To conserve insurers’ capital amid the COVID-19 crisis, the Insurance Commission (IC) will regulate dividend payouts this year.
Insurance Commissioner Dennis B. Funa issued Circular Letter (CL) No. 2020-66 on Thursday (May 21), listing interim rules in declaring and distributing dividends.
“The COVID-19 pandemic has greatly affected and continues to affect both global and local economies,” said Funa in a statement.
“In order to be faithful to the IC’s vision of strong, sustainable, and globally-competitive regulated entities during this pandemic, we deemed it necessary to institute a policy that would promote prudence with the utilization of capital so that our regulated entities will be prepared for whatever uncertainties that may arise in the months to come,” Funa said.
The circular mandated that all of the IC’s regulated entities—life and non-life insurance players, pre-need firms, mutual benefit associations (MBAs), as well as health maintenance organizations (HMOs)—should “first comply with certain solvency and regulatory requirements and secure prior approval from the IC” before declaring or distributing dividends.
The IC, Funa said, reserves the “prerogative” to reject requests to declare or distribute dividends “if reasonably necessary to protect the interest of the public and the company itself due to the economic impact of the COVID-19 pandemic.”
Funa said the new circular “temporarily suspended” the previous policy requiring no prior approval from IC before declaring or distributing dividends.
The previous policy required companies to submit only post-declaration or distribution reports with documents within 30 days after dividend declaration or distribution.
Funa said the COVID-19 pandemic had forced the IC to be “strict with this new policy.”
“Any violation will mean that the erring company will be putting itself and all of its stakeholders at a financial risk during these times when economic projections are uncertain because of the pandemic,” Funa said.
Companies that would be found to have declared or distributed dividends without permit from IC “may be ordered to cease and desist from doing business” until the amount of dividends declared and distributed had been restored, Funa said.
The new rule, however, would be just temporary, he said.
Edited by TSB
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