By Beting Laygo Dolor | Contributing Editor
To fund its “build, build, build” program, the Duterte administration is eyeing the deep pockets of the Philippine insurance industry.
The government is in the middle of its PHP 8 trillion “Philippine Development Plan” and the major insurance and re-insurance companies have been invited to take part in such big ticket projects like construction, financing and operation of highways; airports; railways; sea ports; mass housing;
irrigation; land reclamation; power facilities; public markets and warehouses;
and telecommunications facilities, among others.
Also, a priority are projects to protect the environment, including solid waste management and climate projects.
Historically, insurance and re-insurance companies have invested their funds on stocks, bonds and government securities, which carry lower risks but also lower profit margins.
Insurance Commission (IC) records show insurers’ investments in state infrastructure projects rose to PHP 16 billion last year from PHP 15.1 billion in 2017.
The IC regularly hikes the minimum worth requirements of insurance and re-insurance companies in order to weed out firms that may not survive in an atmosphere of open competition, and also to force fly by night companies to either close shop or sell their assets to the bigger and more established companies.
On December 28, the IC issued Circular Letter No. 2018-74 which set guidelines for insurance and reinsurance firms to “invest in debt and/or equity security instrument for the infrastructure projects under Philippine Development Plan” in order to help them “comply with the minimum net worth requirement” set by the Commission.
Speaking at a press conference last week, Insurance Commissioner Dennis Funa said the circular “is aimed at encouraging insurers to invest in domestic infrastructure projects to boost our economy and to reap the benefits of portfolio diversification and higher return.”
Since last year, Finance Sec. Carlos Dominguez III had been egging on the insurance industry to invest more funds in the government’s stepped-up infrastructure development program, rather than the safer government-guaranteed bonds.
Dominguez said at an insurers’ convention last year, “I urge you to more closely review the investment opportunities opened by the infrastructure program and make a conscious effort to participate. It not only makes sound business sense to do so, it is also a patriotic thing to do.”
The government embarked on a PHP 8-trillion infrastructure development program that ends in 2022, when President Rodrigo Duterte completes his six-year term.
Out of the proposed PHP 3.757-trillion national budget for 2019, PHP 909.7 billion will be spent on flagship projects under the Duterte administration’s “build, build, build” program. The program hopes to be a lynchpin in the targeted seven percent to eight percent economic growth, up from the 6.3 percent annual average growth experienced by the country from 2010 to 2016.
While the insurance industry is divided into three sectors – life, non-life (property) and reinsurance – the life sector has been the most amenable to investing more to infrastructure.
Olaf Kliesow, president of the Philippine Life Insurance Association, Inc., said last month: “The insurance industry holds a lot of assets and we’re looking for long-term investment.
Kliesow said that while long-term investment portfolio in the Philippines is limited, “to have vehicles where we can invest long-term — to 2030 or even longer— will be very welcome.”
As per the IC’s rules, Insurance companies should have at least PHP 900 million in net worth by the end of this year and PHP 1.3 billion by 2022 from the current PHP 550 million.
The Amended Insurance Code of the Philippines also requires industry entrants to have at least PHP 1 billion in paid-up capital before opening business.
Economists have warned that the Philippines should rely less on foreign loans, especially from China, to fund its ambitious infrastructure program, and more on local sources. As such, a substantial hike in investments from local insurance companies is a welcome development for the government.