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Reinsurers as partners of insurance companies

IT is now October and during normal times, the Christmas season would have already started and the malls would be filled with Christmas trees and other decorations. Expectations are high that this year will be a lot better than 2020. The economy is improving with the combined efforts of the government and private sector. Jobs were lost but they are also being replaced. What I consider as a positive and welcome effect of the recent events is the increased awareness for protection — insurance protection. Last week's column in Insurance Insights described the growth in the life sector. The nonlife insurance industry is also performing well now as compared to the previous year. As a matter of fact, companies benchmark their performance in 2021 against the year 2019 rather than 2020 when the pandemic jolted the business sector.

Statistics gathered from the website of the Insurance Commission shows that the nonlife sector is as strong as ever. While gross premiums written decreased from P105 billion in 2019 to P98 billion in 2020, or minus 8 percent, the net income of the companies increased from P3.4 billion in 2019 to P5.6 billion in 2020, or a record 63 percent. The very good performance is attributed to fewer losses incurred and reduced management costs. The work-from-home arrangement has contributed to the reduction in the use of utilities and office spaces. Incentives to producers, such as travel and awarding ceremonies, were replaced by less expensive rewards. The nonlife sector had a P106-billion net worth as of the end of 2020, a 1:1 ratio against gross premiums! The rule of thumb is 1:1 vs net premiums. As of the end of 2020, 51 companies (out of 58) had already complied with the requirement of having a minimum net worth of P900 million. Not to worry, clients of nonlife companies! Your industry is strong and stable.

Much has been written about insurance agents and insurance brokers as significant partners of the insurance companies in providing needed premiums. But there are other partners in the business of insurance, which I want to recognize today. Reinsurance, or "insurance of insurance," allows the company to write large risks or more complicated ones wherein liability may be more than what the net worth can afford or be exposed to. A portion of the risk is ceded to or passed on to another company, usually foreign, so the risk of the writing company is reduced, hence it is able to write more risks. Professional reinsurers are companies that do reinsurance only and do not write direct business. Most of them have been in the business for many years and are deemed to be very stable. The track record in paying their obligations is well known around the world. They write and support Philippine business and have been our friends from way back. They also provide training and other technical advice to our insurance underwriters and producers. Munich Re and Swiss Re have existed for over 150 years. Locally, we have our very own Philippine National Reinsurance Corp., which serves some of the industry's reinsurance requirements.

Just as there are insurance brokers, there are also reinsurance brokers. They act as intermediaries between the insurance company (called cedant or ceding company) and the reinsurers. Reinsurance brokers look for the reinsurance companies (called security) that can best support the risk being ceded or reinsured. They do the spade work like evaluating the risk, gathering data and searching for the best terms possible. They have expertise in almost all the fields of insurance. They may have to go around the world to accomplish this. Technology has made this easy and they can now respond to their clients' needs in record time. They can travel regularly to the Philippines to assist the companies with their reinsurance requirements. Some foreign brokers have set up their offices here so they are within easy reach. There are 20 local reinsurance brokers but the bigger and more complicated risks are serviced by their foreign counterparts.

Insurance brings together several parties to be able to write a particular risk but I think that is the reason why the relationship of the parties go beyond business. Trust and confidence make these relationships strong and long lasting just like friendship.


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