In 2002, the IMF conducted a Financial System Stability Assessment (FSSA) of the Philippines, including the assessment of the insurance supervision in the country against International Association of Insurance Supervisors (IAIS) Supervisory Principles (later revised and renamed as Insurance Core Principles, or ICPs). The results of the assessment were published in a number of Reports on Observance of Standards and Codes (ROSCs) covering different aspects of the Philippines' financial system. However, the ROSC on insurance supervision has not been released. The FSSA concluded that overall the supervisory regime in the Philippines had improved, although important challenges remained. The Philippine authorities were aware of the shortcomings and requested technical support to further improve the compliance. In November 2006, the Asian Development Bank (ADB) approved "The Republic of the Philippines: Financial Market Regulation and Intermediation Program," or (FMRIP) which objective is to increase efficiency of the financial sector in the Philippines. Reforms of the insurance sector are a part of the FMRIP which includes, among other policy actions, developing a strategy for full implementation of ICPs. The ADB reported that, as of 2006, the Insurance Commission (IC) was not compliant with the above-mentioned principles; however it declared its support for harmonization and the draft Insurance Code was intended to bring the legal framework in line with ICPs. As of November 2006, the revised Insurance Code had been submitted to the DoF. In 2006, the DoF also approved the reorganization plan of the IC.

General Overview

In 2002, the IMF conducted a Financial System Stability Assessment (FSSA) of the Philippines, including the assessment of the insurance supervision in the country against International Association of Insurance Supervisors (IAIS) Supervisory Principles (later revised and renamed as Insurance Core Principles, or ICPs). The results of the assessment were published in a number of Reports on Observance of Standards and Codes (ROSCs) covering different aspects of the Philippines' financial system. However, the ROSC on insurance supervision has not been released. The FSSA concluded that overall the supervisory regime in the Philippines had improved and demonstrated a high level of compliance with relevant standards and codes, although important challenges remained. The Philippine authorities were aware of the shortcomings and requested technical support to further improve the compliance.

In November 2006, the Asian Development Bank (ADB), which has assisted the Government of the Philippines in implementation of financial sector reforms since 1995, approved "The Republic of the Philippines: Financial Market Regulation and Intermediation Program (FMRIP)" which complements the Government's Medium-Term Philippine Development Plan (MTPDP) 2004-2010. The objective of the FMRIP, as defined in the 2006 ADB report, is to "increase the contribution of the financial sector to economic growth and development of the Philippines by promoting a more efficient financial sector that can finance profitable private investment projects at lower cost and risk than at present" (p. i). Reforms of the insurance sector are a part of the FMRIP and are aimed at the "improved legal and regulatory framework and enhanced governance and supervision for the insurance industry" (p.v, vi).

The 2006 ADB report pointed out that it will provide Technical Assistance (TA) along with the implementation of the FMRIP. For the insurance sector it will include the following activities: " (i) develop practices and methodologies to implement risk-based supervision and related capacity building; (ii) support reorganization of the commission by preparing the human resource component including staffing, skills base, and job descriptions; (iii) develop a strategy to fully implement International Association of Insurance Supervisors (IAIS 28) core principles; (iv) develop analytical processes and manuals to support upgrading of information and communication technology, including introduction of electronic filing and analysis; and (v) develop a road map for development of the insurance subsector" (p. vi).

The ADB identified the following shortcomings in the supervision of the insurance sector in the Philippines. First, the Insurance Code, which regulates insurance activities in the country, has not been updated and hence does not answer the needs of modern insurance sector. Secondly, the IC does not have sufficient powers to enforce compliance with exiting laws and regulations and is not an independent regulator. Moreover, the IC has an "unwieldy" organizational structure and is bound by the salary standardization law. Overall, as the IC's June 2006 self-assessment against ICPs demonstrated, the IC is not compliant with the Principles. At the same time, the ADB noted that the IC supports harmonization with international principles and the draft Insurance Code was intended to bring the legal framework in line with ICPs . The ADB went on to report that as of November 2006, the revised Insurance Code had been submitted to the DoF. In 2006, the DoF also approved the reorganization plan of the IC (2006).

The IC, a governmental agency under the DoF of the Philippines, is the regulator of the insurance sector. The IC (formerly known as the Office of the Insurance Commissioner) was established by the Republic Act No. 275 of 1949. Presidential Decree No. 63 promulgated on November 20, 1972, changed the official name of the Office of the Insurance Commissioner to the Insurance Commission. The IC's website states that the IC's mandate is to "(1) to promote growth and financial stability of insurance companies; (2) to professionalize insurance services and develop insurance consciousness among the general populace; (3) to establish a sound national insurance market; and (4) to safeguard the rights and interest of the insuring people." As indicated on the IAIS website, the IC is an IAIS member.

The ADB reported that as of 2006, there were 32 life insurance companies and 104 nonlife insurance companies - a relatively high number compared to the region. One of the explanation of the fact offered by the ADB is a low capital requirement of P50 million, about $1 million. For comparison, the capital requirement in Indonesia is about $11 million equivalent, Thailand - $7 million, and $5 million in Viet Nam. During the period of 2002-2004, the insurance premium income as a percentage of GDP was also low, accounting to 1.27% to 1.30%. In line with policies specified in the FMRIP, the DoF Department Order 19-6 of May 2006 raised minimum capitalization for new life, nonlife, and reinsurance companies effective July 1, 2006 to P1 billion and for new reinsurance companies to P2 billion. For existing companies, the DoF Department Order 27-6 established minimum capitalization in the amount of P100 million effective December 31, 2006.

The Principles

ICP 1 Conditions for effective insurance supervision

II

There is insufficient publicly available information as to the Philippines' compliance with this principle.

ICP 2 Supervisory objectives

II

There is insufficient publicly available information as to the Philippines' compliance with this principle. The Insurance Commission, which is under the supervision of the Department of Finance (DoF) of the Philippines, is the regulator of the insurance sector. The ICs website states that the IC's mandate is to "(1) to promote growth and financial stability of insurance companies; (2) to professionalize insurance services and develop insurance consciousness among the general populace; (3) to establish a sound national insurance market, and (4) to safeguard the rights and interest of the insuring people."

ICP 3 Supervisory authority

II

There is insufficient publicly available information as to the Philippines' compliance with this principle. The Insurance Commission (IC), a governmental agency under the DoF of the Philippines, is the regulator of the insurance sector. The IC (formerly known as the Office of the Insurance Commissioner) was established by the Republic Act No. 275 of 1949. Presidential Decree No. 63 promulgated on November 20, 1972, changed the official name of the Office of the Insurance Commissioner to the Insurance Commission. The IC's website states that the IC's mandate is to "(1) to promote growth and financial stability of insurance companies; (2) to professionalize insurance services and develop insurance consciousness among the general populace; (3) to establish a sound national insurance market; and (4) to safeguard the rights and interest of the insuring people." As indicated on the IAIS website, the IC is an IAIS member.

According to the 2006 ADB report, the IC does not have sufficient powers to enforce compliance with exiting laws and regulations and is not an independent regulator. Moreover, the IC has an "unwieldy" organizational structure and is bound by the salary standardization law. As far as the organizational structure is concerned, the ADB further reports, the IC has proposed amendments to the functional setup which, at the time of the assessment, were submitted to the Department of Budget Management. The ADB intends also support the IC in amending the Insurance Code to provide for legal protection of the IC's staff and to enhance the enforcement powers of the IC.

ICP 4 Supervisory process

II

There is insufficient publicly available information as to the Philippines' compliance with this principle.

ICP 5 Supervisory cooperation and information sharing

II

According to the 2006 ADB report, there are regulatory overlaps in the supervision of finical sector in the Philippines. The Financial Sector Forum formed by the IC, the Central Bank (Bangko Sentral ng Pilipinas, or BSP), the Securities Commision (SEC), and the Philippine Deposit Insurance Corporation (PDIC) in July 2004 was created "as a venue for adopting a more consolidated approach to efforts to enhance the financial system reform agenda, particularly in addressing harmonization and coordination of supervisory and regulatory methods and policies, reporting and information exchange and dissemination and consumer protection and education" (p. 5). However, notwithstanding the creation of the FSF, problems still persist. No further information as to the Philippines' compliance with this principle is publicly available.

ICP 6 Licensing

II

There is insufficient publicly available information as to the Philippines' compliance with this principle.

ICP 7 Suitability of persons

II

There is insufficient publicly available information as to the Philippines' compliance with this principle.

ICP 8 Changes in control and portfolio transfers

II

There is insufficient publicly available information as to the Philippines' compliance with this principle.

ICP 9 Corporate governance

II

According to the IC's Annual Report 2005, the Memo Circular No.35-2005 reiterated the provisions of the Code of Corporate Governance and Leading Practices of 2002. All insurance companies and intermediaries should conduct a self-assessment of their corporate governance practices and submit these self-assessments to the IC every semester. No further information as to the Philippines' compliance with this principle is publicly available.

ICP 10 Internal control

II

There is insufficient publicly available information as to the Philippines' compliance with this principle.

ICP 11 Market analysis

II

There is insufficient publicly available information as to the Philippines' compliance with this principle.

ICP 12 Reporting to supervisors and off-site monitoring

II

There is insufficient publicly available information as to the Philippines' compliance with this principle. As described in the 2006 World Bank report, under the Insurance Code, insurance companies must submit general purpose financial statements both to the IC and the Securities Commission (SEC). In accordance with the IC Circular No. 33-2006 of September 22, 2006, the financial statements must be prepared in accordance with Philippine Generally Accepted Accounting Principles (GAAP), which have been aligned with International Financial Reporting Standards (IFRSs). Further, the World Bank points out that although audits of the insurance companies should be conducted by an auditor approved by the IC, "the list [of the auditors] however is not based on any in-depth review of auditor's capacity to perform high quality audit" (p. 9).

ICP 13 On-site inspection

II

There is insufficient publicly available information as to the Philippines' compliance with this principle.

ICP 14 Preventive and corrective measures

II

There is insufficient publicly available information as to the Philippines' compliance with this principle.

ICP 15 Enforcement or sanctions

II

There is insufficient publicly available information as to the Philippines' compliance with this principle.

ICP 16 Winding-up & exit from the market

II

There is insufficient publicly available information as to the Philippines' compliance with this principle.

ICP 17 Group-wide supervision

II

There is insufficient publicly available information as to the Philippines' compliance with this principle.

ICP 18 Risk assessment and management

II

There is insufficient publicly available information as to the Philippines' compliance with this principle.

ICP 19 Insurance activity

II

There is insufficient publicly available information as to the Philippines' compliance with this principle.

ICP 20 Liabilities

II

There is insufficient publicly available information as to the Philippines' compliance with this principle.

ICP 21 Investments

II

According to the Insurance Code, all investments made by insurance companies in Philippines must be approved by the IC (IC 2005). No further publicly available information as to the Philippines' compliance with this principle is available.

ICP 22 Derivatives and similar commitments

II

There is insufficient publicly available information as to the Philippines' compliance with this principle.

ICP 23 Capital adequacy and solvency

II

The ADB 2006 report argues that minimum capital requirements in the Philippines are very low (P50 million, about $1 million). For comparison, the capital requirement in Indonesia is about $11 million equivalent, Thailand - $7 million, and $5 million in Viet Nam. According to the ADB 2006 report, "[t]hese requirements are deemed inadequate in relation to the scope of business and risks inherent in insurance" (p. 8). In line with policies specified in the FMRIP, the DoF Department Order 19-6 of May 2006 raised minimum capitalization for new life, nonlife, and reinsurance companies effective July 1, 2006 to P1 billion and for new reinsurance companies to P2 billion. For existing companies, the DoF Department Order 27-6 established minimum capitalization in the amount of P100 million effective December 31, 2006. The IC also issued rules that require that risk-based capital be computed based on annual financial statements. The rules are effective for the periods startin on August 1, 2007 and apply both life and non-life insurance companies (ADB 2006). No further information as to the Philippines' compliance with this principle is publicly available.

ICP 24 Intermediaries

II

There is insufficient publicly available information as to the Philippines' compliance with this principle.

ICP 25 Consumer protection

II

There is insufficient publicly available information as to the Philippines' compliance with this principle.

ICP 26 Information, disclosure & transparency towards the market

II

There is insufficient publicly available information as to the Philippines' compliance with this principle.

ICP 27 Fraud

II

There is insufficient publicly available information as to the Philippines' compliance with this principle.

ICP 28 Anti-money laundering/ Combating the Financing of Terrorism

EN

According to a 2006 ADB report, in November 2005 the IC issued anti-money laundering regulations which comply with IAIS Principles. The main challenge now lies in effective implementation.