May 20, 2019
THE Insurance Commission (IC) has reduced capital charges to make infrastructure investments under the government’s Philippine Development Plan (PDP) more accessible to insurers and allow a more stable long-term cash flow.
In a statement, Insurance Commissioner Dennis Funa said the risk charge for debt instruments was reduced to 6 percent from 1.25 percent to 24 percent, and for equity shares to 9 percent from 40 percent to 55 percent.
“This is a substantial improvement, compared to the previous calibration,” Funa said, noting that risk charges for infrastructure investment-related debt and equity instruments were the same for ordinary debts and equities before the issuance of Circular Letter 2019-19.
“In other words, under the previous regulation, the risk charges for debts and equities used in calculating insurers’ capital requirements under the RBC2 (risk-based capital 2) were without distinction as to whether or not the same are infrastructure-related,” he added.
The new policy effectively creates a separate classification of capital charges for debt and equity instruments related to infrastructure investments.
This, the IC explained, would make it “more attractive, easier and cheaper to invest in infrastructure projects.”
Funa said the reduction was in response to insurance-industry “clamor.”
“The reduction in risk charges of investment in infrastructure projects of the government demonstrates the recognition by this commission that these investments exhibit better recovery rates than corporate debt and provide relatively stable long-term cash flow,” he explained.
According to the Insurance chief, he created a committee to review capital charges for such investments to make sure the projects would be implemented and insurers’ financial stability would be protected.
Funa then encouraged insurers to invest in infrastructure projects, as these are prioritized by the government.
“Investments in infrastructure projects under the PDP shall be allowed and admitted as assets of insurance companies, provided that the same are approved by the Insurance Commission,” the agency said..
Through Circular Letter 2018-74, IC allowed insurance and reinsurance firms to invest in debt or equity security instruments for infrastructure projects under PDP.
Such projects include highways, railways, nonrail-based transit facilities, port infrastructure, airports, warehouses, environmental and solid waste management-related facilities and climate-change mitigation and adaptation infrastructure projects.
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