Despite insurers' resistance, PHL to raise required capital

As a guarantee that insurers can take on bigger risks, the Department of Finance is implementing the order to increase the paid-up capital and net worth of insurance companies.   A 2006 department order, mandated insurance companies to raise their paid-up capital to P175 million, from P125 million, by Dec. 31, 2011.   “Insurance is a business of scale.  It is highly-capital intensive to be able to answer the substantial risks it confronts each business day,” Finance Secretary Cesar Purisima said Tuesday.   But the insurance industry is up-in-arms and, and the main industry group —  Philippine Insurers and Reinsurers Association (PIRA) — wants President Aquino to stop the Finance Department from implementing Department Order 27-2006.   “Capital build-up will encourage merger and consolidation which a number of small life companies are now pursuing,” said Purisima.   “In this context, increasing capital may not necessarily result to closure of companies as it may even result to formation of bigger companies which may generate more employment opportunities,” Purisima said.   Filipino insurers have much lower capital among others in the ASEAN region (Association of Southeast Asian Nations), according to the Finance Department.   The capital requirement of P175 million ($4.6 million) for Philippine insurers compares with $33 million for Malaysia, $20 million for Singapore, $12 million for Indonesia, and $6.44 million for Thailand.   “Insurance companies should be solvent enough to guaranty the performance of their obligations to the insuring public. Their capital basis should be expanded to improve their retention ratios and promote less reliance on reinsurance,” Purisima noted. — VS, GMA News