New Insurance Industry Act regulations have raised the minimum capital requirement for insurance firms by up to five times in some instances, as the regulator seeks to protect policyholders.
The new regulations are in line with the Non-Bank Financial Institutions Regulatory Authority’s (NBFIRA) push for a risk-based supervisory regime.
Although the regulations kicked into effect on May 17, insurers have been given a 12-month grace period to raise their minimum capital targets to the level required by the new law.
Capital requirements are the minimum amounts insurers are required to maintain in separate accounts as buffers against any shock to their policyholders.
The new capital requirements are part of regulations introducing sweeping changes across the insurance sector. Under the old Insurance Industry Act, the minimum capital requirement for all insurers and reinsurers was P2 million, with P30, 000 for insurance brokers.
However, under the new regulations, life insurers and reinsurers will have to raise their minimum capital requirement to P10 million, while general insurers, who were also previously required to maintain a P2 million reserve, will now be required to raise that to P5 million. Insurance brokers will have to raise their minimum capital requirement from P30,000 to P100,000.
“The capital requirements are meant to ensure that insurers can absorb significant unforeseen losses and the assurance that they will be able to meet their obligations to policyholders as and when they arise,” Boa Chombah, NBFIRA’s head of communications and international affairs told BusinessWeek. She said thus far, none of the insurers had indicated a problem with meeting the revised minimum capital requirements.
“An insurance company’s level of capital is monitored on an ongoing basis and should the Authority detect that an insurer is likely to become unable to meet its minimum capital requirement, then corrective measures for example, additional capital injection, may be directed,” she said on Wednesday.
In a statement earlier on Wednesday, NBFIRA CEO, Oaitse Ramasedi said the new Act seeks to strengthen the corporate governance of insurance industry players and enhance policyholder protection.
“The Authority regulates and supervises in line with international standards and best practice and the risk-based approach used is indeed international best practice,” he said.
According to the regulator, the insurance industry had total assets of P23 billion by the end of 2017, with gross written premiums of P5 billion in 2017.
In 2018, the sector had just under 300 regulated entities and 2,400 representatives selling insurance business.