AMENDING FURTHER CERTAIN SECTIONS OF ACT NUMBERED TWO THOUSAND FOUR HUNDRED TWENTY-SEVEN, AS AMENDED, OTHERWISE KNOWN AS THE "INSURANCE ACT"

• Number: Presidential Decree No. 123
• Sections: 5

Preamble

WHEREAS, it is the policy of the Government to promote and

develop a strong and stable insurance industry and to provide a

favorable climate for its integration in all phases of the country's

economic and social development;

WHEREAS, in line with this policy, there is an urgent need

to ensure and maintain the liquidity of insurance companies doing

business in the Philippines and to coordinate their investment and

credit policies with that of the Government having due regard to the

principles adopted by both the monetary and fiscal authorities; and

WHEREAS, the recommendations contained in the report on the

financial system which have been accepted, with certain modifications,

by the monetary authorities, included among others, certain proposals

geared toward ensuring the liquidity of insurance companies doing

business in the Philippines;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the

Philippines, by virtue of the powers in me vested by the Constitution as

Commander-in-Chief of the Armed Forces of the Philippines, and pursuant

to Proclamation No. 1081, dated September 21, 1972, and General Order

No. 1, dated September 22, 1972, as amended, and in order to effect the

desired changes and reforms in the social, economic, and political

structure of our society, do hereby order and decree the amendment of

Act No. 2427, as amended, as follows:

Section 1

SECTION 1. Section one hundred eighty-four, subsection (g)

of Act Numbered Two thousand four hundred twenty-seven is hereby amended

to read as follows:

"SEC. 184 (g). A provision that after three full years'

premiums have been paid, the company at any time, while the policy is in

force, will advance, on proper assignment or pledge of the policy and

on the sole security thereof, at a specified rate of interest, a sum

equal to, or at the option of the owner of the policy less than, the

reserve at the end of the current policy year on the policy and of any

dividend additions thereto, less a sum not more than two and one-half per

centum of the amount insured by the policy and of any dividend

additions thereto; that the company will deduct from such loan value any

existing indebtedness on the policy and any unpaid balance of the

premium for the current policy year, and may collect interest in advance

on the loan to the end of the current policy year; which provision may

further provide that such loan may be deferred for not exceeding six

months after the application therefor is made, and that, whenever an

increase in the interest rate ceiling is prescribed by the Monetary

Board, the rate of interest specified in policy contracts issued after

the approval of this Act may, upon written notice to the insured, be

increased by the company to a rate not exceeding that prescribed by the

Monetary Board: Provided, That any such increase is made with

the prior approval of the Insurance Commissioner. A company may, in lieu

of the provisions hereinabove permitted for the deduction from a loan

on the policy of a sum not more than two and one-half per centum

of the amount insured by the policy, and of any dividend additions

thereto, insert in the policy a provision that one-fifth of the entire

reserve may be deducted in case of a loan under the policy, or may

provide therein that the deduction may be the said two and one-half per

centum or the one-fifth of the said entire reserve at the option

of the company: Provided, however, That nothing in this Act

shall be considered as compelling any insurance company to loan on any

policy an amount in excess of the death benefit of such policy, and

one-half of the difference between the benefit in case of death and the

benefit in case of survival of the policy holder."

Section 2

SEC. 2. Section one hundred ninety-seven of the same Act is

hereby amended to read as follows:

"SEC. 197. No insurance corporation shall loan any of its

money or deposits to any person, corporation or association, except

upon first mortgages or deeds of trust of unencumbered, improved or

unimproved real estate, in cities and centers of population of

municipalities in the Philippines when the amount of such loan is not in

excess of sixty per centum of the market value of such real

estate; or upon the security of first mortgages or deeds of trust of

actually cultivated, improved and unencumbered agricultural lands in the

Philippines when the amount of such loans is not in excess of forty per

centum of the market value of such kind; or upon the purchase of

money mortgages or like securities received by it upon the sale or

exchange of real property acquired pursuant to Section two hundred or

Section two hundred-A of this Act; or upon bonds or other evidences of

debt of the Government of the Philippines or its political subdivisions

authorized by law to issue bonds, or upon bonds or other evidences of

debt of government-owned or controlled corporations and

instrumentalities including the Central Bank; or upon obligations issued

or guaranteed by the International' Bank for Reconstruction and

Development; or upon stocks, bonds or other evidences of debt as are

specified in Section two hundred of this Act: provided, however.

That a life insurance corporation may lend to any of its policyholders

upon the security of the value of its policy a sum not exceeding the

legal reserve which it is required to maintain thereon: Provided,

further, That no loan upon the security of real estate shall have a

maturity in excess of twenty years: And, provided, finally,

And where such loans upon the security of real estate are granted for a

period longer than five years, payments thereof shall be made in

monthly, quarterly, semi-annual or annual installments."

Section 3

SEC. 3. The same Act is further amended by adding the

following sections immediately after Section two hundred-B thereof to

read as follows:

"SEC. 200-C. Insurance companies may (1) invest in

equities of other financial institutions, and (2) engage in buying and

selling of short-term debt instruments: Provided, That any or

all of such investments shall be with the prior approval of the

Insurance Commissioner."

"SEC. 200-D. Insurance companies may obtain from the

Development Bank of the Philippines loans with maturities not exceeding

five years, the provisions of existing law, executive orders, rules or

regulations to the contrary notwithstanding: Provided, That

such borrowings may be made only by insurance companies whose levels of

policy loans have increased to such an extent as to endanger the

liquidity of such insurance companies' policy reserves as a result of an

increase in the interest rate ceiling."

Section 4

SEC. 4. All acts and parts of acts inconsistent with the

provisions of this Act are hereby repealed. SEC. 5. This Decree

shall take effect immediately.

Done in the City of Manila, this 29th day of January, in the year

of Our Lord, nineteen hundred and seventy-three.

(Sgd.) FERDINAND E. MARCOS

President

Republic of the Philippines

By the President:

(Sgd.) ALEJANDRO MELCHOR

Executive Secretary