Accounting Alerts

Regulatory Relief for HMOs on the Liquidity Requirement under IC Circular Letter (CL) No. 2016-41

This Accounting Alert is issued to circulate Insurance Commission (IC) Circular Letter No. 2023-24 dated October 25, 2023.

Background

Circular Letter (CL) No. 2016-41 requires all HMOs to comply with the following financial capacity and solvency requirements:

a. Paid-up Capital;

b. Deposit Requirement;

c. Risk-based Capitalization;

d. Net Worth Requirement; and,

e. Liquidity Requirement

Section 1.5 of the aforementioned CL requires HMOs to comply with the liquidity requirement by maintaining an Acid Test Ratio (ATR) of at least 1.0 at all times.

Regulatory Relief

HMOs shall at all times maintain and ATR of at least 0.75, subject to certain regulatory actions as follows:

ATR
 Regulatory action
0.75≤ATR<1.00
HMOs shall be required to submit, together with the Interim Financial Statements ("IFS") as required under Section 2.2 of CL No 2016-41, soft copies of the following:1) Schedule of claims payable as of the end of the reporting period using the template in Annex "A"; and,2) Claims settlement plan.
If upon examination of the submitted documents, it is found out that there were delays in the settlement or non-payment of claims, the regulatory action for HMOs with ATR of less than 0.75 shall be implemented.
ATR < 0.75 HMOs may collect its long-term receivables and/or liquefy non-current assets within ten (10) days from receipt of the advice from the Commission or infuse cash to be contributed proportionately by the stockholders on record within thirty (30) days from receipt of the advice from the Insurance Commission. Otherwise, the HMO must show cause in writing why no regulatory action shall be taken by this Commission against the HMO and its officers for non-compliance thereof.

Applicability

This rule shall be applied to the verification/examination of the 2022 and 2023 Audited Financial Statements and to the analysis of the Interim Financial Statements with reporting dates from 30 September 2023 until 30 September 2024, unless extended or changed as deemed necessary by this Commission.

 

See attached Circular Letter 2023-24 for further details.