Insurance Commission's Guidelines on Lease Accounting for Insurance and Reinsurance Companies

This Accounting Alert is issued to circulate the requirements of the Insurance Commission (IC) in its Circular Letter No. 2019-70 in consideration of the regulated industries' request for clarification pertaining to PFRS 16, Leases.


Upon adoption of PFRS 16, entities are now required to recognize leases 'on-balance sheet' by recognizing the present value of the lease payments as a financial liability (lease liability) with a corresponding lease asset (right-of-use asset). It was noted that a significant number of insurance companies are leasing or subleasing their office and other properties, and as such, these companies will be significantly affected by this new accounting standard. In line with these changes and in consideration of the regulated industry's request for clarification pertaining to PFRS 16, the following guidelines are issued by the Insurance Commission through Circular Letter No. 2019-70 to insurance and professional reinsurance companies acting as lessees:

Financial Reporting Framework

The right-of-use asset and the corresponding lease liability shall be presented separately as new line items in the statement of financial position and shall form part of the uniform chart of accounts on the financial reporting framework under Circular Letter No. 2016-65.

Risk-Based Capital 2 Framework

The right-of-use asset shall be subject to 25% risk charge, which is the same RBC factor that applies to related assets such as (i) Real Estate Investment Trust, (ii) Land, Building and Building Improvements (under Property and Equipment) and (iii) Investment Property.

Admittance and Non-Admittance

The right-of-use asset shall be admitted only up to the extent of the corresponding lease liability. Any right-of-use asset in excess of lease liability shall be treated as non-admitted in the computation of the net worth requirement pursuant to Section 194 of the Amended Insurance Code.

Implementation and Effectivity

All insurance and professional reinsurance companies are required to apply the above-mentioned guidelines in the preparation and submission of statutory quarterly and annual reports dated as of September 30, 2019 onward.



See attached copy of the Circular Letter for the complete details.