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Courtesy of AIR: Philippines - Insurers face significant pressure on profits

Local insurers in the Philippines will still face significant pressure on underwriting growth and profitability amid the ongoing COVID-19 pandemic with the recent rejection of a proposal to relax minimum capital requirements, says AM Best.

A new Best’s Commentary, titled, “Philippine Insurance: Dropped Proposal to Amend Minimum Capital Rule May Have Mixed Impact,” notes that the government has stood firm on the capitalisation requirement, which is to be met by 2022. According to the commentary, the requirement not only prompted capital injections in the market to strengthen the insurers’ capitalisation, but also led to increased merger and acquisition (M&A) activity in Philippines’ highly fragmented insurance market.

However, in view of the economic fallout from COVID-19, AM Best notes that there is a possibility that M&A momentum and the impetus to shore up capital positions may falter over the near term.

All insurers will need to have a minimum net worth of at least PHP1.3bn ($27m) by 31 December 2022. Many small- and medium-sized companies will need to bolster their capital bases to comply with the increasing minimum net worth requirements, and given the remaining time period, AM Best expects that this will likely be achieved through capital raised with new/ existing shareholders, rather than through internal capital generation.

Last month, the government scrapped a proposal to cap the minimum net worth requirement of local insurance players at PHP900m to ensure the financial strength of the industry, according to the Insurance Commission. It will implement minimum capital requirements of PHP1.3bn as was originally planned.

By Asia Insurance Review

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