CHAPTER VII

MUTUAL BENEFIT ASSOCIATIONS

AND TRUSTS FOR CHARITABLE USES
TITLE 1

MUTUAL BENEFIT ASSOCIATIONS

SEC. 403. Any society, association or corporation,

without capital stock, formed or organized not for profit but
mainly for the purpose of paying sick benefits to members,
or of furnishing financial support to members while out
of employment, or of paying to relatives of deceased
members of fixed or any sum of money, irrespective of
whether such aim or purpose is carried out by means of
fixed dues or assessments collected regularly from the
members, or of providing, by the issuance of certificates
of insurance, payment to its members of accident or life
insurance benefits, out of such fixed and regular dues or
assessments, but in no case shall include any society,
association, or corporation with such mutual benefit
features and which shall be carried out purely from
voluntary contributions collected not regularly and/or no
fixed amount from whomsoever may contribute, shall be
known as a mutual benefit association within the intent of
this Code.

Any society, association, or corporation principally

organized as a labor union shall be governed by the
Labor Code notwithstanding any mutual benefit feature
provisions in its charter as incident to its organization.
In no case shall a mutual benefit association be
organized and authorized to transact business as a
charitable or benevolent organization, and whenever it has
this feature as incident to its existence, the corresponding
 charter provision shall be revised to conform with the
provision of this section. Mutual benefit association,
already licensed to transact business as such on the
date this Code becomes effective, having charitable or
benevolent feature shall abandon such incidental purpose
upon effectivity of this Code if they desire to continue
operating as such mutual benefit associations.
SEC. 404. A mutual benefit association, before it may
transact as such, must first secure a license from the
Commissioner. The application for such license shall be
filed with the Commissioner together with certified true
copies of the articles of incorporation or the constitution
and bylaws of the association, and all amendments
thereto, and such other documents or testimonies as the
Commissioner may require.
No license shall be granted to a mutual benefit
association until the Commissioner shall have been
satisfied by such examination as he may make and such
evidence as he may require that the association is qualified
under existing laws to operate and transact business as
such. The Commissioner may refuse to issue a license to
any mutual benefit association if, in his judgment, such
refusal will best promote the interest of the members of
such association and of the people of this country. Any
license issued shall expire on the last day of December
of the third year following its issuance and, upon
proper application, may be renewed if the association
is continuing to comply with existing laws, rules and
regulations, orders, instructions, rulings and decisions
of the Commissioner. Every association receiving any
such license shall be subject to the supervision of the
Commissioner: Provided, That no such license shall be
granted to any such association if such association has
no actuary.
SEC. 405. No mutual benefit association shall be issued
a license to operate as such unless it has constituted
and established a Guaranty Fund' by depositing with the

The Guaranty Fund answers for any valid benefit claim of any of its members. To
protect the interest of their members, other stockholders, and the general public as a
whole, the Guaranty Fund of mutual benefit associations has been increased as follows:
for existing MBAs -P12,500,000 on or before December 31, 2006; and by any new MBA
Commissioner an initial minimum amount of Five million
pesos (P5,000,000.00) in cash, or in government securities
with a total value equal to such amount, to answer for any
valid benefit claim of any of its members. (a)
All moneys received by the Commissioner for this
purpose must be deposited by him in interest-bearing
deposits with any bank or banks authorized to transact
business in the Philippines for the account of the particular
association constituting the Guaranty Fund.
Any accrual to such fund, be it interest earned or
dividend additions on moneys or securities so deposited,
may, with the prior approval of the Commissioner, be
withdrawn by the association there if is no pending benefit
claim against it, including interest thereon or dividend
additions thereto.
The Commissioner, prior to or after licensing a mutual
benefit association, may require such association to
increaseits Guaranty Fund from the initial minimum
amount required to an amount equal to the capital invest-
ment required of an existing domestic insurance company
under Section 209 of this Code. (a)
SEC. 406. Every mutual benefit association licensed to
do business as such shall issue membership certificates
to its members specifying the benefits to which such
members are entitled.
Such certificate, together with the articles of incor
poration of the association or its constitution and bylaws
and all existing laws as may be pertinent shall constitute
the agreement, as of the date of its issuance, between
the association and the member. The membership
certificate shall be in a form previously approved by the
Commissioner.
SEC. 407. A mutual benefit association may, by rein-
surance agreement, cede in whole or in part any individual
risk or risks under certificates of insurance issued by it,

or one that is sought to be rehabilitated not less than 25% of minimum paid-up capital
required for new insurance companies or P125 Million. (Ins. Memo. Cir. No. 2-06, April
24, 2006.)
only to a life insurance company authorized to transact
business or to a professional reinsurer authorized to ac
cept life risks in the Philippines: Provided, That a copy of
the draft of such reinsurance agreement shall be submit-
ted to the Commissioner for his approval. The association
may take credit for the reserves on such ceded risks to the
extent reinsured.
SEC. 408. The constitution or bylaws of a mutual
benefit association must distinctly state the purpose for
which dues and/or assessments are made and collected
and the portion thereof which may be used for expenses.
Death benefit and other relief funds shall be created
and used exclusively for paying benefits due the members
under their respective membership certificates. A general
fund shall likewise be created and used for expenses of
administration of the association.

A mutual benefit association shall only maintain free

and unassigned surplus of not more than twenty percent
(20%) of its total liabilities as verified by the Commissioner.
Any amount in excess shall be returned to the members by
way of dividends, enhancing the equity value or providing
benefits in kind and other relevant services. In addition,
subject to the approval of the Commissioner, a mutual
benefit association may allocate a portion for capacity
building and research and development such as developing
new products and services, upgrading and improving
operating systems and equipment and continuing member
education. (n)
SEC. 409. Every outstanding membership certificate 1
must have, an equity value equivalent to at least fifty
percent (50%) of the total contributions collected thereon.
The equity value only applies to basic life insurance
product and excludes optional products. (a)
SEC. 410. Every mutual benefit association must ac
cumulate and maintain, out of the periodic dues collected
from its members, sufficient reserves for the payment of
claims or obligations for which it shall hold funds in securi
ties satisfactory to the Commissioner consisting of bonds
of the Government of the Philippines, or any of its political
subdivisions and instrumentalities, or in such other good
securities as may be approved by the Commissioner.
The reserve liability shall be established in accordance
with actuarial procedures and shall be approved by the
Commissioner.
The articles of incorporation or the constitution and
bylaws of a mutual benefit association must provide that
if its reserve as to all or any class of certificates become
impaired, its board of directors or trustees may require
that there shall be paid by the members to the association
the amount of the members' equitable proportion of such
deficiency as ascertained by said board and that if the
payment be not made it shall stand as an indebtedness
against the membership certificates of the defaulting
members and draw interest not to exceed five percent (5%)
per annum compounded annually.
SEC. 411. A mutual benefit association may invest
such portion of its funds as shall not be required to meet
pending claims and other obligations of any of the classes
of investments or types of securities in which life insurance
companies doing business in the Philippines may invest.
It may also grant loans to members on the security
of a pledge or chattel mortgage of personal properties of
the borrowers, or in the absence thereof, on the security
of the membership certificate of the borrowing members,
in which event such loan shall become a first lien on the
proceeds thereof.
SEC. 412. The Commissioner or any of his duly
designated representatives, shall have the power of visit
ation, audit and examination into the affairs, financial
condition, and methods of doing business of all mutual
benefit associations, and he shall cause such examination
to be made at least once every two (2) years or whenever
it may be deemed proper and necessary. Free access to
the books, records and documents of the association
shall be accorded to the Commissioner, or to his repre-
sentatives, in such manner that the Commissioner or his
representatives may readily verify or determine the true
affairs, financial condition, and method of doing business
of such association. In the course of such examination,
the Commissioner or his duly designated representatives
shall have authority to administer oaths and take testimony
or other evidence on any matter relating to the affairs of
the association.

All minutes of the proceedings of the board of directors

or trustees of the association, and those of the regular or
special meetings of the members, shall be taken, and a
copy thereof, in English or in Pilipino, shall be submitted
to the Commissioner's representatives or examiners in the
course of such examination.
A copy of the findings of such examination, together
with the recommendations of the Commissioner, shall
be furnished the association for its information and
compliance, and the same shall be taken up immediately
in the meetings of the board of directors or trustees and of
the members of the association.
SEC. 413. Every mutual benefit association shall,
annually on or before the thirtieth day of April of each year,
render to the Commissioner an annual statement in such
form and detail as may be prescribed by the Commissioner,
signed and sworn to by the president, secretary, treasurer,
and actuary of the association, showing the exact condition
of its affairs on the preceding thirty-first day of December.
SEC. 414. No money, aid or benefit to be paid, provided
or tendered by any mutual benefit association, shall be
liable to attachment, garnishment, or other process, or
be seized, taken, appropriated, or applied by any legal or
equitable process to pay any debt or liability of a member
or beneficiary, or any other person who may have a right
thereunder, either before or after payment.
SEC. 415. Any member of a mutual benefit association
shall have the right at all times to change the beneficiary
or beneficiaries or add another beneficiary or other
beneficiaries in accordance with the rules and regulations
of the association unless he has expressly waived this
right in the membership certificate. Every association
may, under such rules as it may adopt, limit the scope of
beneficiaries and provide that no beneficiary shall have or
obtain any vested interest in the proceeds of any certificate
until the certificate has become due and payable under the
terms of the membership certificate.
 SEC. 416. Any chapter affiliate independently licensed
as a mutual benefit association may consolidate or merge
with any other similar chapter affiliate or with the mother
association.

SEC. 417. Any mutual benefit association may be con

verted into and licensed as a mutual life insurance com-
pany by complying with the requirements of the pertinent
provisions of this Code and submitting the specific plan
for such conversion to the Commissioner for his approval.
Such plan, as approved, shall then be submitted to the
members either in the regular meeting or in a special meet
ing called for the purpose for their adoption. The affirma-
tive vote of at least two-thirds of all the members shall be
necessary in order to consider such plan as adopted.
No such conversion shall take effect unless and until
approved by the Commissioner.
SEC. 418. No mutual benefit association shall be
dissolved without first notifying the Commissioner and
furnishing him with a certified copy of the resolution
authorizing the dissolution, duly adopted by the affirmative
vote of two-thirds of the members at a meeting called for
that purpose, the financial statements as of the date of the
resolution, and such other papers or documents as may
be required by the Commissioner.
No dissolution shall proceed until and unless approved
by the Commissioner and all proceedings in connection
therewith shall be witnessed and attested by his duly
designated representative.
No mutual benefit association shall be officially
declared as dissolved until after the Commissioner so
certifies that all outstanding claims against the association
have been duly settled and liquidated.
SEC. 419. The Commissioner shall after notice and
hearing, have the power either to suspend or revoke the
license issued to a mutual benefit association if he finds
that the association has:

(a) Failed to comply with any provision of this Code;

(b) Failed to comply with any other law or regulation
obligatory upon it;
 (c) Failed to comply with any order, ruling, instruction,
requirement, or recommendation of the Commissioner;
(d) Exceeded its power to the prejudice of its members;
(e) Conducted its business fraudulently or hazar
dously;
Rendered its affairs and condition to one of
insolvency; or
(g) Failed to carry out its aims and purposes for which
it was organized due to any cause.
After receipt of the order from the Commissioner
suspending or revoking the license, the association must
immediately exert efforts to remove such cause or causes
which brought about the order, and, upon proper showing,
may apply with the Commissioner for the lifting of the
order and restoration or revival of the license so revoked
or suspended.
SEC. 420. For failure to remove such cause or causes
which brought about the suspension or revocation of the
license of a mutual benefit association, the Commissioner
shall apply under this Code for an order from the proper
court to liquidate such association.
The provisions of Titles 14 and 15, Chapter l, pertaining
to the appointment of a conservator and proceedings
upon insolvency of an insurance company, shall, insofar
as practicable, apply to mutual benefit associations.
SEC. 421. To secure the enforcement of any provision
under this title, the Commissioner may issue such rules,
rulings, instructions, orders and circulars.. (a)
SEC. 422. The violation of any provision of this title
shall subject the person violating or the officer of the
association responsible therefor to a fine of not less
than Ten thousand pesos (P10,000.00), or imprisonment
of not exceeding three (3) years or both such fine and
imprisonment, at the discretion of the court. (a)
SEC. 423. All provisíons of this Code governing life
insurance companies and such other provisions whenever
practicable and necessary, shall be applicable to mutual
benefit associations. (n)
Distinguished from mutual insurance
companies.
While it has been said that there is no distinction between
mutual insurance companies and mutual benefit societies, except
where a statute has created a difference, and while insurance
principles are applicable in the case of mutual benefit certificates,
benefit societies as usually constituted are materially different
from mutual insurance companies. They differ chiefly in that:
(1) They partake of many of the characteristics and incidents
of fraternal societies;
(2) The membership is generally limited to those belonging
to a particular organization or order; and
(3) The real purpose of the societies or certificates issued by
them is not that of indemnification or security against loss, but
of contribution and relief against distress or misfortune. (43 Am.
Jur. 2d. 162.)

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