5 non-life insurance firms intend to close down

MANILA, Philippines – Five non-life insurance companies have signified their intentions to close down, as some expect they won’t be able to comply with future capital requirements, the Philippine Insurers and Reinsurers Association (PIRA) said.

Antonio Roderick Cabusao, member of the public relations and education committee of PIRA, said that 5 companies are ready to shut down operations as they foresee that they won’t be able to comply with the P1.3 billion capitalization requirement by the end of this administration’s term.

Under the Amended Insurance Code, the capital requirement of insurance companies will increase every 3 years until 2022.

The required minimum net worth is P550 million effective December 31, 2016, P900 million by December 31, 2019, and P1.3 billion by December 30, 2022.

“They’ve made a voluntary surrender of their license. It’s not because they’re losing money. There are different reasons. (Some of) the owners thought that, if I were to put in money now to comply with the P550 million requirement, I may be compliant now, but will I be able to comply until 2022, when the requirement is already at (P1.3) billion,” Cabusao said.

“Since (they) don’t have enough capital (by then), right now, (they’ll) just voluntarily surrender. (They’re not at a loss right now), it’s just that they don’t have enough money to comply with the future requirement,” he added.

Dennis Funa, insurance commissioner, earlier said that of those that signified that it will close, one company that is sure to close is the Manila Surety and Fidelity Company. 

“It has signified that it will no longer continue its non-life insurance business. So the rest, we will just have to await for the right time, we will be announcing them,” Funa said.

To merge or to close down

Meanwhile, 8 companies are ready to merge into 4 companies this year. These will bring down the number of non-life insurance companies by the end of this year to 54 from the current figure of 63. (#RubyPH: Non-life insurance firms prepare for huge claims)

“It does not mean that, since the insurance industry is going down in terms of number of companies, (we) are losing. In fact, we are strenghtening because there’s more financial strength,” Cabusao said.

Last April, the Insurance Commission (IC) issued new rules governing the voluntary withdrawal or cessation of business by domestic non-lifer insurers, wherein they shall be subject to the control of the IC throughout the entire exit process to ensure that its policyholders are protected.

Under the new rules, an insurance company shall not be considered to have withdrawn from engaging non-life insurance business until it has been officially declared by the IC. 

Prior to the issuance of the rules on voluntary cessation governing non-life insurance companies, companies which seek to voluntary withdraw from the business are only required to apply for a servicing license pursuant to IC Circular Letter No. 2014-14. 

In the approval of an application for voluntary cessation to engage in non-life business, an insurance company is now required to submit a complete proposal, including the timeline for the settlement of its obligations and liabilities to its policyholders and creditors, together with its audited financial statements, and list of liabilities to policyholders and creditors. 

The new rules are not applicable to companies placed under conservatorship, receivership, or liquidation, to those with existing Cease and Desist Order from the IC and those with deficiency in net worth and/or is not compliant with the risk-based capital (RBC) 2 requirement. 

Funa said that the new rules applies only in case the applicant company is compliant with the minimum net worth requirement or with the RBC 2 requirement, whichever is higher. 

“The first step in determining the applicability of the new rules on voluntary cessation is to determine the applicable minimum net worth requirement and the required RBC ratio of the applicant,” Funa said.

“In case the minimum net worth requirement applicable at the time of filing of the application for withdrawal from business is higher than the amount arrived as after the computation of the RBC, then the company would have to comply with the net worth requirement. On the other hand, should the computed RBC be higher than the minimum net worth requirement, then the company should comply with the RBC,” he added. 

If the applicant is found to be compliant with the minimum net worth or RBC 2 ratio, whichever is higher, a servicing license shall be issued in its favor. 

Otherwise, a show cause order against the company may be issued, which may result in placing the company under conservatorship, receivership, and ultimately, liquidation. – Rappler.com