IC sets rules on dividend declarations

The Insurance Commission (IC) has tightened the rules on the declaration of dividends for 2020 to ensure that its regulated entities maintain sufficient capital buffers.

Insurance Commissioner Dennis Funa yesterday issued IC Circular Letter 202066, setting the conditions in which insurance companies, reinsurers, pre-need firms and health maintenance organizations (HMOs) can declare and distribute dividends this year.

Funa said this would ensure that ICregulated entities are able to conserve their capital amid the coronavirus disease 2019 or COVID-19 outbreak.

“Sufficient capital buffers enable all regulated entities to conserve their capital and to sustain its services in case of economic downturn and unprecedented number of claims,” he said.

According to the IC, the new issuance has temporarily suspended IC Circular Letter 2019-60 until Dec. 31, 2020.

It stated that all IC-regulated entities that intend to declare and distribute dividends for the year 2020 are required to secure prior approval from the commission.

Pre-COVID-19, the declaration of dividends required no prior approval.

The IC said companies should meet a set of regulatory measures at all times, without regulatory relief, before they can declare dividends out of their unrestricted retained earnings.

For insurance and professional reinsurance companies, they must be compliant with the net worth and solvency requirements as prescribed by the Amended Insurance Code. They must also have unimpaired paid-up capital stock, a legal reserve fund, and a sum sufficient to pay all net losses and liabilities.

Pre-need companies should also have unimpaired paid-up capital, unimpaired trust funds, sufficient reserve liability and liquidity reserves as required under the Pre-Need Code, and funds sufficient to cover all net losses and liabilities.

Lastly, HMOs need to be compliant with the minimum paid-up capital, risk-based capitalization, net worth and liquidation requirements as prescribed in IC Circular Letter 2016-41. They must also have funds to pay all net losses and liabilities.

“The Insurance Commission has the prerogative to disapprove any request to declare and/or distribute out of the unrestricted retained earnings if reasonably necessary to protect the interest of the public and the company itself due to the economic impact of the COVID-19 pandemic,” the circular stated.

“The thrust of the commission shall be the conservation of capital in view of the uncertain economic projections for the country during this time of worldwide pandemic,” it said.

Companies who intend to declare dividends must submit to the IC documents for evaluation, such as their approved annual statement as of Dec. 31, 2019 and interim unaudited financial statements, among others.