Insurance Commission showcases new Net Worth requirements and options for disclosing minimum information

27 March 2023

The Insurance Commission (IC) answers the most frequently asked questions regarding Fiduciary and Net Worth Requirements along with the new options for disclosing minimum information in financial statements.

The Insurance Commission (IC) has answered many of their Frequently Asked Questions (FAQs) in advisory number RS2023-006, released on March 13, 2023. The advisory explains various questions regarding Fiduciary Ratio and Net Worth requirements, along with clarifications on the updated options for the Disclosure of Minimum Information in financial statements.

The advisory was done following the implementation and revisions of the IC Circular Letter (CL) No. 2021-65 or the "Revised On-Site Examination and Off-site Verification Rules and Procedures" starting May 2023 submissions. The questions and clarifications in this advisory are taken from lC's training sessions and were made to assist the preparers of the documentary requirements and/or financial statements and their external auditors in understanding and compliance with the requirements of the revised CL.

Highlights of FAQs answers regarding Fiduciary Ratio Requirement

The advisory answered several commonly asked questions regarding Fiduciary Ratio requirements, these responses were first stipulated in IC CL No. 2021-6. Some of the most relevant responses include the following:

  • When asked if a business needs to provide disclosure and explanation if they have a remaining balance of PHP 1.25 Million in their client’s account, the IC stated that the establishment has…
    - “No need to provide disclosure and explanation on maintaining balance. Only
    the client's money balance as of year-end should be disclosed.
  • The Commission then clarified what the resolution for non-compliance with fiduciary ratio requirement due to differences between the premium-related balances in the Statement of Business Operations (SBO) and AFS would be, by stating that…
    - “Any reconciling items that may differ from the premium-related accounts, as well as commission receivables and revenues per AFS and SBO shall be included in the SBO reconciliation tab in the Financial Information Form.
    The Fiduciary ratio computation will pick up the balances per Audited Trial Balance. Hence, the premium-related accounts should be presented at GROSS of commissions, allowances for impairment, taxes, fees, and other charges.”
  • The FAQs also clarified how the accounting policy of offsetting fiduciary accounts affects the fiduciary ratio requirement by stating that…
    - “While the Company has the option to present the net balances of its fiduciary accounts in its AFS, it is expected that these accounts will be presented in the Audited Trial Balance tabs on the Financial Information Form.”

The Commission responded to several questions regarding installment agreements, the acceptable frequency for transfer and more. To see their full responses and the complete context of the questions, please click the attachment at the bottom of the page.

Highlights of FAQs answers regarding Net Worth

The advisory also tackled two of the most asked questions regarding Net Worth:

  • When asked about how the issuance of lC CL No. 2023-02 or the Amended Guidelines on the Licensing Requirements of Brokers Engaged in Health Maintenance Organization (HMO) Business affects the net worth requirement for 2022 AFS, the Commission explains that:
    - “There will be no effect on the required net worth level for 2022 AFS, until the Commission issues amendments to lC CL No. 201 8-52, if any.”
  • When asked, what is the net worth requirement for companies who transitioned from insurance or reinsurance broker to insurance AND reinsurance broker in 2022 and onwards, they explained that…
    - “The companies transitioning from insurance or reinsurance broker to insurance AND reinsurance broker in 2022 onwards will be classified as a new entrant with the net worth requirement of PHP 50 Million.