THE INSURANCE COMMISSION (IC) wants to establish standards for calculating policy reserves of mutual benefit associations (MBA).
“Each MBA supervised by the Insurance Commission shall value its policy reserves for basic life insurance and optional life insurance coverage at the end of each valuation period in accordance with this set of valuation standards,” the industry regulator said in a draft circular dated December 2014. 26 and posted on its website .
The MBA sector can send comments on the proposal to the Actuarial Department of the IC until January 6.
Policy reserves are the contributions that MBAs must collect from their members and are used to pay claims or liabilities.
The valuation standards will be in line with internationally accepted actuarial standards, as well as the principles of the financial reporting framework promoted by the Actuarial Society of the Philippines, the IC said.
MBAs will have to calculate their required reserves based on the gross premium valuation.
“This is calculated as the sum of the present value of future benefits and expenses, less the present value of future gross contributions/premiums arising under the policy, discounted at the appropriate risk-free discount rate as of the valuation date,” the IC said. .
“The MBA will allocate from the unrestricted and unallocated fund balance an amount equal to the total of negative reserves calculated per policy,” it added.
The valuation will be based on the calculated risk-free discount rate for MBAs’ cash flows to determine the liability of a policy.
The yield curve for the discount rate will be based on the PHP Bloomberg Valuation Service reference rates for peso-based policies and Bloomberg’s International Yield Curve for dollar-based policies.
An MBA’s reserve valuation will also be based on the business’s non-guaranteed benefits, costs, mortality and morbidity, and decay or persistence, the IC said.
The MBA sector saw its total contributions or premiums rise 6.27% year-on-year to P12.22 billion at the end of September, the latest IC data showed.
The sector’s total assets stood at P158.23 billion in September, while its combined liabilities stood at P93.23 billion.
The industry also recorded a combined total fund balance of P65.01 billion and a net surplus of P4.8 billion in the period, the insurance regulator’s report showed.
A total of 42 licensed companies out of 43 active MBAs filed financial statements during the period. — Aaron Michael C. Sy