THE INSURANCE Commission (IC) has eased rules for insurance firms’ looking to put funds in infrastructure projects, lowering risk charges for debt and equity investments.
In a statement sent to reporters over the weekend, the IC said Insurance Commissioner Dennis B. Funa signed Circular Letter No. 2019-19, providing insurance firms better capital charges for infrastructure investments under the Philippine Development Plan (PDP).
“The risk calibration for debt instruments has been reduced to 6% while the risk charges for investment in equity shares were likewise reduced to 9%,” Mr. Funa was quoted as saying in the statement.
In effect, debt and equity instruments related to infrastructure projects under the PDP now belong to a new classification of assets distinct and separate from ordinary debt and equity investments.
Previously, capital charges related to infrastructure investments were subject to risk calibration ranging between 1.25% and 24% for debt instruments and 40-55% for equity investments.
“In other words, under the previous regulation, the risk charges for debts and equities used in calculating insurers’ capital requirements under the RBC2 (Amended Risk-Based Capital Framework) were without distinction as to whether or not the same are infrastructure related,” Mr. Funa added.
The IC chief said the reduction in risk charges for investments in government infrastructure projects shows the regulator’s recognition that these “exhibit better recovery rates than corporate debt and provide relatively stable long-term cash flow.”
“As a result of the imposition of better capital charges, insurers will find it more attractive, easier, and cheaper to invest in infrastructure projects.”
The government has embarked on an P8-trillion infrastructure development program until 2022, when President Rodrigo R. Duterte ends his six-year term, in an effort to boost economic growth to 7-8% until then from a 6.3% annual average in 2010-2016.
Data showed insurers’ investments in state infrastructure projects edging up to P16 billion last year from P15.1 billion in 2017.
Mr. Funa said the lower risk charges for insurers’ debt and investments in infrastructure projects was a response to industry clamor.
“Recognizing the ability of investments in infrastructure to drive economic growth…I convened a committee to review the appropriate risk charges for this investment class with the goal of crafting a prudentially sound mechanism to facilitate investment in infrastructure and at the same time safeguarding the financial stability of insurers,” he said.
“Considering that we have favorably responded to the clamor of the insurance industry for the lowering of the risk charges, we hope that they will take advantage of this change and utilize their capital and be key enablers for investments in infrastructure that the country needs,” Mr. Funa added.
The regulator issued Circular Letter No. 2018-74 in December last year, encouraging insurers to invest in local infrastructure projects for portfolio diversification. It sets 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 regulator. — K.A.N. Vidal