Statutory and regulatory basis
- Presidential Decree No. 63 previously prohibited an insurance company from transacting life and non-life insurance concurrently.
- Presidential Decree No. 612 allowed life and non-life insurance concurrently if specifically authorized, but did not expressly provide minimum paid-up capital for composite insurers.
- Department Order No. 27-92 (March 17, 1992) required new composite insurance companies to have:
- Paid-up capital of at least PHP 150 million, with PHP 75 million for non-life and PHP 75 million for life, and
- Contributed surplus fund of at least PHP 50 million, with PHP 25 million for non-life and PHP 25 million for life.
- Department Order No. 15-2012 (June 01, 2012) required capitalization rules for composite licensing, including:
- Minimum paid-up capital for life and non-life units of an existing composite insurance company,
- Additional capitalization for a new unit when an existing licensed company applies for a composite license, and
- A paid-up capital of PHP 2 billion for a new composite license.
- Republic Act No. 10607 strengthens the insurance industry and amended the Insurance Code to allow concurrent life and non-life insurance only if specifically authorized by the Commission.
- The circular letter clarifies and institutionalizes the rule that life and non-life units of a composite insurer must each meet existing capitalization and net worth requirements (policy rationale stated in the preamble).
Definitions and classification rules
- A composite insurance company is “new composite insurer” if it is not yet existing and licensed at the time of the effectivity of the Amended Insurance Code (Section 1).
- An insurance company is classified as “existing” if it is already authorized to transact insurance business prior to and at the time of the effectivity of the Amended Insurance Code (Section 2).
Minimum paid-up capital for new composites
- Section 1 prohibits a new composite insurance company from transacting insurance business and obtaining a composite license unless it has paid-up capital of at least PHP 2,000,000,000.00.
- Of the PHP 2,000,000,000.00, PHP 1,000,000,000.00 must pertain to the life unit and PHP 1,000,000,000.00 must pertain to the non-life unit (Section 1).
- For pre-licensing, the Commissioner may require, in addition to paid-up capital stock, that stockholders pay in cash a contributed surplus fund of not less than PHP 200,000,000.00.
- The contributed surplus fund, if required, must be PHP 100,000,000.00 for the life unit and PHP 100,000,000.00 for the non-life unit (Section 1).
- The minimum paid-up capital must remain unimpaired for the continuance of the license (Section 1).
Minimum net worth for existing composites
- Section 2 requires that for an existing composite insurance company, the minimum net worth of its life unit and non-life unit must each comply with the schedule provided.
- The required minimum net worth schedule per unit is:
- PHP 550,000,000.00 by 31 December 2016,
- PHP 900,000,000.00 by 31 December 2019,
- PHP 1,300,000,000.00 by 31 December 2022 (Section 2).
- The circular letter also states the equivalent total minimum net worth for an existing composite insurer as:
- PHP 1,100,000,000.00 by 31 December 2016 (PHP 550 million for life and PHP 550 million for non-life),
- PHP 1,800,000,000.00 by 31 December 2019 (PHP 900 million for life and PHP 900 million for non-life),
- PHP 2,600,000,000.00 by 31 December 2022 (PHP 1.3 billion for life and PHP 1.3 billion for non-life) (Section 2).
- “Existing” classification applies when the company is already authorized to transact insurance business prior to and at the time of the effectivity of the Amended Insurance Code (Section 2).
Licensing into a composite structure
- Section 3 requires that when an existing life or non-life insurance company applies for a composite license, the minimum net worth requirement under Section 194 of the Amended Insurance Code must apply to the new composite unit.
- The net worth requirement in Section 3 applies in addition to the company’s present net worth for the business it is currently licensed to transact (Section 3).
Cooperative insurance capitalization and coverage
- Section 4 requires an insurance cooperative to have a minimum capitalization or minimum net worth of at least 50% of the amounts required for composite insurers under the circular letter (Section 4).
Risk-based capital relationship
- Section 5 provides that the requirements under this circular letter are without prejudice to other requirements under the Risk-Based Capital Method under existing circular letters of the Commission, including amendments.
Transitory compliance for existing composites
- Section 8 requires all existing and licensed composite insurance companies to formally signify within 65 days from the effectivity of this circular letter whether they will:
- Continue to transact life and non-life insurance concurrently, or
- Run-off one unit and engage in a single unit of business only (either life or non-life), or
- Run-off both life and non-life units (Section 8).
- Companies that choose to continue both life and non-life concurrently and are not compliant with Section 2 must comply with Section 2 within 1 year from the effectivity of this circular letter (Section 8).
- Those companies are allowed to renew their respective Certificates of Authority for Licensing Years 2019 to 2021, subject to compliance with the Commission’s other renewal requirements (Section 8).
- By 03 September 2019, each life and non-life unit must have a net worth of PHP 550 million (Section 8).
- By 31 December 2019, each life and non-life unit must have a net worth of PHP 900 million (Section 8).
- Companies that signify to discontinue one or both units must comply with the pertinent Commission circular letters on voluntary cessation and/or servicing license (Section 8).
Separability, repeals, and consistency
- Section 6 provides separability: invalidation of any portion or application does not affect the validity of other portions or applications.
- Section 7 repeals, modifies, and/or amends all other rules and/or regulations inconsistent with the circular letter.