Capitalization Requirements for Life, Non-Life, and Reinsurance Companies

September 1, 2006 DOF DEPARTMENT ORDER NO. 027-06 TO : All Insurance Companies Doing Business in the Philippines SUBJECT : Capitalization Requirements for Life, Non-Life, and Reinsurance Companies WHEREAS, stable and reliable insurance and insurance systems, greatly influence the country's economic development by impacting the level of capital formation and allocation and engendering consumer confidence in the systemic integrity of the financial system; WHEREAS, capitalization is one of the most vital financial rating factors for insurance companies: The Philippines has one of the lowest capital requirements among Asian countries which has hampered the ability of local insurance companies to compete at least with ASEAN and other regional players in this period of economic globalization; WHEREAS, current minimum capitalization requirements are inadequate relative to: a. The needed business infrastructures and quality management team that will ensure better service to all stakeholders and expand its market penetration; and b. The adequate allowance for increased business volatility and for mitigating market imperfections. WHEREAS, capital bases must be rebuilt because low capitalization levels have resulted in low retention ratios and heavy reliance on reinsurance; WHEREAS, the solvency positions of insurers must be secured and stable capital bases reduce insolvency risk and afford better protection for the insuring public; NOW, THEREFORE, pursuant to the authority vested in me by the provision of Section 188 of the Insurance Code, as amended, the following are hereby promulgated: I. Any licensed wholly Filipino-owned domestic life or non-life insurance company existing, operating, or otherwise doing business in the Philippines, licensed as of the effectivity of this Order, must possess of capitalization hereunder specified in accordance with the following schedule of compliance: Minimum Statutory Net Worth Minimum Paid-Up Capital By (Compliance Date) A. Php100 Million Php50 Million December 31, 2006 B. Php150 Million Php75 Million December 31, 2007 C. Php200 Million Php100 Million December 31, 2008 D. Php250 Million Php125 Million December 31, 2009 E. Php350 Million Php175 Million December 31, 2010 F. Php500 Million Php250 Million December 31, 2011 II. Any life or non-life insurance company existing, operating, or otherwise doing business in the Philippines with forty percent (40%) or less foreign equity must possess of capitalization hereunder specified in accordance with the following schedule of compliance: Minimum Statutory Net Worth Minimum Paid-Up Capital By (Compliance Date) A. Php200 Million Php100 Million December 31, 2006 B. Php300 Million Php150 Million December 31, 2007 C. Php400 Million Php200 Million December 31, 2008 D. Php500 Million Php250 Million December 31, 2009 E. Php600 Million Php300 Million December 31, 2010 III. Any life or non-life insurance company existing, operating, or otherwise doing business in the Philippines with more than forty percent (40%) but less than sixty percent (60%) foreign equity must possess of capitalization hereunder specified in accordance with the following schedule of compliance: cSEDTC Minimum Statutory Net Worth Minimum Paid-Up Capital By (Compliance Date) A. Php300 Million Php150 Million December 31, 2006 B. Php400 Million Php200 Million December 31, 2007 C. Php500 Million Php250 Million December 31, 2008 D. Php600 Million Php300 Million December 31, 2009 E. Php700 Million Php350 Million December 31, 2010 IV. Any life or non-life insurance company existing, operating, or otherwise doing business in the Philippines with at least sixty percent (60%) foreign equity must possess of capitalization hereunder specified in accordance with the following schedule of compliance: Minimum Statutory Net Worth Minimum Paid-Up Capital By (Compliance Date) A. Php500 Million Php250 Million December 31, 2006 B. Php600 Million Php300 Million December 31, 2007 C. Php700 Million Php350 Million December 31, 2008 D. Php850 Million Php425 Million December 31, 2009 E. Php1.00Billion Php500 Million December 31, 2010 V. Any reinsurance company existing, operating, or otherwise doing business in the Philippines must possess of capitalization hereunder specified in accordance with the following schedule of compliance: Minimum Statutory Net Worth Minimum Paid-Up Capital By (Compliance Date) A. Php750 Million Php375 Million December 31, 2006 B. Php1.00 Billion Php500 Million December 31, 2007 C. Php1.25 Billion Php625 Million December 31, 2008 D. Php1.50 Billion Php750 Million December 31, 2009 E. Php2.00 Billion Php1.00 Billion December 31, 2010 VI. The statutory net worth of life, non-life, and reinsurance companies shall include the company's paid-up capital, capital in excess of par value, contingency surplus, retained earnings, and revaluation increments as may be approved by the Insurance Commissioner. VII. All existing life, non-life, or reinsurance companies must submit a detailed Capital Build-up Program for the Years 2006 to 2010, accompanied by all resolution/s of the board of directors to this effect and attested to by the president, chief executive officer, and chief financial officer, not later than October 31, 2006. VIII. No life, non-life, or reinsurance company may be rehabilitated and authorized to transact business anew unless in full compliance with, or possessed of the minimum capitalization levels required under, Department Order 1-2006. IX. The requirements under this Order shall be without prejudice to other requirements to be imposed under the Risk-Based Capital method to be adopted by the Insurance Commission, and the statutory Margin of Solvency requirement under Section 194 of the Insurance Code. The Insurance Commission may issue such other guidelines as it deems necessary to enforce the provisions of this Order. Non-compliance with this Order and additional guidelines shall result to the revocation of the life, non-life, or reinsurance company's license to do business or certificate of authority. This supersedes provisions of Department Order Nos. 116-93; 100-94; 49-96; and 31-01 as are inconsistent with the provisions of this Department Order. This Department Order shall take effect immediately. Signed on September 1, 2006. (SGD.) MARGARITO B. TEVES Secretary Department of Finance Recommending approval: (SGD.) EVANGELINE CRISOSTOMO-ESCOBILLO Insurance Commissioner