By Michael F. Rellosa AS we celebrate the 72nd anniversary of the establishment of the Insurance Commission, it would do us well to appreciate the institution, the people who make up its team and the industry that enables it. Few people realize the value of the insurance industry; much less the value and importance of its regulator. To begin with, insurance enables the economy. It generates funds by collecting premiums, which are then invested in government securities and stock. These funds are then used to further the industrial development of a country. It also spurs employment opportunities as it increases investments leading to capital formation. Insurance has a significant impact on the economy by mobilizing domestic savings. Insurance’s main role is to protect existing assets and mitigate loss. This also leads to creditors requiring insurance protection as a prerequisite to credit. This adds up and results in financial stability and promotes trade and commerce activities, which in themselves also give rise to economic growth and development. We can, therefore, appreciate the crucial role insurance plays in the sustainability and growth of an economy. Source: manilatimes.net

By Michael F. Rellosa BACK in the mid to late ‘80s a significant group of stakeholders raised the alarm that the insurance industry’s tariff pricing guidelines for certain classes of businesses — namely the fire, motor and surety lines — were a form of cartelization. They therefore posed legal challenges to the Industry and the regulators, as well, for supposedly condoning the practice. The case was never heard on its merits as the regulators in a bid to defuse the situation acquiesced and allowed individual insurance companies to come up with their own rating guides loosely based on the established, proven, transparent and defensible tariff, arrived at by the industry, based on years of historical data, and approved by the regulators. The only set price that the regulators left standing was that of the catastrophic perils of earthquake, typhoon and flood. In effect, each company now had its own set of rates except for the CAT peril rates, which effectively stood as the minimum rate to which all the other peril rates were added. For those in the know, tariff pricing is not new and unique to the Philippines. You will find that tariff pricing regimes are common across the globe from mature markets such as the United States, Japan and some European countries to developing markets such as those in neighboring Asean countries, as well. Some countries have already started to detariff with various results, the most worrying of which is that competition can drive prices to unsustainable lows jeopardizing the ability of insurers to service their claims. Source: manilatimes.net

By Michael F. Rellosa THE nonlife insurance industry is soon set to vote on whether the three tariff-rated lines of property (fire), surety (bonds) and motor are to remain tariff-controlled or to allow free market-dictated premiums reign instead. This vote though is not final as whatever position is decided on would have to be submitted to, and approved by, the regulator, the Insurance Commission. As discussed in an earlier column, the industry is almost evenly split between the two sides and are hard bent on choosing a position, which may have serious implications on all industry stakeholders. It is a hard choice as both camps have compelling arguments supporting them and each will not easily be dismissed. To help set the tone and to move the discussions along, the Philippine Insurers and Reinsurers Association (PIRA), the industry’s trade association and policy-making body, has invited champions from each side to present their papers, which in turn were distributed to the membership to allow them to see the pros and cons of each position and to help them make an informed choice. The same champions are likewise set to defend their positions in a virtual open forum slated for April 5, 2021. The voting is scheduled for the general membership meeting in late April, giving each company time to digest the arguments, and to confer with their own underwriters and management. Source: manilatimes.net

By Michael F. Rellosa WE just finished commemorating, albeit somewhat low key, Earth Day 2021 (actually, a three-day event celebrated from April 20 to 22). In recent years, Earth Day’s primary objective has morphed into raising awareness about global climate changes. It is very apt for a country such as the Philippines, which by most accounts, is the country most prone to climate change and the disasters it spawns such as typhoons, floods and drought. These disasters, in turn, create a plethora of issues such as stronger storm surges, higher sea levels, bleached coral reefs, dwindling fish stocks, denuded mangroves and disappearing sea grass meadows, just to name a few, which in turn, have deleterious effects on coastal fish stocks, crops, coastal properties, etc., a veritable domino effect of negatives on all areas of our life. Enter the Sendai Framework on Disaster Risk Reduction (2015-2030), an agreement whose objective is to substantially reduce disaster risks and losses in lives, livelihood and health and in the economic, physical, social, cultural and environmental assets of persons, businesses, communities and countries. The goal is to “prevent new and reduce existing disaster risks, through the implementation of integrated and inclusive economic, structural, legal, social, health, cultural, educational, environmental, technological, political and institutional measures that prevent and reduce hazard exposure and vulnerability to disaster, increase preparedness for response and recovery and thus strengthen resilience.” Source: manilatimes.net

By Michael F. Rellosa This juncture, the Philippine nonlife insurance industry must be deep in thought and action preparing for the implementation of IFRS17 by Jan. 1, 2025. IFRS stands for international financial reporting standards and No. 17 refers to the latest global standard for all insurance contracts replacing all other earlier standards currently in place. The main objective of IFRS17 is to standardize insurance accounting across all jurisdictions with the end in view of improving comparability; thereby increasing transparency. This will also provide users of accounts with the needed information to understand an insurer's financial position, performance and risk exposure; valuable information for regulators, investors and the insuring public, among others. IFRS17 does this by dictating which insurance contract items should be on the balance sheet as well as the profit and loss statements of an insurer and how these are to be measured and presented in the financial reports. In a Zoom meeting with the Insurance Commission last May 21, 2021, the Philippine Insurers and Reinsurers Association (PIRA) together with its consultant on IFRS17, PWC-Isla Lipana, presented the initial findings of the industry impact assessment after embarking on a year-long study to help PIRA members assess where they are and whether they are prepared for the big shift and what remains to be done to adequately prepare the industry and its members for compliance. In a few words, the industry can either sink or swim and the role of the commission is crucial to the outcome. Source: manilatimes.net

The Christmas season is always a special season and more so for cyber criminals, as they take advantage of shopping days to intensify phishing attacks, ransomware and even dropping malware into emails according to Check Point Software. In a public statement the IT security software provider said during this time of frenzied shopping for the perfect or last minute Christmas gifts, cyber attacks are intensified. According to the company, on Amazon's Prime Day, for example, attacks related to the company increased by 37% compared to the average for June 2022. The strategies range from the creation of web pages that simulate those of another company, through phishing emails, impersonations to ransomware attacks. According to Check Point Software’s Brand Phishing Report phishing is also a major player in internet scams. At a time when eCommerce is stronger than ever, it is necessary to be especially careful with messages from such invitations for offers. In order for people to be able to shop securely and without any mishaps, tips for a safe and secure shopping experience: Always buy from an authentic and reliable source Be aware of similar domains Offers that seem too good to be true, will always be too good to be true Always look for the lock Have endpoint security solutions in place Password set emails Check Point cyber security evangelist Ashwin Ram said, "Cyber attacks continue to increase, especially more so around such special holiday seasons such as Christmas and both ransomware and phishing are the order of the day for companies and individuals, so no one is exempt from danger." Source: asiainsurancereview.com

An analysis by the International Association of Insurance Supervisors (IAIS) concludes that systemic risk in the insurance sector is moderate on aggregate and low relative to that of the banking sector; however, insurers' total systemic risk scores are trending upward. The IAIS says this in its “2022 Global Insurance Market Report (GIMAR), outlining the key outcomes of its 2022 Global Monitoring Exercise (GME)”, which was released yesterday. Rising trend The trend toward higher total systemic risk scores is driven by increased exposures to illiquid, difficult-to-value assets, over-the-counter derivatives, short-term funding (in particular repurchase transactions) and intra-financial assets (including reinsurance). This contributes to potential vulnerabilities for the insurance sector, notably in the face of rapidly increasing interest rates. The 2022 GME found that insurers’ solvency and profitability positions improved on aggregate in the global insurance sector over the course of 2021, supported by strong performance in financial markets. The overall credit quality of insurers’ assets is high; however, the exposure to below-investment-grade assets has increased. In terms of solvency measures, several insurers continued to buy back shares and/or redeem subordinated debt. Others issued capital and/or subordinated debt to strengthen capital and liquidity positions. Measures taken by insurers to preserve or improve profitability included optimizing capital allocation and asset-liability management, realizing gains on investments, digital transformation, diversifying product offerings and revenue sources, and optimizing underwriting and pricing policies. Since 2022, several macro-prudential factors have created uncertainty, including geopolitical conflicts, inflation, tightening monetary policy and the deteriorating economic outlook leading to increased market, credit and liquidity risks. The 2022 GME covers three sector-wide macro-prudential themes identified as supervisory areas of priority: (1) Lower macroeconomic outlook, high inflation and rising interest rates. For life insurers, rising interest rates can have positive effects on solvency positions, but rapid increases in interest rates may also expose insurers to liquidity risks, such as those arising from margin calls on interest rate hedges or mass policy surrenders. For non-life insurers, higher inflation increases expenses and claims severity, in addition to revaluations of reserves. Globally, supervisors have increased their monitoring and surveillance of the risks to the insurance sector arising from the current environment, including credit risk and liquidity risk. (2) Structural shifts in the life insurance sector, including the involvement of private equity firms. Private equity firms engage in the insurance sector through investments, acquisitions, partnerships, reinsurance and other arrangements. In certain jurisdictions, insurers involved with private equity firms have been associated with higher exposure to activities such as cross-border reinsurance and asset allocation to complex and illiquid assets – noting that these activities are not new or exclusive to private equity-involved insurers. (3) Climate-related risks. The lack of progress in reducing global fossil fuel emissions is contributing to heightened transition and physical risks from climate change in the insurance sector. The IAIS supports supervisors to strengthen their understanding of the type and magnitude of climate-related exposures in the insurance sector in order to inform effective supervisory responses. Gaps in protection against climate-related risks are, in many cases, significant and supervisors anticipate that they will continue to increase, hence the role that supervisors can play in helping to address climate-related protection gaps will be an area of focus for the IAIS going forward. Global Monitoring Exercise (GME) The GME builds on data collected from approximately 60 of the largest international insurance groups and aggregate sector-wide data from supervisors across the globe, covering over 90% of global written premiums. Through the GME, the IAIS monitors global insurance market trends and developments, detects the possible build-up of systemic risk and facilitates a collective discussion on the appropriate supervisory response at the sectoral and individual insurer levels. The IAIS will continue to actively monitor these global insurance market risks and refine its systemic risk assessment, including through the regular triannual review of the GME that will be finalized in 2023. Source: asiainsurancereview.com

Local insurers will officially be required to increase their capital to a minimum of PHP1.3bn ($23.3m) by the end of this year, as the government will no longer postpone the implementation of the requirement. Insurance Commission head Dennis Funa said the final tranche of the increase in capital requirement would be executory by the end of the year as scheduled, reported The Philippine Star. This is despite requests from insurance companies to forgo the increase and maintain the minimum capital at the current level of PHP900m. “I understand the companies decided to bring this matter to Congress. But I think the effort is too late,” Mr. Funa told The Star. Not all insurers will be able to comply with the new minimum capital requirement, especially as the COVID-19 pandemic has decreased the net worth of insurance companies in the past two years. Mr. Funa said the list of compliant insurance firms would be determined by the middle of 2023. This is because the determination of companies’ net worth is based on the submitted annual statements that are due by end-April next year. A new insurance code was signed into law in the Philippines in 2013 under which capital requirements for insurers were increased every three years until 2022. The required net worth was PHP250m in 2013, PHP550m in 2016, PHP900m in 2019, and PHP1.3bn in 2022. This move has led to consolidation in the insurance market. Source: asiainsurancereview.com

By Michael F. Rellosa THERE are three classes of insurance business under a tariff regime for several decades, namely fire, motor and surety. As previously mentioned, the insurance industry is deep into analyzing what is best for customers and itself – whether to retain but update the current tariff or to discard the tariff controls and go free market altogether. After a prolonged period of introspection, followed by a period of debate, the industry in an internal referendum voted for what, in its mind, was best. The initial results were inconclusive and necessitated a second and even third round of voting. For those interested in the actual detailed results, they will be made available in the industry association's web and social media pages. Suffice it to say that the industry favored keeping to an updated tariff for the surety line. For motor, excluding the compulsory third party liability bit, the industry was ambivalent with a slim majority of those who were in attendance who voted opting to come up with its own rating while the remainder leaned towards a free market. For fire, at the third ballot, out of the 47 companies voting, 24 chose to file and use their own rate while 23 opted to go to the free market - a very slim margin for the rate filers. Source: manilatimes.net

By Michael F. Rellosa IN the current usage of the term, being "woke" means being aware of what really matters or is of true value. Other meanings include "well-informed," "up to date," "alert to injustice" and "cognizant of the common good." In other words, it means to be awake to, sensitive and open to social, ecological and economic issues that would redound to the common good. To the reader, it may seem strange for the Philippine insurance industry to be considered a "woke" entity, but yes, it is, as the industry finds itself increasingly involved in numerous initiatives that are within the ambit of being "green," "ecologically sensitive" and "socially aware" in order that its ultimate purposes have now gone beyond the traditional motive for any business entity, which is profit, by being, likewise, for the "common good." For starters, cognizant of the coverage gap in the realm of the catastrophic perils of earthquakes, typhoons and floods, and given the fact that the Philippines has these same perils in some abundance, with which it grapples on a periodic basis, the industry is currently in the process of setting up a facility where such risks are pooled. By doing so, the intended effects would be sustainable pricing, a homogeneous (read, less volatile) portfolio for each of the participants, a more efficient handling of, and therefore cheaper excess of loss protection, which in turn leads to a bigger capacity to write such risks and for the insuring public a better availability of such Cat covers. The Philippine Insurers and Reinsurers Association (PIRA) and its member companies are collaborating with the Insurance Commission and the World Bank to make this a reality, hopefully by the second quarter of next year. Source: manilatimes.net