IC eases up on capital hike rule
RISK-BASED APPROACH TO REPLACE MANDATED FIXED INCREASES

By Jun Vallecera
Reporter

THE Insurance Commission gave the industry some respite on Monday by lifting for two years a mandated graduated capital hike for life and nonlife insurers in favor of a modified risk-based capital approach considered less difficult for the industry.
           
Insurance chief Evangeline Escobillo said this approach to making the industry more competitive against regional rivals would render it stronger in a shorter time than it would be if the firms were simply required to raise their capital base alone—a difficult endeavor at this time for the industry to comply with.
           
The requirement was to raise the insurance firms’ current capital over time to as high as P500 million or even P1 billion, but Escobillo added the commission heeded industry appeals and adopted the scheme they now have. Here, the minimum capital was pegged against a standard risk-derived number, with that number being computed from a player’s net worth divided by the amount of its capital considered at risk.
           
This risk capital ratio was to be computed based on 2006 financial reports.
           
“From the surveys and studies we made of insurance regulation around the world, a 250-percent risk-based ratio is already within a comfortable zone where an industry is considered healthy and does not need to be micromanaged,” she said.
           
She added that 90 percent of existing players must attain this minimum risk-based number, otherwise the original plan to hike their capital bases over time kicks in.
           
The 10 percent that do not make the grade are mandated to increase their minimum capital to indicated levels starting this year, she said.
           
Escobillo said the two-year suspension should give enough lead time for the less financially endowed players to fortify their capital and comply with the mandated levels as scheduled.
           
The original capital buildup plan for insurance firms mandate life and nonlife players to lift their minimum net worth to P100 million at the end of the year; and by P50-million increments each year till they have accumulated the required amount by 2011.
           
That order, issued by the Department of Finance, took many players by surprise, particularly those with capital lower than that required by the initial hike. But it was designed to weed out the fly-by-night operators that have victimized countless policy holders in the past and have given the insurance industry a bad name.