By: Atty. Gregorio B. Austral, CPA
New investment guidelines in the Philippine insurance industry
The Philippine insurance sector is undergoing a significant transformation with the introduction of Insurance Circular Letter No. 2025-09, titled the “Omnibus Guidelines on Investments”. This new directive, which supersedes several previous circulars, aims to bolster the financial stability and integrity of the industry by enhancing the investment adaptability of Insurance Commission Regulated Entities (ICREs), including insurance companies, professional reinsurers, and mutual benefit associations (MBAs). The core objective is to cultivate a more dynamic and responsive approach to the ever-changing market environment, empowering ICREs to make well-informed investment decisions that ensure the continued stability and growth of their financial assets while diligently safeguarding the interests of their policyholders.
The guidelines delineate a broad spectrum of admissible investments, ranging from traditional liquid assets to more intricate financial instruments. ICREs can now invest in cash, time deposits, money market instruments, and fixed-income securities with short maturities. Additionally, marketable securities are permissible, encompassing debt securities issued by the Government of the Philippines or its political subdivisions, as well as debt securities of foreign governments, provided the foreign government maintains a minimum credit rating of B from S&P, B2 from Moody’s, B from Fitch, or an equivalent rating from at least two reputable credit rating agencies.
Expanding further on marketable securities, the circular permits investments in corporate debt and equity securities listed on local exchanges like the Philippine Dealing Exchange (PDEx) or Philippine Stock Exchange (PSE). For foreign currency-denominated debt or equity securities, the issuer or issue must similarly obtain a minimum credit rating of B by S&P, B2 by Moody’s, B by Fitch, or an equivalent from two reputable agencies. The guidelines also explicitly allow investments in structured products such as Credit-Linked Notes, Equity-Linked Notes, and Principal Protected Notes, contingent on the issuer/sponsor or underlying asset meeting specific credit rating requirements. Significantly, financial derivatives—including Forward Contracts, Futures Contracts, Options, and Swaps—are permitted solely as a risk management tool for reducing risk and costs, and must adhere to International Swaps and Derivatives Association (ISDA) guidelines.
Beyond traditional securities, the guidelines open doors to various other investment avenues. Investment vehicles designed for aggregating capital, such as Mutual Funds, Exchange-Traded Funds (ETFs), Real Estate Investment Trusts (REITs), and Unit Investment Trust Funds (UITFs), are now admissible, provided their fund managers and/or investment management companies are subject to professional and regulatory oversight. A diverse array of loans is also permissible, including secured loans, loans to Partner Microfinance Institutions (for MBAs), financial assistance programs for officers/employees, and salary loans to Department of Education Teachers. Furthermore, ICREs can invest in real estate properties used as main offices, or properties acquired for income production, as well as investments in infrastructure projects under the Philippine Development Plan, and even Electronic Data Processing (EDP) machines or Information and Communications Technology (ICT) Systems and Infrastructure.
To ensure prudent management and financial stability, the guidelines impose specific conditions and limitations on these investments, detailed in a comprehensive table. For instance, while foreign currency-denominated investments are broadly allowed, those that are below investment grade or unrated are subject to a strict 5% aggregate limitation for both life insurance companies/MBAs and non-life insurance companies. Common stocks have a 10% limit for life insurance companies/MBAs and a 20% limit for non-life companies, while corporate bonds are limited to 25% for life/MBAs and 20% for non-life insurers. Additionally, the circular explicitly lists non-admitted assets—such as goodwill, intangible assets, prepaid charges, and furniture—which are not considered in determining an ICRE’s financial condition, thereby ensuring a conservative assessment of solvency.
Effective oversight is a cornerstone of these new guidelines, with the Insurance Commission committed to periodic reviews, both on-site and off-site, to ensure that investment activities align with the ICREs’ Investment Policy Framework (IPF) and existing regulations. ICREs are mandated to submit various reportorial requirements, including regular investment reports. Crucially, for ICREs with investments in complex instruments, an Investment Policy Framework (IPF) must be submitted, duly approved by their respective Board of Directors or Board of Trustees. This IPF is required to detail the ICRE’s risk management system, including processes for identifying, monitoring, and managing risks like credit, market, liquidity, and concentration risks, and must also outline appropriate valuation procedures and mark-to-market methodology, including performing stress tests at regular intervals to reflect extreme market conditions.