I have written about personal finance for both the Philippine Daily Inquirer and MoneySense Magazine. One of the articles that cropped up lately is titled, "Protect Yourself From Your Insurance Policy."
I also had a chance to listen to a talk by possibly the youngest insurance company in the Philippines, FWD Insurance. It is a private, Asian-based company that was started in 1993 by Richard Li (son of Li Ka-shing) in Hong Kong through the Pacific Century Group. The Manila office was started in 2014. The company's Chairman is Amb. Jose Cuisia Jr.
As of 2018, they have the highest paid-up capital of P2.3 billion and around P16.19 billion in total assets (unaudited 2019 figures).
FWD Philippines offers an attractive critical illness package called "Set for Health" where an insured person up to 75 years old can claim critical illness insurance three times, among other provisions.
A common question from investors is how secure their life savings are with the insurance company they are investing in.
The answer is usually tied to how financially sound the insurer is since the insurance policies often last for decades.
For banks, one marker or financial ratio that is used to assess solvency is called the Capital Adequacy Ratio. The Philippines adopts the internationally accepted standard:
"The BSP implements new minimum capital ratios of 6.0 percent Common Equity Tier 1 (CET1) ratio, 7.5 percent Tier 1 ratio and 10.0 percent Total Capital Adequacy Ratio (CAR). A capital conservation buffer (CCB) of 2.5 percent, comprised of CET1 capital was also prescribed."
In simpler terms, capital adequacy is calculated by dividing equity over assets. Financial institutions use a more sophisticated formula using Tier 1 and Tier 2 equity numbers, and other variables.
One Filipino finance guru calculated FWD Philippines's capital adequacy ratio at 15 percent. He said it was below his 20 percent benchmark. Not sure where that guideline came from. Perhaps, he was comfortable if the ratio is at least double the minimum requirement.
The Bangko Sentral has a minimum requirement of 10 percent for the Total Capital Adequacy Ratio (see above note).
In any case, I decided to ask a senior credit officer of a leading banking institution of the Philippines.
She said that FWD Philippines was okay because they are backed by a very strong parent company. She also said that they are monitored by the Insurance Commission.
Thus, I looked further and discovered the Risk-Based Capital (RBC) Ratio that is used by the Insurance industry. The formula is as follows:
RBC Ratio = Total Available Capital divided by RBC Requirement
The minimum RBC ratio requirement is 100 percent. To date, the minimum net worth required for insurance companies is P550 million.
Randy Escolango, Deputy Commissioner for Legal Services of the Insurance Commission, explained the recent requirements in his article "Developments in the regulation of the Philippine insurance industry capital regime" posted on www.ibanet.org:
"Under the Amended Insurance Code, new domestic insurance companies were required to put up paid-up capital of at least Php 1bn. When the Amended Insurance Code was brought into force, existing insurance companies were required to have a minimum net worth of Php250m as of 31 December 2013, Php550m as of 31 December 2016, Php900m as of 31 December 2019, and Php 1.3 bn as of 31 December 2022."
All told, being aware of the above ratios may help a potential investor get an idea on how solvency in the insurance industry, as well as bank institutions, is measured.
Doing some number crunching on your own may prove useful in making the right choice.
Postscript: This article is not a recommendation to buy any insurance product but is for the reader's information only.
