The Insurance Commission (IC) is now allowing insurance firms and pre-need companies to invest in real estate investment trusts (REIT), widening their investment channels in a bid to increase returns.
Insurance Commissioner Dennis Funa issued a circular which qualifies REITs as admitted assets for insurance companies and mutual benefit associations (MBA), and as allowable investment for pre-need companies, according to a statement issued by the regulator.
Despite the fact that a decade has passed since the REIT was passed by law as an investment vehicle, no Philippine REIT has been established.
“This can be attributed to the claim of market players that legal and administrative requirements have made investment in the Philippine REIT market difficult,” Mr Funa said. “However, we deemed it necessary to issue the new regulation on investments in REIT by insurance and pre-need companies.”
He said the issuance of the new rule is “timely” as it ensures that insurance and pre-need industry players are well prepared, considering the amendments to the implementing rules and regulations of the REIT law, and the “Build, Build, Build” programme of the Duterte administration.
“The new regulation will allow the insurance and pre-need companies to hit the ground running as early as the first listing of a Philippine REIT,” he said.
“While the Insurance Code specifically allows insurance companies to invest in REIT, it is not a self-executory provision. In other words, there is a need for the issuance of implementing rules and regulations,” Mr Funa explained.
Under the new regulation, for investments in REITs to be treated as admitted assets of an insurance or pre-need company, the REITs must have the prior approval of the Securities and Exchange Commission and shall be limited to publicly-listed REITs only.
Mr Funa said that the aggregate placement in REITs should not exceed 10% of the total admitted assets of a life insurance company and MBA; or 20% of the total net worth of non-life insurance company or professional reinsurance firm. For pre-need companies, investments in REIT should not exceed 15% of their total trust fund.
Moreover, investments of insurers on REIT shall be subject to a risk-based capital charge of 25%, pursuant to the amended risk-based capital framework.