has also reiterated to the companies that the capitalization requirements will be implemented as scheduled.

“Whatever happens, the proposed merger must be finalized by next June, in time for the issuance of the CA (certificate of authority) to licensed insurance companies,” Mr. Dooc said.

There are currently 30 life insurance companies licensed to operate for 2011 to 2012, down from last year’s 34. -- Diane Claire J. Jiao