Non-life insurers buck new capital reqm’t

A group of non-life insurance companies has sought for a temporary restraining order (TRO) on the implementation of Department Order ( DO) 27- 2006 which increases the minimum paid-up capital to P175 million.

In a 32-page motion filed before the Quezon City Regional Trial Court Branch 98, 10 non- life insurance firms said they would be put out of business if the court doesn’t stop Finance Secretary Cesar V. Purisima who wants all insurance companies to have minimum paid-up capitalization “way beyond what the market could support.”

“Apart from the arbitrary and oppressive compliance fixed capitalization requirement by DO 27-2006, there is no other governmental regulation or imposition that we have failed to meet,” they said.

The group said the TRO is necessary to stop a ruling that “would cause severe losses to them, to their employees and their respective families.”

The 10 insurers are Security Pacific Assurance Corp., Visayan Surety and Insurance Corp., Finman General Assurance Corp., Milestone Guaranty and Assurance Corp., R & B Insurance Corp., Industrial Insurance Co., Philippine Phoenix Insurance and Surety Corp., Mercantile Insurance Co., Great Domestic Insurance Co. of the Philippines, and Insurance of the Philippine Islands Co.

These insurers are among the 86 operating non-life insurance firms as of end 2010.

DO 27-2006 sets the P175million minimum paid- up capital by 2011-2012, reaching a maximum P500 million by 2015. Failure to meet the P175 million by end- June would result in the non-issuance of license for them to operate in a one-year period, or until they can prove compliance.

“The continued implementation ( of the order) would certainly cause the death of our companies,” the complainants said.

They added that insurance is based on fundamental principles such as the law of large numbers, distribution of risks, and accumulation of a common fund from which the claims are paid.

“The workings of capital, reinsurance, investments and other safeguards that assure the solvency of an insurer shows that the increased capitalization requirements do not ensure stability,” they added.

But DO 27-2006 will expire this year, and the regulators are introducing a new DO that would increase the minimum capital base to P1 billion by 2016.

Thus the intended TRO could likewise cause delays in the signing and implementation of the new capital ruling.