THE Insurance Commission (IC) has issued interim guidelines on the declaration and distribution of dividends, with the aim of conserving capital of all its regulated entities, due to the economic impact of the coronavirus disease 2019 (COVID-19) pandemic.
The IC said in a statement yesterday it issued circular letter No. 2020-66 which governs the declaration of cash, property and stock dividends of all regulated entities to ensure sufficiency of capital buffers.
“The COVID-19 pandemic has greatly affected and continues to affect both global and local economies. In order to be faithful to the IC’s vision of strong, sustainable, and globally-competitive regulated entities during this pandemic, we deemed it necessary to institute a policy that would promote prudence with the utilization of capital so that our regulated entities will be prepared for whatever uncertainties that may arise in the months to come,” Dennis Funa, insurance commissioner, said.
Under the circular, a regulated entity must first comply with certain solvency and regulatory requirements and secure prior approval from the IC before it can declare and/or distribute dividends from its unrestricted retained earnings.
In the same letter, the IC reserved itself the prerogative to disapprove any request to declare and/or distribute dividends “if reasonably necessary to protect the interest of the public and the company itself due to the economic impact of the COVID-19 pandemic.”
In the case of insurance companies, the circular temporarily suspended the previous policy under circular letter No. 2019-60 that no prior approval or clearance shall be required before an insurance company may declare and/or distribute dividends.
Under the said circular, insurance companies were only required to submit a post-declaration/distribution report, together with accompanying documentation, within 30 days after the dividend declaration/distribution.
“The prevailing unprecedented circumstances constrain us to be strict with this new policy. Any violation will mean that the erring company will be putting itself and all of its stakeholders at a financial risk during these times when economic projections are uncertain because of the pandemic,” Funa said.
Hence, any regulated entity that will be found to have declared and/or distributed dividends in violation of circular letter No. 2020-66 may be ordered to cease and desist from doing business until the amount of the dividends declared, or any portion thereof in excess of the amount allowed under said circular, is restored.
“At any rate, this is only a temporary measure. Circular letter No. 2020-66 will only be effective until the end of 2020. Let us all hope that by then, global and local economies will have shown indications of recovery, if not growth,” Funa said.
