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Mar 2020

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Regulator's wish list

Source: Asia Insurance Review | Feb 2020

The insurance landscape in the Philippines is an interesting one with 86 players in the primary market serving a population of 105m – suggesting that some consolidation might be in order. The regulator has big plans for the future.
By Paul McNamara
 
 
The closing months of 2019 were busy for the Insurance Commission (IC) in the Philippines as all insurance and reinsurance companies authorised to transact business there were advised of a ‘new network requirement as of 31 December 2019 and the corresponding increase in security deposit’. 
 
The message delivered to the market on 2 December was that in order for an insurance company to remain compliant, it must hold capital of PHP900m ($17.7m), up from PHP550m – while professional reinsurance companies must hold PHP2.5bn. 
 
New insurance companies will be required to have PHP1bn in paid-up capital. “In line with the increase in Networth, a corresponding increase in the security deposit … is required,” said Philippines insurance commissioner Dennis Funa in the 13th advisory issued by his department for 2019.
 
Too many cooks?
The nation presently has 86 insurers – with five composites, 26 life players and 55 non-life – in addition to the national reinsurer. For some time it has been felt that the large number of non-life players invited the prospect of consolidation while the merger of at least four non-life players has been mooted for some time.
 
Fast-forward to January 2020 and it became clear that the IC’s directive was going to prove to be challenging for many domestic players since the majority of general insurers were unable to meet the increased capital requirements by the deadline.
 
Disparity between life and non-life
The regulator indicated to local publication BusinessWorld that in Q12020 it would publish a list of insurers that were able to meet the new capital requirements but it seems that most life insurance companies were able to comply with only ‘a couple’ unable to do so.
 
The picture painted of the non-life sector was quite different and most players failed to meet the deadline while the IC confirmed that it expected several insurers to merge in the near future in an attempt to meet the new capital requirements. Further details of these mergers can be expected in the coming months.
 
Stepping back but not stepping away
Equally importantly, the IC changed its original plan to increase the capital requirement for insurers further in 2022 – and will keep the minimum capital requirement at PHP900m - rather than raising it to PHP1.3bn as it has previously intended. This strategic change is said to come after intense lobbying by the insurance industry, according to the Philippine Star.
 
Much of this communication happened over the Christmas/New Year period when, in a text message, Mr Funa said the IC would make a recommendation to finance secretary Carlos Dominguez to amend the Insurance Code, particularly in regards to the capitalisation requirement for insurance companies.
 
“I will recommend to secretary Dominguez that we stop at PHP900m, meaning, I will suggest that we forego the 2022 increase to PHP1.3bn as stated in the amended Insurance Code,” Mr Funa said. Raising the level to PHP1.3bn would have put the Philippine insurance industry at the very top of the league table in terms of capital requirement for insurance companies within Southeast Asia.
 
Other developments for 2020
Preliminary documents of an IC technical working group obtained by the Philippine Daily Inquirer suggest that the regulator also has a wide-ranging ‘wish list’ of future developments.
 
These include the desire to amend the insurance law to accommodate developments in areas like agriculture, takaful, catastrophe and parametric insurance. The Philippines has a Muslim population of almost 11m and this has led some insurers to believe that there is a market for takaful – presently not covered by insurance law.
 
In the light of Nat CATs that are becoming commonplace from Sydney through to Jakarta, the regulator also wants to help build resilience to risks through parametric insurance, extreme or exceptional events through catastrophe insurance, as well as protection of farmers against damages or losses to crops and livestock.
 
Regulatory wish list
The IC technical working group wish list is also said to cover regulating mandatory insurance for Filipinos working overseas, establishing an insurance guarantee corporation, imposing a capital investment requirement and higher capitalisation for disaster, marine and suretyship, establishing an entity to handle liquidation of distressed insurers and developing a supervisory framework to enforce and monitor insurance companies’ compliance with antifraud regulations. A 
 

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