ON Aug. 25, 2022, or about a week ago, the Insurance Commission issued Circular Letter 2022-41 requiring life insurance companies, non-life insurance companies and professional reinsurers to adopt their own risk and solvency assessment (ORSA) framework. This risk assessment framework is in line with the enterprise risk management (ERM) for solvency purposes to manage insurers' risks in an integrated manner. It may sound complicated to the ordinary buyer of insurance, but the intention is for the insurers to be strong and capable risk takers. In other words, the intention is to protect the insuring public.

The ORSA is only the latest of the various requirements that the insurance industry has to comply with. Insurance companies have to identify the foreseeable and material risks and the interdependencies of such risks and capital management. Covered companies are required to conduct the ORSA at least once a year, and the first submission is due not later than June 30, 2023. While the guidelines of this framework are stated in the circular letter, the companies will have to set forth their own risk assessment framework which is not an easy task.

The insurance industry is still in the process of revising its financial reporting system as it implements the Philippine Financial Reporting System, better known as PFRS17. This reporting framework changes the existing accounting and reporting systems, and it will require a complete revamp of their computerized systems and applications. The tax and other regulatory implications are still being discussed by the affected parties. All companies should be under the PFRS17 reporting system by year 2025, but companies have to restate their 2024 financial statements for comparison purposes.

Regulation is not new to the insurance industry. Republic Act 10607 which amended Presidential Decree 612, otherwise known as the "Insurance Code," is the bible of the insurance industry. Add to that, the various circulars and memorandum orders issued by the Insurance Commission on matters that may affect the orderly operations of the companies. Regular examination of the financial affairs and specific functions like pricing, claims settlement and reinsurance placements further ensures efficient conduct of insurance business.

By the end of the year 2022, all insurance companies are required to have a net worth of P1.3 billion, a P400 million increase from the existing net worth requirement. The P1.3 billion net worth is the highest net worth requirement for insurance companies in the Asean region, and some companies are still on the way to complying with it. This requirement is further strengthened by the risk-based capital (RBC) framework which the Insurance Commission implemented several years back. This framework determines the amount of capital or net worth needed by a company to match its risk appetite. The formula assigns risk ratings to the assets and liabilities of the insurance company, including all its insurance activities (sales, underwriting, claims) and the result is compared to the company's audited net worth. Various sanctions can be imposed based on the rate of compliance with the RBC formula.

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