THE Insurance Commission (IC) said prepaid facilitation fees from bancassurance arrangements will not be considered as admitted assets of insurers in their statements of financial condition.
Insurance Commissioner Dennis B. Funa issued Circular Letter 2021-07 dated Jan. 28 to clarify that facilitation fees paid in advance by insurance companies to a bank in a bancassurance arrangement will not be considered as an admitted asset under the former’s financial condition reports.
“Facilitation fees paid in advance and booked as prepaid expenses shall NOT be treated as admitted assets of an insurance company, in the determination of its financial condition, regardless of any stipulation of a claw back provision in a bancassurance arrangement,” the circular read.
The issuance cited a provision of Republic Act No 10607 or the Amended Insurance Code which does not allow prepaid or deferred charges, unauthorized advances to officers, employees and agents and intangible assets, among others, to be considered as admitted assets of an insurance firm when they determine the insurer’s current financial condition.
The regulator noted facilitation fees in bancassurance arrangements can be paid in advance or booked as prepaid expenses.
It added that the IC assesses the financial standing of an insurance company via a “liquidating value concept which focuses on the value that can be expected in a liquidation rather than as a going concern; and requires a reduced value (and sometimes zero value) for certain assets that will be less liquid or have a smaller realizable value in a liquidation.”
The local insurance industry’s total premium income fell by 4.2% year on year to P136.097 billion as of June 2020 due to the recession caused by the coronavirus pandemic. — B.M. Laforga