4 nonlife insurers told to stop doing business

BY KARL LESTER M. YAP, BusinessWorld Reporter The Insurance Commission, the government body regulating insurance companies operating in the country, has disallowed four nonlife insurers from continuing to do business for failure to meet capital requirements. However, one of them later on managed to submit the requirements and secured a permit to resume operating. In a March 7, 2006 letter, Insurance Commissioner Evangeline C. Escobillo sent the Land Transportation Office (LTO) the updated list of nonlife insurance firms that have no capital impairment or margin of solvency deficiency. These companies are still allowed to engage in insurance businesses such as the compulsory third-party liability policy required by the LTO for vehicle registration. Ms. Escobillo identified four firms that were unable to meet the said requirements, namely: Asia United Insurance Inc., Cathay Insurance Co. Inc., South Sea Surety and Insurance Co., Inc. and Acropolis Central Guaranty Inc. "[T]he said companies failed to make good their deficiencies on or before February 28, 2006, [and] hence shall no longer transact any new risk of any kind or character thereafter pursuant to Section 194 of the Insurance Code," the letter said. However, Cathay Insurance Co. Inc. was able to infuse capital and complete its obligations last March 28. Ms. Escobillo said the commission is intensifying its crackdown on insurers with deficient requirements. "We are doing this to ensure that insurance requirements of the public can be secured from financially sound licensed insurance companies only," Ms. Escobillo said in a text message. Section 194 of the Insurance Code states that an insurance company doing business in the Philippines shall at all times maintain a margin of solvency. The ratio is defined as assets minus liabilities less the required minimum paid-up capital of P50 million, and must be at least 10% of net premiums written. It is aimed at ensuring that insurers are able to meet their obligations and secure their financial stability. Capital impairment, meanwhile, arises when the stockholders’ equity is less than the paid-up capital. As of March 1, 2006, Asia United Insurance Inc. and South Sea Surety and Insurance Co., Inc. posted the biggest capital impairment and margin of solvency deficiency at P36.175 million and P29.943 million, respectively. Cathay Insurance Co. Inc. registered a deficiency of P6.213 million. The capital impairment of Acropolis Central Guaranty Inc. was not disclosed. According to Evelyn N. Singun, chief insurance specialist at the commission, Cathay Insurance Co. Inc. infused P6.3 million to cover its deficiency. "They were able to get an approved financial statement from the commission, and hence, can now continue doing business," Ms. Singun said. The total number of licensed nonlife companies now stand at 92, down from 95 last year. However, Ms. Singun said that both Asia United Insurance Inc. and South Sea Surety and Insurance Co., Inc. are still asking for a reconsideration. She said that the problem of Asia United Insurance stemmed from the fact that most of its collectible premiums were still more than 90 days away. "The bulk of its assets pertaining to its premium receivables exceed 90 days which led to a capital impairment and margin of solvency deficiency. There was a previous circular about premiums receivables. Receivables that are beyond 90 days are not considered as admitted," Ms. Singun explained. Both Cathay Insurance Co. Inc. and Acropolis Central Guaranty Inc. are under conservatorship, which means that the commission has taken charge of the insurers’ assets, liabilities, and the management of the company. It is aimed at restoring the viability of the company. After a careful study of a company’s financial status, the conservator may recommend to either rehabilitate the company or to liquidate it. Nonlife insurers welcomed the commission’s decision, saying it will be the public who will ultimately benefit from a stricter enforcement of rules. "I am in support for what the Insurance Commissioner is doing. The image of the nonlife needs fixing up and the commissioner is doing something about this. She is on the right start," said Michael F. Rellosa, a director of the association of nonlife companies Philippine Insurers and Reinsurers Association. "The commission is following due process and merely implementing the law. It is looking after the interest of the public and making sure that insurance companies operate in accordance with all the rules and regulations," Mr. Rellosa added.