Insurers enticed on infrastructure

THE GOVERNMENT has moved to encourage insurers to invest in infrastructure in order to boost funds for this state priority, by counting such investments in regulators’ computation to determine if these firms meet their minimum net worth requirement.

The Insurance Commission on Dec. 28 last year issued Circular Letter No. 2018-74 which set guidelines for insurance and reinsurance firms to “invest in debt and/or equity security instrument for the infrastructure projects under Philippine Development Plan” in order to help them “comply with the minimum net worth requirement” set by the regulator.

Insurance companies may participate in construction, financing or operation and maintenance contracts involving projects like highways; land reclamation; railways; airports; fish ports; power facilities; irrigation; education and health infrastructure; government buildings; housing projects; public markets; warehouses; telecommunications facilities; water supply and sewerage facilities; as well as environmental, solid waste management and climate projects, among others.

Insurance Commissioner Dennis B. Funa said in a press release on Thursday that “[t]his circular is aimed at encouraging insurers to invest in domestic infrastructure projects to boost our economy and to reap the benefits of portfolio diversification and higher return.”

The circular lists documents required to be submitted to the commission in order to help it assess the viability of the proposed investment.

“Before an investment in infrastructure is approved by the insurance regulator, insurers are required to submit the financial statements of the infrastructure projects which will be evaluated by the regulator to determine the risk impact on the capital of the insurer,” according to the circular.

Philippine Life Insurance Association, Inc. (PLIA) President Olaf Kliesow said late last month: “The insurance industry holds a lot of assets and we’re looking for long-term investment.

“The long-term investment portfolio in the Philippines is limited, and to have vehicles where we can invest long-term — 2030 or even longer years — will be very welcome,” Mr. Kliesow told reporters on the sidelines of PLIA induction ceremony on Jan. 31.

“This could mean all kinds of projects, whether this is railway or bridges, through PPP (public private partnership) projects… several ways this could happen, but what is important is to have a framework that supports this.”

Finance Secretary Carlos G. Dominguez III had encouraged the insurance sector to invest more in the government’s stepped-up infrastructure development program. “I urge you to more closely review the investment opportunities opened by the infrastructure program and make a conscious effort to participate. It not only makes sound business sense to do so, it is also a patriotic thing to do,” Mr. Dominguez told insurers at a PLIA event in August last year.

The government has embarked on an P8-trillion infrastructure development program until 2022, when President Rodrigo R. Duterte ends his six-year term, in an effort to boost economic growth to 7-8% until then from a 6.3% annual average in 20102016.

Out of the proposed P3.757trillion national budget for 2019, a total of P909.7 billion will be spent on flagship projects under the Duterte administration’s “Build, Build, Build” program.

A check with the Insurance Commission showed insurers’ investment in state infrastructure projects edging up to P16 billion last year from P15.1 billion in 2017.

NOW COUNTED AS ASSETS

“For purposes of determining the net worth of an insurance and reinsurance company, investments in infrastructure projects duly approved by the Commission shall now be considered as admitted assets,” the circular read.

Michael F. Rellosa, deputy chairman of Philippine Insurers and Reinsurers Association, said in an interview that his group welcomes any measure that would increase investment opportunities for non-life insurers which will help them beef up their net worth.

“This will be more attractive for us because, before, the IC was very strict in terms of investments. They were only letting us to invest in government securities, which bear small interest. Now, any addition to that will be very welcome,” Mr. Rellosa told BusinessWorld in a telephone interview.

Insurers are beefing up their capital ahead of the upsized minimum statutory requirement of the commission, whereby insurance companies should have at least P900 million in net worth by the end of this year and P1.3 billion by 2022 from the current P550 million.

The Amended Insurance Code of the Philippines also requires industry entrants to have at least P1 billion in paid-up capital before opening business.

Mr. Funa had expressed concern about some non-life insurance companies not being able to meet the P900 million net worth requirement by yearend, as he encouraged such businesses to seek investors or merge with other challenged peers. —