Insurance brokers face stricter capital regime

The Insurance Commission is requiring insurance and reinsurance brokers to have a net worth of at least P10 million by 2010, a move that could endanger the business of more than a hundred companies. Under a circular issued by the commission recently, the hike will be imposed gradually, starting with a P2-million requirement this year. The commission wants the net worth of companies to improve by P2 million yearly until it reaches P10 million in the next four years. Meanwhile, companies operating both as an insurance and reinsurance broker must have a minimum net worth of P5 million starting this year. The capital must be hiked by another P5 million yearly until it reaches P25 million by 2010. "Adequate capitalization for existing brokers and new entrants is essential to attaining sustainable levels of profitability and for the long-term growth of the country’s insurance industry," Insurance Commissioner Evangeline C. Escobillo said in the circular. Based on 2004 records obtained from the commission, only 28 out of 104 insurance brokers and six out of 27 reinsurance brokers meet the P10-million net worth requirement. Prior to this, insurance and reinsurance brokers did not have to grapple with minimum capital requirements. Brokers said the requirement is too steep and warned regulators that it could lead to some companies closing shop. "I hope the commission can reconsider the amount of the increase. That particular circular is biased towards the bigger brokers," said Ramon A. Roco, president of the Society of Independent Insurance Intermediaries of the Philippines, Inc. The society is composed of around 200 agents and brokers. Mr. Roco also said their organization had not been consulted about the circular. He said brokers do not need a huge amount of capital for their business. "A person need not have such a big capital to put up a brokerage because technically, he is just an intermediary. The money passes through him," he pointed out. "You don’t have to be a big broker to be able to service the client well." Mr. Roco said their group would not object to a minimum net worth requirement as long as it is implemented gradually. "While we like the idea of strengthening the brokerage business, it should be done in a more gradual manner," he said. If the commission goes ahead with the requirement, Mr. Roco said companies would have no choice but to either merge or shut down. "I can imagine half of the brokerage firms merging or closing down," he pointed out. Meanwhile, another group of brokers has opted not to contest the circular. "We have agreed with the contents of the circular," said Honesto C. General, president of the Insurance Brokers Association of the Philippines (IBAP), which is composed of around 30 independent brokers. Starting July 1, the commission is also requiring new companies that intend to do business either as an insurance or reinsurance broker to have a minimum paid-up capital of P20 million. These firms must maintain a net worth of the same amount. New companies that intend to do business both as an insurance and reinsurance broker must have a paid-up capital of P50 million and must maintain a net worth of the same amount. - KARL LESTER M. YAP, Business World Reporter