Amendments to Insurance Law Re: Loans and Property of Insurance Corporations

June 11, 1950

REPUBLIC ACT NO. 489

AN ACT TO AMEND THE INSURANCE LAW WITH RESPECT TO THE LOANS AND PROPERTY OF INSURANCE CORPORATIONS AND TO AUTHORIZE LIFE INSURANCE COMPANIES TO INVEST IN HOUSING AND REAL ESTATE PROJECTS

SECTION 1. Section one hundred ninety-seven of Act Numbered Two thousand four hundred twenty-seven as amended by Republic Act Numbered Two hundred seventy-three, is amended to read: acd

"Sec. 197. No insurance corporation shall loan any of its money or deposits to any person, corporation or association, except upon first mortgages or deeds of trust of unencumbered, improved or unimproved real estate, in cities and centers of population of municipalities in the Philippines when the amount of such loan is not in excess of sixty per centum of the market value of such real estate; or upon the security of first mortgages or deeds of trust of actually cultivated, improved and unencumbered agricultural lands in the Philippines when the amount of such loans is not in excess of forty per centum of the market value of such land; or upon the purchase money mortgages or like securities received by it upon the sale or exchange of real property acquired pursuant to section two hundred or section two hundred-A of this Act; or upon bonds or other evidences of debt of the Government of the Philippines or its political subdivisions authorized by law to issue bonds, or upon bonds or other evidences of debt of government-owned or controlled corporations and instrumentalities including the Central Bank; or upon obligations issued or guaranteed by the International Bank for Reconstruction and Development; or upon stocks, bonds or other evidences of debt as are specified in section two hundred of this Act: Provided, however, That a life insurance corporation may lend to any of its policyholders upon the security of the value of its policy a sum not exceeding the legal reserve which it is required to maintain thereon: Provided, further, That no loan upon the security of real estate shall have a maturity in excess of fifteen years: And provided, finally, That where such loans upon the security of real estate are granted for a period of longer than five years, payments thereof shall be made in monthly, quarterly, semi-annual or annual installments.

"The phrase "improved real estate" used above is hereby defined to mean land with permanent building or buildings erected or being erected thereon. In case the building or buildings on the land do not belong to the owner of the latter, no loan shall be granted on the security of the real estate in question unless both the owner of the building or buildings and the owner of the land sign the deed of mortgage, and unless the owner of the land is the Government of the Philippines or one of its political subdivisions, in which the event the owner is not required to sign the deed of mortgage."

SECTION 2. Section two hundred of the same Act, as amended by Republic Act Numbered Two hundred seventy-three is hereby further amended to read as follows:

"Sec. 200. (1) An insurance corporation, domestic or foreign, may purchase, hold, own and convey such property, real and personal, as may have been mortgaged, pledged, or conveyed to it in good faith in trust for its benefit by reason of money loaned by it in pursuance of the regular business of the corporation, and such real or personal property as may have been purchased by it at sales under pledges, mortgages or deeds of trust for its benefit on account of money loaned by it; and such real and personal property as may have been conveyed to it by borrowers in satisfaction and discharge of loans made by the corporation to them: Provided, however, That in the case of any foreign insurance corporation, any real estate purchased by said corporation in payment or by reason of any loan made by said corporation shall be sold by the corporation within twenty years after the title thereto has been vested in it.

"(2) Insurance corporations may purchase, hold, own and convey real and personal property as follows:

"(a) The lot with the building thereon in which the corporation conducts and carries on its business.

"(b) Bonds and other evidences of debt of the Government of the Philippines or its political subdivisions authorized by law to issue bonds at the reasonable market value thereof.

"(c) Bonds or other evidences of debt of government-owned or controlled corporations and entities, including the Central Bank.

"(d) Bonds, debentures or other evidences of indebtedness of any solvent corporation or institution created or existing under the laws of the Philippines: Provided, however, That the issuing, assuming or guaranteeing entity or its predecessors shall not have defaulted in the payment of interest on any of its securities and that during each of any three including the last two of the five fiscal years next preceding the date of acquisition by such insurance corporation of such bonds, debentures or other evidences of indebtedness, the net earnings of the issuing, assuming or guaranteeing institution available for its fixed charges, as hereinafter defined, shall have been not less than one and one-quarter times the total of its fixed charges for such year: And provided, further, That no life insurance company shall invest in or loan upon the obligations of any one institution in the kinds permitted under this subsection an amount in excess of twenty-five per centum of the total admitted assets of such insurer as of December thirty-first next preceding the date of such investment.

"As used in this subsection the term "net earnings available for fixed charges" shall mean net income after deducting operating and maintenance expenses, taxes other than income taxes, depreciation and depletion, but excluding extraordinary non-recurring items of income or expense appearing in the regular financial statement of the issuing, assuming or guaranteeing institution. The term "fixed charges" shall include interest on funded and unfunded debt, amortization of debt discount, and rentals for leased properties.

"(e) Preferred or guaranteed stocks of any solvent corporation or institution created or existing under the laws of the Philippines: Provided, however, That the issuing, assuming or guaranteeing entity or its predecessors has paid regular dividends upon its preferred or guaranteed stocks for a period of at least three years next preceding the date of investment in such preferred or guaranteed stocks: Provided, further, That if the stocks are guaranteed, the amount of stocks so guaranteed is not in excess of fifty per centum of the amount of the preferred or common stocks, as the case may be, of the guaranteeing corporation: And provided, finally, That no life insurance company shall invest in or loan upon obligations of any one institution in the kinds permitted under this subsection an amount in excess of ten per centum of the total admitted assets of such insurer as of December thirty-first next preceding the date of such investment.

"(f) Common stocks of any solvent corporation or institution created or existing under the laws of the Philippines upon which regular dividends shall have been paid for the three years next preceding the purchase of such stocks: Provided, however, That no life insurance company shall invest in or loan upon the obligations of any one corporation or institution in the kinds permitted under this subsection an amount in excess of ten per centum of the total admitted assets of such insurer as of December thirty-first next preceding the date of such investment.

"(g) Certificates, notes and other obligations issued by trustees or receivers of any institution created or existing under the laws of the Philippines which, or the assets of which, are being administered under the direction of any court having jurisdiction: Provided, however, That such certificates, notes or other obligations are adequately secured as to principal and interest. acd

"(h) Equipment trust obligations or certificates which are adequately secured or other adequately secured instruments evidencing an interest in equipment wholly or in part within the Philippines: Provided, however, That there is a right to receive determined portions of rental, purchase or other fixed obligatory payments for the use or purchase of such equipment.

"(i) Any obligation of a corporation or institution created or existing under the laws of the Philippines which is, on the date of acquisition by the insurer, adequately secured and has qualities and characteristics wherein the speculative elements are not predominant.

"(j) Such other securities as may be approved by the Insurance Commissioner.

"(3) Any domestic insurer which has outstanding insurance, annuity or reinsurance contracts in currencies other than the National currency of the Philippines may invest in, or otherwise acquire or loan upon securities and investments in such currency which are substantially of the same kinds, classes and investment grades as those eligible for investment under the foregoing subdivisions of this Act; but the aggregate amount of such investments and of cash in such currency which is at any time held by such insurer shall not exceed one and one-half times the amount of its reserves and other obligations under such contracts or the amount which such insurer is required by the law of any country or possession outside the Republic of the Philippines to invest in such country or possession, whichever shall be greater."

SECTION 3. Act Numbered Two thousand four hundred twenty-seven, as amended by Republic Act Numbered Two hundred seventy-three, is hereby further amended by inserting between sections two hundred and two hundred one thereof the following new section:

"Sec. 200-A. Any life insurance company may:

"(a) Acquire or construct housing projects and, in connection with any such project, may acquire land or any interest therein by purchase, lease or otherwise, or use land acquired pursuant to any other provision of this Act. Such companies may thereafter own, maintain, manage, collect or receive income from, or sell and convey, any land or interest therein so acquired and any improvements thereon. The aggregate book value of the investments of any such company in all such projects shall not exceed at the time of such investment twenty-five per centum of the total admitted assets of such company on the thirty-first day of December next preceding. cd

"(b) Acquire real property, other than property to be used primarily for providing housing and property for accommodation of its own business, as an investment for the production of income, or may acquire real property to be improved or developed for such investment purpose pursuant to a program therefor, subject to the following condition and limitation: the cost of each parcel of real property so acquired under the authority of this paragraph (b), including the estimated cost to the company of the improvement or development thereof, when added to the book value of all other real property held by it pursuant to this paragraph (b), shall not exceed twenty-five per centum of its admitted assets as of thirty-first day of December next preceding."

SECTION 4. This Act shall take effect upon its approval.

Approved: June 11, 1950

Published in the Official Gazette, Vol. 46, No. 7, p. 2997 in July 1950