IC sets valuation standards for MBAs’ policy reserves

THE INSURANCE Commission (IC) has set the standards for the computation of mutual benefit associations’ (MBA) policy reserves.

“Every MBA supervised by the Insurance Commission shall value their policy reserves for Basic Life Insurance and Optional Life Insurance coverages at the end of each valuation period in accordance with this set of Valuation Standards,” the regulator said in a circular letter dated May 15.

The circular letter finalized a draft issued on Dec. 26, 2024, which proposed reserve valuation rules in line with internationally accepted actuarial standards and the principles of the financial reporting framework promoted by the Actuarial Society of the Philippines.

Policy reserves are dues that MBAs are required to collect from its members, which are used for the payment of claims or obligations.

Under the circular, MBAs are required to compute their required reserves using gross premium valuation.

“This is calculated as the sum of the present value of future benefits and expenses, less the present value of future gross contributions/premiums arising from the policy discounted at the appropriate risk-free discount rate as of the valuation date,” the IC said.

“The MBA shall appropriate from the free and unassigned fund balance an amount equal to the aggregate of the negative reserves calculated on a per-policy basis,” it added.

MBAs will use the valuation, which is based on the calculated risk-free discount rate for cash flows, to determine a policy’s liability.

The yield curve for the discount rate for peso-based policies will be based on the PHP Bloomberg Valuation Service Reference Rates, while the International Yield Curve from Bloomberg will be used for dollar-based policies.

An MBA’s reserve valuation will also be based on the company’s non-guaranteed benefits, expenses, mortality and morbidity, and lapse or persistency.

MBAs’ total contributions or premiums went up by 7.49% year on year to P16.54 billion in 2024, IC data showed.

The sector’s total assets grew by 10.1% to P163.58 billion, while total liabilities increased by 9.37% to P96.3 billion. Their combined total fund balance rose by 11.16% year on year to P67.27 billion and net surplus climbed by 23.24% to P7.16 billion. — Aaron Michael C. Sy