CHAPTER 10
PRIVATE INSURANCE COMPANIES
Persons and properties are subject to various forms of risks. It is only natural for people to
protect their lives and properties from all possible hazards.
The possibility can happen to anyone of the people or to any of the properties. No one knows
which man will die or which property will be destroyed. But the possibility of losses is always present.
For an individual to bear the burden of his loss is heavy. To reduce such burden, others have to share
the loss. For example, in an association, of 1,000 individuals, if one of the members losses his property
worth P250,000, the other 999 members contribute to the Ioss of the victim. This principle of sharing
losses is the fundamental principle of all forms of insurance.
An insurance company or organization is simply for a mechanism for distributing equitably
losses among a large number of persons who are subject to a particular risk. Clearly, risk, therefore, is
the most important factor in the business of insurance. If this does not exist, there is no need for
insurance.
Private insurance companies also contribute to the socio-economic development of the country
and the insured. They provide loan funds, and they are engaged in the business of investments.
This chapter provides general information on insurance business, function of insurance, forms of
business organizations, investment of insurance funds, and the Insurance Commission.
THE NATURE OF ANY INSURANCE COMPANY
Section 3 of Republic Act No. 337, as amended, otherwise known as the General Banking Act.
Said Section provides that “Insurance companies are exempted from the provisions of this Act, but such
companies shall present to the Bangko Sentral such information, data or reports as the Monetary Board
may require in order to ascertain the effects of the operations of insurance companies on the monetary,
credit, and exchange situation in the Philippiens.” Needless to say, ‘Insurance companies are engaged in
lending and investing operations concededly not their primary and predominant business activities.
Indeed, insurance company as defined in Section 3 of RA No. 2629, otherwise known as Investment
Company Act, is one whose primary and predominant business activity is the writing of insurance or the
reinsuring of risks underwritten by insurance companies, and which is subject to supervision by the
insurance commissioner, or any receiver or similar official or any liquidating agent for a company, in his
capacity as such.
Governing Law
The principal law to reckon with in the operations and business transactions of insurance
companies is the Insurance Code of 1978, otherwise known as Presidential Decree No. 1460. Originally,
the law on the matter was Act No. 2427, otherwise known as the Insurance Act, which "was copied from
the Civil Code of California" (Solidum).
Interestingly, the Civil Code of the Philippines hag special provisions on Insurance regarding
Insurance Contract and Life Annuity. Such Civil Code provides that "the contract of insurance is governed
by special laws. Matters not expressly provided for in such special laws shall be regulated by this Code."
The Insurance Code of 1978 is being referred to as the special law, while the Civil Code of the
Philippines in relation to such special law is viewed as the general law, it has a secondary or
supplementary applicability to questions arising from insurance transactions not otherwise governed or
resolved by the Insurance Code of 1978 and other special laws. The laws creating the Government
Service Insurance System (GSIS), the Social Security System (SSS), and the Philippine Crop Insurance
Corporation (PCIC), are Presidential Decree No. 1146 (Revised Government Service Insurance Act of
1977), Republic Act No. 1161, as amended (Social Security Act), and Presidential Decree No. 1467
(Philippine Crop Insurance Corporation), respectively, may be alluded to as the “other special laws". Of
course, the Corporation Code of the Philippines (Batas Pambansa Blg. 68) must, likewise, be considered.
Entities Engaged in Insurance Business
The different institutions engaged in insurance business in the Philippines may be classified into
two sectors: the public and the private. The so-called public sector refers to government insurance
corporations (GSIS, SSS, and PCIC). On the other hand, the so-called private sector refers to private
insurance companies (domestic and foreign) which are subject to the provisions of the Insurance Code
of 1978. In the 1982 Annual Report of the Insurance Commission, there were 136 authorized insurance
companies that are engaged and do insurance business in the Philippines.
As mandated by the Insurance Code of 1978, entities engaged in insurance business are
required to submit annual statements on their financial condition on or before April 30 immediately
following the end of such fiscal year. In this connection, the same Annual Report for 1982, showed a
consolidated annual statements of private insurance companies and government insurance
corporations. For the period ending the fiscal year of 1981, both the private and public sectors
registered a combined aggregate assets in the amount of P34.062 billion as against the reported figure
of P28.5025 for fiscal year 1980. Out of the total amount of P34.062 billion, the government corporators
engaged in insurance business accounted for a contribution of P22.7 billion. On the other hand, the
private insurance companies accounted for a total share of P11.3 billion.
The total combined investments of the government insurance corporations and the private
insurance companies for fiscal year 1981 reached the sum of P26.9713 billion. The said figure is an
improvement, of the previous year's performance which registered only the total sum of P22.4566
billion. Out of the total sum of P26.9713 billion, the government insurance corporations contributed the
bigger share considering the fact that the private insurance companies invested only the total amount of
P6.6649 billion.
The Private Insurance Companies
According to the Insurance Companies’ Profile 1982 (Volume 1) there are 21 domestic life
companies; 2 foreign life companies; 95 domestic non-life companies; 14 foreign non-life companies; 4
domestic professional reinsurers; and 1 foreign professional reinsurer doing or transacting an insurance
business in the country.
Anyone who is interested to know more about a Particular private insurance company doing
business in the Philippines as to its history, financial condition, performance, and business done for the
last five years from 1976 to 1980, the Insurance Commission's profile 1982 (Volume 1) is recommended.
Doing An Insurance Business
Section 2, paragraph two of the Insurance Code of 1978 defines the term “doing an insurance
business” or "transacting an insurance business,” to include the following:
1. Making, or proposing to make, as insurer, any insurance contract.
2. Making, or proposing to make, as surety, any contract of suretyship as a vocation, and not as merely
incidental to any other legitimate business or activity of the surety.
3. Doing any kind of business, including a reinsurance business, specifically recognized as constituting
the doing of an insurance business within the meaning of the Insurance Code of 1978.
4. Doing or proposing to do any business in substance equivalent to any of the foregoing in a manner
designed to evade the provisions of the said Insurance Code.
Function of the Business of Insurance
In a very scholarly book written by a well-respected and recognized authority in the subject of
insurance, Professor William R. Vance, has this to say in his Handbook of the Law of Insurance:
The business of insurance has for its function the distribution and equalization of individual
losses incident to any of life's activities. For its method, it has many devices and arrangements for
estimating risks according to actuarial computations, for making reasonable and adequate policy
contracts, for reducing risks by inspections and otherwise, for the fixing and equitable collection of
premiums, the establishment and maintenance of needed reserves, the appraisal and settlement of
losses suffered, the equitable apportionment of such losses among co-insurers, if any, and the ultimate
payment of other amount of each loss, so far as it may have been covered by the insurance, to the one
upon whom it fell.
Forms of Business Organizations
The question of the particular form of business organization an insurance entity be organized
into is answered in sections 184 and 185 of the Insurance Code of 1978. The two sections are
reproduced below for convenience. To wit:
Sec. 184. For purposes of this Code, the term “insurer” or “insurance company" shall] include all
individuals, partnerships, associations, or corporations, including government-owned or controlled
corporations or entities, engaged as principals in the insurance business, excepting mutual benefit
associations. Unless the context otherwise requires, the term shall also include professional reinsurers
defined in section two hundred eighty. “Domestic company" shall include companies formed, organized
or existing under the laws of the Philippines. "Foreign company" when used without limitation shall
include companies formed, organized, or existing under any laws other than those of the Philippines.
Sec. 185. Corporations formed or organized to save any person or persons of other corporations
harmless from loss, damage, or liability arising from any unknown or future or contingent event, or to
indemnify or to compensate any person or persons or other corporations for any such loss, damage, or
liability, or to guarantee the performance of or compliance with contractual obligations of the payment
of debts of others shall be known as “insurance corporations."
The provisions of the Corporation Law (now the Corporation Code of the Philippines) shall apply
to all insurance corporations now or hereafter engaged in business in the Philippines insofar as they do
not conflict with the provisions of this Chapter.
Paid-Up Capital of Domestic Insurance Company
The Secretary of Finance has approved an increased in the capitalization of insurance companies doing
business in the Philippines from a paid-up capital of P75 million to P10 million to take effect immediately
in a gradual manner. In the case of insurance company engaged in reinsurance business, it has to
increase from a paid-up capital of P10 million to P15 million also, in a gradual manner. The authority of
the Secretary is derived in Section 188 of the Insurance Code of 1978. Said section provides, among
other things, the following:
Except as provided in section two hundred eighty one, no domestic insurance company shall, in
a stock corporation, engage in business in the Philippines unless possessed of a paid-up capital equal to
at least five million pesos; Provided, That a domestic insurance company already doing business in the
Philippines with a paid-up capital stock which is less than five million pesos shall have a paid-up capital
stock of at least three million pesos by December thirty-one, nineteen hundred seventy-eight, four
million pesos by December thirty-one, nineteen hundred seventy-nine and five million pesos by
December thirty-one, nineteen hundred eighty: Provided, further, That the Secretary of Finance may,
upon recommendation of the Insurance Commissioner, increase such minimum paid-up capital stock
requirement under such terms and conditions as he may impose, to an amount which in his opinion,
would reasonably assure the safety of the interests of the policy holders and the public.
The Commissioner may, as pre-licensing requirement of a new insurance company, in addition
to the paid-up capital stock, require the stockholders to pay in cash to the company in proportion to
their subscription interests as contributed surplus fund of not less than one million pesos, in the case of
a life insurance company or not less than five hundred thousand pesos, in any case of an insurance
company other than life. He may also require such company to submit to him a business plan showing
the company's estimated receipts and disbursements, as well as the basis therefore, for the next
succeeding three years.
If organized as a mutual company, in lieu of such capital stock, it must have available cash assets
of at least five million pesos above all Liabilities for losses reported, expenses, taxes, legal reserves, and
reinsurance of all outstanding risks, and the contributed surplus fund equal to the amounts required of
stock corporations. A stock insurance company doing business in the Philippines may, subject to the
pertinent law and regulation which now or hereafter may be in force, alter its organization and
transform itself into a mutual insurance company. (As amended by PD No. 1455)
Certificate of Authority
Before a domestic insurance company can do and engage in the business of insurance, it must
first obtain a certificate of authority from the insurance commissioner. However, the commissioner
must satisfy himself by such examination as he may make and such evidence as he may require that
such company is qualified by the laws of the Philippines to transact business herein, that the grant of
such authority appears to be justified in the light of local economic requirements, and that the direction
and administration, as well as the integrity and responsibility of the organizers and administrators, the
financial organization and the amount of capital, notwithstanding the provisions of Section 188, of the
Insurance Code of 1978, reasonably assure the safety of the interests of the policy holders and the
public, prior to the issuance of the certificate of authority.
In order to maintain the quality of the management of insurance companies and afford better
protection to policyholders and the public in general, any person of good moral character, unquestioned
integrity and recognized competence may be elected or appointed director or officer of insurance
companies. The commissioner is authorized to prescribe the qualifications of the executive officers and
other key officials of insurance companies for purposes aforecited.
Investments of Insurance Funds
Title four “Investments” of the Insurance Code of 1978 is very instructive. Section 200 is cited
below to serve the purpose of knowing where the funds of insurance companies are utilized for
investments. To wit:
Sec. 200. (1) An insurance company may purchase, hold, own and convey such property, real,
and personal, as may have been mortgaged, pledged, or conveyed to it in good faith in trust for its
benefit by reason of money loaned by it in pursuance of the regular business of the company, and such
real or personal property as may have been purchased by it as sales under pledges, mortgages or deeds
of trust for its benefit on account of money loaned by it; and such real and personal property as may
have been conveyed to it by borrowers in satisfaction and discharge of loans made by the company to
them; Provided, however, That any real estate purchased by an insurance company in payment or by
reason of any loan made by it shall be sold by the company within twenty years after the title thereto
has been vested in it.
(2) An insurance company may purchase, hold, own and convey real and personal property as follows:
(a) The lot with building thereon in which the company conducts and carries on its business.
(b) Bonds or other evidence of debt of the Government of the Philippines or its political
subdivisions authorized by law to issue bonds at the reasonable market value thereof.
(c) Bonds or other evidence of debt of government-owned or controlled corporations and
entities, including the Central Bank.
(d) Bonds, debentures or other evidences of indebtedness of any solvent corporation or
institution created or existing under the laws of the Philippines; Provided, however, That the
issuing, assuming or guaranteeing entity or its predecessors shall not have defaulted in the
payment of interest on any of its securities and that during each of any three including the last
two of the five fiscal years next preceding the date of acquisition by such insurance company of
such bonds, debentures or other evidences of indebtedness, the net earnings of the issuing,
assuming or guaranteeing institution available for its fixed charges, as hereinafter defined, shall
have been not less than one and one-quarter times the total of its fixed charges for such year;
And provided, further, That no life insurance company shall invest in or upon the obligation of
any one institution in the kinds permitted under this subsection an amount in excess of twenty-
five per centum of the total admitted assets of such insurer as of December thirty-first next
preceding the date of such investment.
As used in this sub-section the term “net earnings available for fixed charges" shall mean net
income after deducting operating and maintenance expenses, taxes other than income taxes,
depreciation, and depletion; but excluding extraordinary non-recurring items of income or
expense appearing in the regular financial statement of the issuing, assuming or guaranteeing
institution. The term “fixed charges" shall include interest on funded and unfunded debt,
amortization of debt discount, and rentals for leased properties.
(e) Preferred or guaranteed stocks of any solvent corporation or institution created or existing
under the laws of the Philippines; Provided, however, That the issuing, assuming, or
guaranteeing entity or its predecessors has paid regular dividends upon its preferred or
guaranteed stocks for a period of at least three years next preceding the date of investent in
such preferred or guaranteed stocks; Provided, further, That if the stocks are guaranteed, the
amount of stocks so guar. anteed is not in excess of fifty per centum of the amount of the
preferred or common stocks, as the case may be, of the guaranteeing corporations;; And
Provided, finally, That no life insurance company shall invest or in loan upon obligations of any
one institution in the kinds permitted under this sub-section an amount in excess of ten per
centum of the total admitted assets of such insurer as of December thirty-first next preceding
the date of such investment.
(f) Common stocks of any solvent corporation or institution created or existing under the laws of
the Philippines upon which regular dividends shall have been paid for the three years next
preceding the purchase of such stock; Provided, however, That no life insurance company shall
invest in or loan upon the obligation of any one corporation or institution in the kinds permitted
under this sub-section an amount in excess of ten per centum of the total admitted assets of
such insurer as of December thirty-first next preceding the date of such investment.
(g) Certificates, notes, and other obligations issued by trustees or receivers of any institution
created or existing under the laws of the Philippines which, of the assets or which, are being
administered under the direction of any court having jurisdiction; Provided, however, that such
certificates, notes, or other obligations are adequately secured as to principal and interests.
(h) Equipment trust obligations or certificates which are adequately secured or other adequately
secured instruments evidencing an interest in equipment wholly or in part within the
Philippines; Provided, however, That there is a right to receive determined portions of rental,
purchase or other fixed obligatory payments for the use or purchase of such equipment.
(i) Any obligation of any corporation or institution created or existing under the laws of the
Philippines which is, on the date of acquisition by the insurer, adequately secured and has
qualities and characteristics wherein the speculative elements are not predominant.
(j) Such other securities as may be approved by the Commissioner.
(3) Any domestic insurer which has outstanding insurance, annuity or reinsurance contracts in
currencies other than the national currency of the Philippines ‘may invest in, or otherwise acquire or
loan upon securities and investments in such currency which are substantially of the same kinds, classes
and investment grades as those eligible for investment under the foregoing subdivisions of this section;
but the aggregate amount of such investments and of such cash in such currency which is at anytime
held by such insurer shall not exceed one and one-half times the amount of its reserves and other
obligations under such contracts or the amount which such insurer is required by the law of any country
or possession outside the Republic of the Philippines to invest in such country or possession, whichever
shall be greater.
The Insurance Commission
The governmental agency that exercises supervision and regulation over the operation and
formation of entities that will engage in the business of insurance in the Philippines is the Insurance
Commission. The Insurance Commission, as it is known today, used to be an Insurance Division of the
Bureau of the Treasury. The Insular Treasurer was designated insurance commissioner ex-officio. Such
arrangement was instituted by Act No. 2427, otherwise known as The Insurance Act. During the
Occupation Period of the Japanese Imperial Forces, the Insurance Division became part of the Bureau of
Banking. The Bureau of Banking was changed to Bureau of Financing which was later renamed as the
Bureau of Credits and Investments. Subsequently, under the Commonwealth Government of the
Philippines of the early postwar liberation period, the Insurance Division became again in integral part of
the Bureau of the Treasury. However, by virtue of Executive Order No. 54 which took effect on April 21,
1947, the Insurance Division was again integrated into the Bureau of Banking. Then, came Republic Act
No. 275 which created the Office of the Insurance Commissioner (OIC), institutionalizing in effect the
Insurance Division considered to be the nucleus and forerunner of the Insurance Commission.
Interestingly, the law that gave birth to the Office of the Insurance Commissioner took effect
simultaneously with the inauguration of the former Central Bank of the Philippines on January 3, 1949.
Ultimately, the Insurance Commission has come of age through Presidential Decree No. 63. The said
decree which took effect on November 20, 1972, granted to the Insurance Commission certain
adjudicatory powers as now embodied in the Insurance Code (Insurance Commission, Informational
Data and Statistics).
By and large, the Insurance Commission is being tasked to implement, execute, and require
compliance of insurance companies doing business in the Philippines of the new provisions of the
Insurance Code of 1978. They are as follows:
1. Casualty Insurance (of Title 3, Chapter II).
2. Suretyship (of Title 4, Chapter II).
3. Consolidation and Merger of Insurance Companies (of Title 16, Chapter III).
4. Mutualization of Stock Life Insurance Companies (of Title 17, Chapter IID.
5. Holding Companies (of Title 20, Chapter III).
6. Compulsory Motor Vehicle Liability Insurance (of Chapter VI).
7. Mutual Benefit Association (of Title 1, Chapter VID.
8. Trusts for Charitable Uses (of Title 2, Chapter VII).
Review Questions
1. Define the term "insurance company”.
2. Is insurance company a financial institution? Why?
3. State briefly the history of the Insurance Commission.
4. Enumerate and discuss briefly the so-called government insurance corporations.
5. Give at least five new provisions of the Insurance Code of 1978.
6. How are the entities engaged in insurance business classified?
7. What specific laws govern insurance transactions in the Philippines?
8. What was the significance of January 3, 1949?
9. State the function of the business of insurance according to Professor Vance.
10. Briefly explain the areas of investments of insurance funds.
