013107: Mergers, IPOs to rule insurance industry

By Honey Madrilejos-Reyes

Reporter

MERGERS and initial public offerings will take place among Philippine insurance companies within the first semester of the year, insurance commissioner Evangeline C. Escobillo said Tuesday. “Forming strategic partnerships and doing an IPO are good ways of sustaining the solvency of one company,” Escobillo said. She added the Insurance Commission (IC) would be open to giving incentives to entice companies to embark on these capital-raising programs. Escobillo said the first merger among two life insurance companies will be completed within this quarter, while the second set of consolidation will be done before the end of the first half. She was speaking to reporters at the sidelines of the Philippine Life Insurance Association’s induction ceremonies yesterday. The commissioner, however, declined to identify the companies involved, other than saying that she approved the planned mergers. “The mergers will definitely result to a stronger organization and a more enhanced technology,” she said. “This is such a welcome development.” Apart from the forthcoming mergers, Escobillo said that three companies have signified serious intention of going public to increase their operating capital. “They are seriously eyeing the stock market as an avenue for capital-raising especially now that it is very bullish,” she said. These are sound strategies, according to the commissioner, that will help the companies to beef up their resources especially when the capital requirement is about to increase from P50 million to P500 million in 2010. The capital requirement of insurance companies in the Philippines is substantially lower than their counterparts in the region. “The question on the increase in capitalization by itself or migration to other forms is rather a tough issue due to the fact that many of the insurance companies are family-owned,” Escobillo explained. To settle the issue, the IC has proposed to the Department of Finance that adjustments with the capital requirement be used as basis of a company’s net worth. Capital requirement pertain to paid-up capital, as well as the total capital standing of the company including profitability. “The plan is to do the increase in capitalization annually until it reaches P500 million in 2010,” Escobillo said. Capital requirement is a form of equity or subordinated debt funding required by regulators to assure the stability and soundness of a certain entity. Apart from raising the capital requirement, the IC will also be implementing the risk-based capitalization framework that would display the company’s transparency, integrity and professionalism in relation to their actuaries and external auditors. The IC—as a part of the capital market development committee—would also propose a bill to Congress that would either reduce or remove taxes on insurance products and put them at par with other investment products. “The numerous taxes imposed on the insurance industry resulted to low penetration and development of the insurance products in the country both in the life and non-life sectors,” Escobillo said. “We want to cor

 

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