PIRA participated in the FIRST DELIBERATION on HOUSE BILL NO. 9269, entitled “AN ACT RATIONALIZING THE TAXES IMPOSED ON NON-LIFE INSURANCE POLICIES, AMENDING FOR THIS PURPOSE SECTION 108, 123, 184, AND 185 OF THE NATIONAL INTERNAL REVENUE CODE OF 1997, AS AMENDED,” authored by Rep. Salceda

Global ocean hull premiums rose in 2022 by 5.7% to reach $8.4bn, the International Union of Marine Insurance (IUMI) has noted. The growth was largely due to a combination of growing activity, increased vessel values and reduced market capacity, says the IUMI in a statement. Claims for the same period remained moderate although early 2023 witnessed a modest increase. Taken together, this has had a positive impact on overall loss ratios that have enjoyed a downward trend for the past three years with 2022 ratios starting at the lowest point since 2015. Inflation Despite this relatively good news, inflation is likely to have a significant effect going forward. Mr. Ilias Tsakiris, chair of IUMI’s Ocean Hull Committee explained: “During the post-COVID period, there was a scarcity of materials such as steel coupled with an increase in their demand following the re-activation of global shipping. This was exacerbated by rising inflationary pressure, which has driven up the costs of materials, shipyards, and labour. From an underwriting perspective, inflation has not only affected vessel repairs and claims but also general office overheads. In the main, the underwriting community has not applied inflationary increases to the premium base and this may lead to a reduction in overall profitability over the coming year or two.” Aside from inflation, three other main issues currently demand attention from hull insurers: 1. Alternative fuels Looming 2050 targets for greenhouse gas (GHG) emissions; newbuilding projects focusing on dual-fuel systems; evolving IMO guidelines; and international sustainability initiatives are the key drivers for the industry’s search for viable alternative fuel technology solutions. In the interim, hybrid technologies such as hydrogen/fossil fuel or ammonia/fossil fuel are likely to be employed until a fully clean and workable solution is developed. Mr. Tsakiris said, “Emission reduction technologies are inevitably more sophisticated than the current methods of ship propulsion. This will increase the value of the global fleet and, consequently, the level of risk to be covered. The rapid implementation of these technologies aligned with decarbonization and GHG emissions, particularly where new fuel blends may be used with current engines, will give rise to new risks. Adequate regulations will need to be in place to ensure the safety of those who operate the new ships as well as the vessels themselves. Of course, this also means that we need to train the global seafaring workforce accordingly.” He added, “We must also remember that shipping doesn’t exist in isolation. Vessels call at ports across the globe and adequate infrastructure must be in place to support these new technologies – and that is much easier said than done. The world is not equal and some regions will struggle.” He also said, “Getting to net zero will require a joined-up effort, not just from the shipping community but also from the many related land-based sectors, including refineries and oil companies. The world must work together if a workable solution is to be achieved.” 2. Lithium-ion (Li-ion) batteries / electric vehicles (EVs) Fires on containerships and car carriers are becoming more common and many of these vessels are now carrying li-ion batteries or transporting EVs. A major concern relating to Li-ion batteries is the potential for 'thermal runaway’, a chemical reaction which causes rapid heating, fire and sometimes an explosion. However, fires from EVs are no more common than those from conventional internal combustion engine vehicles. Traditional fuels such as petrol and diesel also carry substantial potential dangers but the maritime industry has acquired sufficient experience to manage those risks effectively and it must do the same for this new technology. 3. The “dark fleet” The so-called “dark fleet” is a growing threat to insurers, especially since the invasion of Ukraine and the sanctions regime. The global maritime industry faces significant challenges due to the proliferation of ageing vessels, identity-shifting ships owned by dubious entities, and questionable classification societies. These trends also raise concerns about potential criminal activities and money laundering. Issues of accountability and traceability in accidents involving the dark fleet and responsibility for wreck removal, pollution response, ship-to-ship transfers of oil, and compensation for victims all remain unclear. Many report that Russia is managing to bypass insurance regulations, with approximately 20% of the global tanker fleet avoiding sanctions. It is worth mentioning that the sanctions and the invasion of Ukraine have driven certification providers, engine-makers, and insurers away from sanctioned oil carriers, at the cost of further reducing oversight. “There were eight incidents involving sanctioned oil tankers reported in 2022, including the destructive explosion of the aframax tanker Pablo which caught fire in Malaysian waters in May and left three crew members missing,” said Mr. Tsakiris. “Because this ship was part of the 600-strong “dark fleet”, salvors were not able to board. Fortunately, there was no other vessel involved but had this been a collision, or a ship-to-ship transfer, it would have been a completely different story. As it stands, the burnt-out wreck remains at anchor and the owners are impossible to contact, leaving the authorities with a significant headache.” At the IMO, the Legal Committee noted that a global fleet of between 300 and 600 tankers, primarily comprised of older ships, including some not inspected recently, operating with AIS transponders turned off, having substandard maintenance, unclear ownership and a severe lack of insurance, is currently operating as a “dark fleet” or “shadow fleet” to circumvent sanctions, increasing the risk of oil spills and collisions. Source: asiainsurancereview.com

The prospective underwriting performance of National Reinsurance Corporation of the Philippines (Nat Re) is expected to be supported by ongoing portfolio remediation measures, including reduced participation and/or exiting from unprofitable non-life treaties, says AM Best. Business growth in the more profitable domestic life reinsurance segment and other specialty lines will also back the reinsurer’s underwriting performance. Nat Re has an operating performance that is assessed as adequate, with a five-year average return-on-equity ratio of 2.3% (2018-2022), says AM Best. The reinsurer’s net profit declined in 2022 compared to the prior year. While the company reported lower underwriting losses in 2022, compared to 2021, the improvement was outweighed by lower investment income, which was partially impacted by investment impairment and fair value losses on equity investments. Although Nat Re’s underwriting performance improved in 2022, it continued to show a lack of profitability, mainly driven by unfavourable reserve development in its foreign non-life portfolio and higher-than-expected COVID-19-related claims. Investment income arising mainly from interest and dividend income continues to contribute positively to operating earnings despite declining in 2022. Ratings affirmed AM Best has affirmed Nat Re’s Financial Strength Rating of ‘B++’ (Good) and the Long-Term Issuer Credit Rating of ‘bbb’ (Good). Additionally, AM Best has assigned the Philippines National Scale Rating (NSR) of’ aa+.PH ‘(Superior) to Nat Re. The outlook of these credit ratings is ‘Stable’. The ratings reflect Nat Re’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM). Balance sheet strength Nat Re’s balance sheet strength is underpinned by its risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), which remained at the strongest level in 2022. AM Best views the company’s investment portfolio as having moderate risk. Despite some exposure to corporate bonds and equity investments, the majority of Nat Re’s portfolio is composed of fixed-income securities issued by the Philippines’ government. The company’s allocation to equity investments has gradually reduced over recent years, with the expectation of continued portfolio de-risking over the medium term. Nat Re’s balance sheet is sensitive to natural catastrophe exposure, although this risk is partially mitigated through the use of retrocession. Business profile AM Best views Nat Re’s business profile as ‘Neutral’. The company is the only domestic reinsurer in the Philippines, benefiting from strong relationships with local cedants and access to business through mandatory local cessions. Nat Re is well-positioned for business opportunities emanating from local government initiatives, this includes its engagement in the design and launch of underwriting facilities in the Philippines market, which enables it to write greater business volumes in excess of the level stipulated by the mandatory cessions. The company’s underwriting portfolio is viewed to be moderately diversified by geography and it writes both non-life and life reinsurance. In recent years, Nat Re’s shift in product mix towards the domestic life reinsurance segment has supported its improvement in portfolio diversification. AM Best considers Nat Re’s ERM approach to be appropriate given the current size and complexity of its operations. The company’s risk management framework and corporate governance capabilities are viewed to have strengthened over recent years. Source: asiainsurancereview.com

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Malayan Insurance, the biggest non-life insurer in the Philippines, is expected to show a prospective underwriting performance supported by ongoing portfolio remediation measures, as well as business growth in more profitable retail segments, says AM Best. The insurer exhibited moderate volatility in its overall underwriting performance, driven by catastrophe and large loss events, which negatively impacted the company’s fire and engineering lines in 2022. Nevertheless, good technical results for its motor business have helped to partially mitigate the deterioration in underwriting results. Investment income continues to be the principal contributor to Malayan’s overall earnings. AM Best views Malayan’s operating performance as adequate. The company reported a five-year average combined ratio and return-on-equity ratio of 102.8% and 3.8% (2018-2022), respectively. Ratings and outlook The global credit rating agency has downgraded Malayan’s Long-Term Issuer Credit Rating (Long-Term ICR) to “bbb” (Good) from “bbb+” (Good), as well as affirmed its Financial Strength Rating of B++ (Good) and assigned the Philippines National Scale Rating (NSR) of aa+.PH (Superior). The outlook of these credit ratings is ‘Stable’. These ratings reflect Malayan’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management. In addition, the ratings factor in the neutral impact from the company’s ultimate owner, Pan Malayan Management and Investment Corp. The downgrade of the Long-Term ICR reflects Malayan’s weakened balance sheet strength fundamentals. The company’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), has weakened in recent years due to heightened credit risk following recent catastrophe events. Prospective capital adequacy is expected to remain under negative pressure with the increase in its net retention and the company’s heightened sensitivity to natural catastrophes following changes to its reinsurance programme in 2023. Additionally, Malayan maintains an elevated exposure to counterparties that are non-rated on an international credit rating scale. Malayan’s balance sheet strength also remains exposed to notable investment risk arising from its sizeable equity investments; however, the company has made ongoing progress to de-risk its investment portfolio in recent years. Business profile The business profile assessment of neutral reflects Malayan’s position as the largest non-life insurance company in the Philippines based on gross premiums written in 2022. The company benefits from its affiliation with the Yuchengco Group of Companies, a large conglomerate in the Philippines, in terms of branding and distribution. Malayan continues to demonstrate a strong commitment to digital transformation, which is an important pillar of its long-term strategy for retail business development. Source: asiainsurancereview.com

Severe convective storm (SCS) insured losses could influence the outcomes of the forthcoming 1 January 2024 reinsurance renewals period by creating challenges for both insurers and reinsurers in terms of managing their exposures, reveals research by Aon. Data from Aon, a leading global professional services firm, show that to date in 2023, 70% of global insured losses were driven by SCS. In the US, SCS caused $35bn of insured loss in the first half of 2023, following three consecutive years with at least $20 billion of insured loss in the first half. From 1990 to 2022, SCS exposures increased at a combined rate of 8.6% per year, while SCS insured losses increased at an annual rate of 8.9%. This variance highlights that more than 80% of SCS loss growth can be explained by exposure changes, an emerging form of volatility. Aon suggests that the remaining 20% could be due to small changes in climate that are not discernible in the weather ingredients that drive severe convective storms, other exposure factors or random chance. This dynamic should encourage re/insurers to place more emphasis on exposure management when mitigating the impact of SCS on their portfolios. Mr. John Jacobi, managing director within Aon’s Reinsurance Solutions’ US actuarial team, said, “While climate is a driving force behind other perils, there is little evidence that the climatic factors that drive SCS are changing. (Re)insurers instead must manage growing exposures in high-hazard areas, which can be mitigated by traditional risk management techniques such as accumulation management, enhanced claims handling, and appropriate deductible, limit and premium levels. Going forward, the industry’s emphasis for the SCS peril should be less on climate factors, and more on traditional risk management to help shape better decisions.” According to Aon research, there are four main drivers of SCS exposure change: 1. Real Gross Domestic Product, which accounts for assets in the economy, grew at an annual rate of 2.3%. 2. Fixed reproducible tangible wealth, which accounts for how much the assets are worth, grew at an annual rate of 2.1%. 3. Property cost inflation, measured by the producer price index for all construction and providing an estimate of how construction costs change over time, grew the fastest at a 2.8% rate. 4. Population distribution, measured by a housing distribution index based on changes in housing units in high-hazard states like Texas and other Sun Belt states in the US, had a 1.1% growth rate. Aon’s research about the drivers of severe convective storm (SCS) insured losses is available here. Source: asiainsurancereview.com

Dear ARISE Philippines Network Members, We are excited to announce the release of the official list of candidates for the ARISE Philippines Board Member Election! You can access the list of candidates, their CVs, and nominations on our dedicated Padlet Election workspace, where you'll also find important announcements and campaign activities: ARISE BOD Election Workspace: https://padlet.com/tinaleeariseph/arise-bod-election-workspace Here are the important dates to remember: Campaign Period: September 8 - September 17, 2023 Voting Period: September 18 - September 20, 2023 During the campaign period, we encourage all members to engage actively. Take the time to review the candidates' qualifications and participate in discussions. If you have any questions or need further information regarding the election process, please do not hesitate to contact our secretariat@arise.ph

S&P Global Ratings has revised its view of the global reinsurance sector to 'Stable' from 'Negative'. In a report titled "Global Reinsurance Stabilizes As Green Shoots Emerge In Underwriting," published yesterday, S&P Global Ratings credit analyst Mr. Taoufik Gharib said, "During the 2023 renewals, much-needed structural changes in reinsurance underwriting, including tighter terms and conditions and repricing of risk, resulted in the hardest market in decades in short-tail lines, shifting pricing power back to reinsurers." He also said, “We have changed our view of the global reinsurance sector to ‘Stable’ from ‘Negative’ because we expect it will earn its cost of capital in 2023-2024, based on favourable property/casualty reinsurance pricing conditions, pre-pandemic earnings levels in life reinsurance, and increasing net investment income. “We expect these green shoots will take root and help address industry challenges. Reinsurers have had to quickly adapt to evolving conditions amid more frequent and severe natural disasters and an abundance of unprecedented economic and geopolitical events. High inflation, COVID-19, and the Russia-Ukraine conflict have had untimely negative effects on an already overburdened sector.” Meanwhile, mark-to-market losses eroded aggregate capital buffers for the reinsurance sector to a position just redundant at the 'AA' confidence level at year-end 2022, but some of those losses are beginning to unwind, and improving operating results should sustain the industry's capital adequacy. Source: asiainsurancereview.com

more claims than Mangkhut’s US$395 million in payouts Highly likely that the total claims due to the black rainstorm and Super Typhoon Saola might be higher than those caused by Typhoon Mangkhut, Asia Insurance CEO Winnie Wong says A lot of claims are expected from the tenants of Temple Mall North, after rainwater flooded its basement Submerged cabs in a flooded street in Hong Kong’s Tai Po district on Friday. Photo: Jelly Tse Hong Kong businesses and vehicle owners might have to put up with higher insurance costs in future, with claims after torrential rains over the past two weeks likely to top the HK$3.1 billion (US$395 million) paid out in 2018 for damages caused by Typhoon Mangkhut, industry executives said. The city recorded its longest black rainstorm warning ever, after the highest weather alert was issued late on Thursday and lasted for more than 16 hours. The rainstorm, which Hong Kong officials described as a ‘once-in-500-years’ event, left one person dead and 117 injured, including four in serious conditions. The storm came just a week after Super Typhoon Saola hit Hong Kong, leaving many buildings with broken windows. “Whenever a huge number of insurance claims are made for a natural catastrophe, the reinsurance companies will increase the charge for reinsurance with the direct insurers and, hence, the cost of insurance is set to rise next year,” said Winnie Wong, CEO of Asia Insurance and governing committee member of industry body Hong Kong Federation of Insurers (HKFI). Reinsurance is insurance for insurance firms. It is a way for them to transfer to another company, the reinsurer, some of the financial risk that they assume when insuring vehicles, homes, people and businesses. Wong said she expected a record-high number of claims from car owners, as well as owners of shopping centres and other properties. “We have seen cars floating everywhere, in car parks or in the streets, while some shopping centres have endured serious flooding too,” She said. “It is highly likely that the total claims for car insurance, property insurance and business interruptions due to the black rainstorm and Super Typhoon Saola before that might be higher than those caused by Typhoon Mangkhut.” Typhoon Mangkhut generated insurance claims of about HK$3.1 billion in 2018 for damages to properties and cars, and business interruptions. This is currently the highest sum of claims made for a natural catastrophe since records began in Hong Kong in 1988, HKFI data shows. Source: scmp.com