Capital hike to decimate life insurance firms

Posted at 03/15/2012 6:41 AM | Updated as of 03/15/2012 7:34 AM

MANILA, Philippines - The mandatory capital increase for life insurers to P1 billion by 2016 is going to decimate the industry and leave no more than nine players standing after four years instead of the 30-odd players now in operation, insurance executives said on Wednesday.

Life insurance executives were to dialogue with Insurance Commission chief Emmanuel F. Dooc today, Thursday, for this reason and to try to convince the regulator to scale back or defer implementing the capital buildup program that has engulfed both life and nonlife insurance providers.

Insurance executives have since questioned the capital buildup that initially worried only nonlife insurers but has now affected life insurance companies, as well.

George Mercado who heads the Philippine Life Insurers Association or PLIA told Dooc in a letter dated March 14, 2012 the mandatory capital buildup has to be explained and justified to their respective shareholders who may not necessarily agree with the mandate.

Mercado said while 24 percent of PLIA members support the commission’s draft order increasing the minimum paid-up capital to P1 billion, 21 percent of its members expressed apprehension and reservation over several provisions of the draft order.

He did not disclose the apprehension and reservations of PLIA members but 18 companies representing 55 percent of members said it was up to PLIA leadership to represent their collective interests at the dialogue.

Insurers under the capital buildup program are required to come up with a paid-up capital of P250 million this year, P450 million by 2013, P625 million by 2014, P800 million by 2015 and the full requirement by 2016.

Insurance executives tried to reason with Finance Secretary Cesar V. Purisima earlier but failed to convince him that while the interest of the insuring public was paramount, nothing justifies the drastic hike in paid-up capital to P1 billion.

Purisima has stubbornly maintained the insurance business is a capital-intensive enterprise and that local players have to contend with foreign players by 2016 when regional financial integration shall have taken place.

An insurance executive requesting anonymity told reporters on Wednesday even the Philippine Insurer and Reinsurers Association or Pira, which groups the country’s nonlife insurers might be forced to take the regulators to court and stop them from implementing the capital buildup program.

Pira executives such as Mario Valdez have since argued insurers do not see logic or necessity in raising the minimum paid-up capital because this one-size-fits-all approach was hurting even those who have always been niche players and have always been able to meet their commitments.

The anonymous life insurance executive said maxing up the minimum paid-up capital to P1 billion was a waste of capital resources for many players who traditionally underwrote only P250 million or less.

For these executives, the minimum capital requirement does not make sense for players who underwrite risks much less than the P1 billion the government is asking each one to cough up over a four-year stretch.

“Pira just might make good its threat to sue the government and stop the capital buildup program,” the insurance executive said.