The Insurance Commission (IC) has issued the rules and regulations that will govern the merger and consolidation of insurance companies to make sure policyholders are protected.
Insurance Commissioner Emmanuel F. Dooc issued Circular Letter 2015-11, which requires insurance companies that plan to merge or consolidate to ensure that the liabilities of the companies that will be absorbed or dissolved in the merger or consolidation, including existing policies, should be transferred or assumed by the surviving or resulting corporation.
Under the provision on the discharge of liabilities, the circular letter provides that: “The company or companies to be absorbed or dissolved must undertake to discharge all its accrued liabilities; otherwise, such liabilities shall, with
the consent of its creditors, be transferred to and assumed by the absorbing or acquiring company.”
“In case of policies subject to cancellation by the company or companies to be absorbed or dissolved, the same must be canceled pursuant to the terms thereof in lieu of such transfer, assumption or reinsurance and submission of proof of endorsement notifying the insured of such cancellation. In any case, proof as to the discharge of its accrued liabilities must be in writing and submitted to the commissioner.”
The circular provides that the IC should be notified of the planned merger or consolidation at least 30 days before any board action to approve any plan of merger or consolidation.
The planned mergers and consolidations must also comply with the requirements and processes under the Corporation Code, such as the requirement for a board resolution authorizing the same and the approval of stockholders representing two-thirds of the outstanding capital stock of all corporations involved, subject to appraisal right of dissenting stockholders. Aside from the requirements under the Corporation Code, the circular also provides that mergers and consolidations should be approved by the IC before it could be endorsed to the Securities and Exchange Commission (SEC) for its approval.
“Before the insurance commissioner endorses the articles of merger/consolidation to the SEC, the current year’s examination/verification shall be utilized for the purpose of determining the financial condition of the concerned insurance companies,” the circular said. After such financial examination, the Insurance commissioner shall then decide on whether to approve or deny the planned merger or consolidation.
Due to the increased capitalization requirements for insurance companies in the Philippines, the government is encouraging mergers and consolidations, not only to ensure that the claims of policyholders would be paid promptly, but also to make local insurance companies competitive in the expected stiffer competition when the Asean economic integration starts in 2016.