The Insurance Commission (IC) has issued new rules governing the voluntary withdrawal or cessation of business by domestic nonlife insurers.
Under the new rules, an insurance company shall not be considered to have withdrawn from engaging non-life insurance business until it has been officially declared by the IC.
In its 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 specifically not applicable to companies placed under conservatorship, receivership or liquidation, companies with existing Cease and Desist Order from the IC and those with deficiency in net worth and/or are not compliant with the RBC 2 requirement.
Insurance Commissioner Dennis B Funa clarified that the new rules apply only where the applicant company is compliant with the minimum net worth requirement or with the RBC 2 requirement, whichever is higher. In such a case, the applicant will be given a servicing licence. Otherwise, a Show Cause Order against the company may be issued which may result in placing the company under conservatorship, receivership and ultimately, liquidation.
The IC says tht it shall only be upon settlement of all its obligations and liabilities to its policyholders and creditors that a company may be officially declared to have withdrawn from engaging in insurance business.
Mr Funa said: “Under the new rules, a nonlife insurance company which seeks a voluntary exit from the market shall be subject to the control of the IC throughout the entire exit process to ensure that policyholders are protected.”
An overseer shall be appointed by the IC to determine and monitor the settlement of the outstanding liabilities of the company based on the list of existing policyholders and creditors, schedule of losses and claims payable, schedule of taxes payable and list of pending cases before any judicial, quasi-judicial and/or administrative body.
Furthermore, an applicant company shall be subjected to certain restrictions which are applicable upon the filing of its application to voluntarily withdraw from the business and during the pending period thereof. These includes prohibition on
- ) declaration of any form of dividends, unless approved by the Commissioner;
- ) distribution of any form of profit, bonuses, and other compensation schemes that are based on the profits or earnings of the company in favour of members of the board of directors, executives, and officers, except law-mandated bonuses; and
- ) increase in salaries, per diem allowances, fringe benefits and any similar compensation and benefits to members of the board of directors, executives, and officers, unless approved by the Commissioner.
Mr Funa said: “It is through the observance of a rigid exit regulation that we can protect the interests of policyholders. We determined that it is appropriate to impose additional guidance on the process by which a nonlife insurer may exit the market and to streamline the process where the impact on the policyholders shall be at a minimal level.”
Insurance companies in the Philippines are merging or closing down as the IC implements its programme for insurers to increase their capital. The minimum paid-up capital of all domestic life and nonlife insurance firms is being increased in stages, from PHP250 million in 2013 until PHP1.3 billion (US$26.2 million) by end-2022.