THE recent decision of the Department of Finance(DoF) not to cap the minimum net worth requirement of insurers at Php900 million will likely cause a further reduction of the Filipino-owned insurers.
The next increase of capital is mandated at Php1.3 billion which means an additional infusion of Php400 million to meet the final requirement of Republic Act No. 10607. In other words, all insurers are given two years to comply before December 31, 2022.
The Insurance Commission report of 2019 disclosed that only 48 of the 58 non-life insurers were Filipino-owned. The report also clearly shows that 28 Filipino insurers could not meet the capital increase of Php900 million.
On the life sector composed of 30 insurers, only twoFilipino companies did not meet the Php900-million requirement.
Another revelation was that of the 57 insurers, only 26 non-life insurers produced more than Php900 million in premium whilst 31 Filipino-owned companies made much less.
The impact of the COVID-19 pandemic has caused a slowdown of business opportunities such that the insurers will have a difficult time in raising the Php400 million to meet the Php1.3 billion paid up capital. It is therefore expected that there may be again a reduction in the number of Filipino insurers.
With the foregoing as a background, we reiterate the appeal of Filipino insurers for the DoF to appreciate their situation, as there are other ways to create “virtual capital” to expand protection of clients and the insurer, using a reinsurance facility to share risk exposures with reputable and global reinsurance companies.
The insurers have access to reinsurance facility support to cover the risk beyond their planned retention, which is limited to 20% of their capitalization. This reinsurance support allows insurers to protect much bigger risks for their valued clients. Based on their past portfolio, insurers can also negotiate with reinsurers for an annual reinsurance treaty for automatic sharing of risks. They can also secure reinsurance support on a case by case basis, a facultative support for one big client at a time.
Further, insurers can secure an Excess of Loss(XOL) protection for their annual retained risks, with a manageable deductible share for each and every event loss. This XOL reinsurance facility protects the insurers from excess of loss from their annual aggregate risk exposure.
The proper management of these reinsurance support expands the capability of insurers to protect bigger portfolio of their valued clients by sharing the bigger risk exposures with reinsurance partners.
These global reinsurers also provide innovative reinsurance solutions.
These reinsurance treaties are reviewed and monitored by the Insurance Commission. Our National Reinsurance Corporation provides this local reinsurance support. All other reinsurance companies must be registered locally with a local representative agent.
In this respect, we would advocate that local insurers can continue to offer protection for their valued clients by leveraging the reinsurance partnership – like a “virtual capital” to enhance their financial stability.
*The author is Editor of Insurance Philippines. REYNALDO A. DE DIOS
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