AM Best is maintaining a stable market segment outlook for the Philippine non-life insurance segment, citing signs of recovery in 2021 regarding premium growth and improved investment conditions.
In its new Best’s Market Segment Report, “Market Segment Outlook: Philippines Non-Life Insurance”, AM Best also notes the strong growth experienced in microinsurance, improving the affordability of insurance products and insurance penetration, as underpinning the stable outlook.
Gross and net premiums written by Philippine non-life insurers for the nine-month period to 30 September 2021 increased by 11.9% and 7.6%, respectively to PHP64.3bn ($1.2bn) and PHP38.1bn, compared with the same period in the previous year.
In addition, the government’s “Build, Build, Build” programme, which consists of more than 20,000 infrastructure projects nationwide, has resumed and is expected to drive the Philippines’ economic recovery. It is also likely to act as a catalyst to the long-term growth of the property, construction and engineering insurance segments.
There is still some uncertainty surrounding the pandemic, which will remain a challenge for Philippine non-life insurers. Nevertheless, non-life insurers have made progress in adapting to the current environment by bolstering their infrastructure and enhancing digital capabilities to be able to operate in a remote manner.
Additionally, according to the report, as part of pandemic-fuelled fiscal stimulus measures in the Philippines, the country maintains a historically low interest rate, which constrain insurers’ investment results. However, interest rates are expected to rise in the coming year, and unrealised losses from the rising bond yields could impact insurers’ economic capital, depending on the companies’ asset-liability matching positions.
AM Best notes that investment assets are highly concentrated in local currency fixed income and term deposits, and rate increases over a longer period could increase investment incomes generated from interest payments, with a positive effect on the profitability of the Philippine non-life insurers.
The Philippines are one of the most exposed countries to natural catastrophes, and the non-life segment faces another year of high exposure to catastrophe events. In April 2021, the Insurance Commission, under the Department of Finance in the Philippines, announced the creation of the Philippine Catastrophe Insurance Facility, the first private-sector disaster risk financing initiative of scale in the country, allowing all insurers to pool disaster risks within the Philippines.
AM Best is of the view that the facility should support domestic insurers to diversify catastrophe risks on top of their existing ceding to international reinsurers. However, higher risk retention in the country poses the danger of greater losses in the event of a major catastrophe. Hence, as the pool grows, proper risk management will be crucial to ensure that the facility functions as intended.