THE INSURANCE Commission (IC) is looking to set standards for the computation of mutual benefit associations’ (MBA) policy reserves.
“Every MBA supervised by the Insurance Commission shall value their policy reserves for Basic Life Insurance and Optional Life Insurance coverages at the end of each valuation period in accordance with this set of Valuation Standards,” the industry regulator said in a draft circular dated Dec. 26 and posted on its website.
The MBA sector can send their comments on the proposal to the IC’s Actuarial Division until Jan. 6.
Policy reserves are the dues MBAs are required to collect from its members, which are used for the payment of claims or obligations.
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 be required to compute their required reserves using 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 from the policy discounted at the appropriate risk-free discount rate as of the valuation date,” the IC said.
“The MBA shall appropriate from the free and unassigned fund balance an amount equal to the aggregate of the negative reserves calculated on a per-policy basis,” it added.
The valuation will be based on the calculated risk-free discount rate for MBAs’ cash flows to determine a policy’s liability.
The yield curve for the discount rate will be based on the PHP Bloomberg Valuation Service reference rates for peso-based policies and the International Yield Curve from Bloomberg for dollar-based policies.
An MBA’s reserve valuation will also be based on the company’s non-guaranteed benefits, expenses, mortality and morbidity, and lapse or persistency, the IC said.
The MBA industry saw its total contributions or premiums rise by 6.27% year on year to P12.22 billion at end-September, latest IC data showed.
The sector’s total assets stood at P158.23 billion as of September, while its combined liabilities were at P93.23 billion.
The industry also posted 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 submitted financial statements during the period. — Aaron Michael C. Sy