Tuesday, November 25, 2008 Insurance sector ‘strong’
THE life insurance sector in the country may feel the pinch of the global financial crisis—its income may be lower than before.
However, the Insurance Commission (IC) assured that the present global economic turmoil will not have a significant impact on the sector since insurance companies have adequate capitalization and regulated risks, and are covered by protective government rules.
IC deputy insurance commissioner Vida Chiong said it is a “timely and good move” for the commission to require insurance companies to increase their paid-up capital to strengthen their financial capability.
“So at the end of the year, expect the next round of increases of paid-up capital to make insurance companies more stable and financially strong,” she disclosed, speaking through a video presentation during a symposium organized by the Philippine AXA Life Insurance Corp. (AXA Philippines). The event was held last week at Waterfront Cebu City Hotel and Casino in time for AXA’s ninth anniversary of operations in the Philippines.
Under the capitalization order that the Department of Finance issued in 2006, Filipino-owned life and non-life insurance companies are required to beef up their minimum paid-up capital from P50 million to P75 million, and their net worth from P100 million to P150 million by the end of 2008.
2011 increases
By 2011, their paid-up capital must increase to P250 million while their net worth must be P500 million.
Chiong cited regulated risk as another reason the insurance sector is not threatened by the financial crunch that affects the United States, Europe and other economies worldwide. She said there is a “good balance” in the regulations that protect policy holders without hampering the growth of companies in terms of profits.
“The investments of insurance firms are heavily focused on virtually risk-free government securities, including peso-denominated treasury funds. (At the same time) they are required to tap good fund managers with strong financial background when investing offshore,” she said.
She also noted that the downfall of large financial institutions in the US could be attributed to over-investment and highly-speculative derivatives—a type of security whose value is derived from another underlying security.
“Here in the Philippines, insurance companies are not allowed to invest in derivatives despite the criticism that we should go into them. I think, with what has happened in the US, insurance firms (have) realized the impact of doing so,” she said.
Protective rules
Chiong also cited “protective rules” crafted by the government—such as requiring companies to provide strong, steady financial statements to the regulator to ensure that they have the financial capability to provide sufficient protection to policyholders—as another source of strength for the insurance sector.
In cases of sale of a company, as what is happening with the Philippine American Life and General Insurance Co. (Philamlife), the IC also has to approve the change of ownership after evaluation of the buyer’s financial capability, track records and other requirements.
“So if you have a policy with Philamlife, do not worry because (we) still have to evaluate the positive financial capability of the buyer to ensure that each policy will be continuously served,” she said.
Data from the IC website shows that assets of life insurance providers in the country reached P366.9 billion as of the end of December 2007.
In the same period, the industry’s total paid up capital and net worth recorded at P9.1 billion and P73.1 billion, respectively. (NRC)
