In re: Liquidation of Insurance Companies

Among the plethora of laws governing the business of Insurance, it is

undoubted that the Insurance Code as amended offers the most
comprehensive regulation covering the said subject.
In the Insurance Code, the principal provisions governing the process of
dissolution and liquidation of an entity engaged in the business of Insurance
is contained in Title 15 thereof, particularly in sec. 249.

Sec. 249, par. 3 of the Insurance Code states:

If the Commissioner shall determine and confirm within the said period that the insurance
company is solvent, as defined hereunder, or cannot resume business with safety to its
policyholders and creditors, he shall, if the public interest requires, order its liquidation, indicate
the manner of its liquidation and approve a liquidation plan and implement it immediately. The
Commissioner shall designate a competent and qualified person as liquidator who shall take
over the functions of the receiver previously designated and, with all convenient speed, reinsure
all its outstanding policies, convert the assets of the insurance company to cash, or sell, assign
or otherwise dispose of the same to the policyholders, creditors and other parties for the
purpose of settling the liabilities or paying the debts of such company and he may, in the name
of the company, institute such actions as may be necessary in the appropriate Court to collect
and recover accounts and assets of the insurance company, and to do such other acts as may
be necessary to complete the liquidation as ordered by the Commissioner.(Emphasis mine)

As may be gleaned from the provision itself, the regulation partakes merely
of a general policy to be followed, as opposed to a detailed step-by-step
process, in case an entity engaged in the insurance business is declared
insolvent and is eventually liquidated.
Upon conferment with Atty. Cabi, a lawyer from the Insurance
Commission(IC), the reason for this lack of stationary tenet springs from the
fact that circumstances vary from company to company. And so, to impose
a single rule would severely constrict the powers of the IC as regards the
liquidation of Insurance Companies.
As regards the principal query regarding the status of existing policies at
the time of liquidation, she broadly explained that: a) for the policies
maturing at the time of the liquidation, the liquidating company has to pay
for the it as they are considered debts of the same entity; b) for policies yet
to mature, the payment scheme for the return of premiums and other
miscellaneous fees shall depend on the Liquidation Plan to be agreed upon
by the Liquidator and the Company. The first scenario provides for a crystal
clear solution. However, as regards the second, there may be a legal breach
if the premiums be just returned and the policy not reinsured as according
to the mandate of sec. 249 of the Insurance Code. Upon presenting her with
this supposition, she advanced the answer that it would all depend upon the
Liquidation Plan to be approved by the IC and the Company. In other words,

all the specifics, as long as it is within the general ambit of the policy
provided for in sec. 249 of the Insurance Code, can be made and cleared
out in the Liquidation Plan.
From this, we could only surmise as to how the IC will go about the
liquidation of CAP Life should it opt to take this route.
Herein outlined is the step-by-step process undertaken by the IC as regards
the liquidation of Prudential Life, another insurance company engaged in
the Philippines.