The Insurance Commission (IC) has released its guidelines for insurers on the implementation of the Financial Institutions Strategic Transfer (FIST) Act.
Dennis Funa, insurance commissioner, said in a statement that IC issued circular letter 2022-08, which indicates the guidelines on the implementation of Republic Act 11523 or the FIST Act, as part of a “whole-of-government approach” to the adverse economic effects of the coronavirus pandemic.
“There is a need to issue such guidelines as insurance companies were identified under the FIST Act and its implementing rules and regulations (IRR) as one of the credit-granting institutions that may invest in, as well as transfer non-performing assets (NPAs) to Financial Institutions Strategic Transfer Corporations (FISTCs),” he added.
The IC said the NPAs should have become non-performing on or before December 31, 2022. NPAs include non-performing loans (NPLs) such as receivables and restructured loans whose principal and/or interest have remained unpaid for at least 90 days after they have become past due or after any events of default under the loan agreement.
Insurance companies may also transfer to FISTCs real and other properties acquired in settlement of loans and receivables, including shares of stocks and personal properties acquired by way of dation in payment or judicial or extrajudicial foreclosure or execution of judgment or enforcement of security interest.
“An insurance company that intends to transfer NPAs to a FISTC shall file an application for eligibility of said assets with the IC. Thereafter, if the application is found in order, the IC shall issue a certificate of eligibility, attesting that the NPAs subject of the application are indeed non-performing for the purposes of availing the tax exemptions and privileges pursuant to the provisions of the FIST Act and its IRR,” the IC said.
“Sales or transfers of NPAs to a FISTC shall be in the nature of a true sale, wherein the transferor insurance company transfers full legal and beneficial title to and relinquishes effective control over the transferred NPAs, and that the NPAs are legally isolated and put beyond the reach of the transferor insurance company and its creditors,” it added.
Meanwhile, the IC said under its issued circular letter, life insurance companies are now allowed to invest in equity shares and investment unit instruments (IUIs) of FISTCs up to 10 percent of its latest verified total admitted assets.
Likewise, non-life insurance companies are allowed to invest in equity shares or IUIs of FISTCs up to 20 percent of its net worth based on its latest approved annual statements.
Under the FIST Act and its IRR, a FISTC may issue IUIs to any qualified buyer, including insurance companies, in the minimum amount of P10 million, pursuant to a plan submitted to the Securities and Exchange Commission and issued with a certificate of permit to sell or offer for sale securities.
“Selling insurance companies, as well as its parent, subsidiaries, affiliates or stockholders, directors, officers or any related interest, shall likewise not acquire or hold, directly or indirectly, the IUIs of the FISTC that acquired its NPAs,” the IC said.
The IC also noted various tax incentives and privileges for the transfer of NPAs to a FISTC that are under the FIST Act and its IRR.
“All sales or transfers of NPAs to a FISTC shall be entitled to the (said) privileges for two years from the effective date of the FIST Act,” the IC said.
In the case of acquisitions of NPLs by a FISTC, the FISTC is eligible for exemption on income tax on net interest income, mortgage registration fees and documentary stamp tax, the IC said.
“(The) circular letter was issued in recognition of the fact that it is essential for our regulated insurance companies to be able to maintain their financial health in order to cushion the adverse economic impact of the pandemic,” Funa said. – Angela Celis
