The Philippines recently brought in a law seeking to regulate and develop the electric vehicles segment and motor insurers are upbeat about the opportunities ahead – but lack of data is a major concern. By Jimmy John The Electric Vehicle Industry Development Act (EVIDA) became a law in April 2022 in the Philippines, outlining the government’s policy on the regulation and development of electric vehicles (EVs) in the country. The act specifically aims to promote the industry as a feasible mode of transportation to reduce dependence on fossil fuels and also governs the manufacture, assembly, importation, construction, installation, maintenance, trade and utilization, research and development, and regulation of electric vehicles. The act further states that various industries like cargo logistics, food delivery companies, tour agencies, hotels, power utilities and water utilities are required to have a 5% EV quota for their vehicle fleets, whether owned or leased, under a timeline that will be determined by the industry roadmap. EVs to see spurt in growth The Philippines market currently has only a few EV operators, but with the passing of the EVIDA more manufacturers are likely to enter the market and with government support and backing the market is likely to see increased adoption of EVs in the days ahead. The government also seeks to build an entire ecosystem supportive of EVs by requiring the department of energy to create an EV roadmap that will form part of the country’s energy plan. It will include a charging infrastructure and fiscal and non-fiscal incentives. Aside from this, the act will also help establish a widespread charging network in the Philippines, necessary infrastructure that will help make buying an EV an attractive and sustainable option. Insurers upbeat on opportunities Philippine Insurers and Reinsurers Association (PIRA) executive director Michael Rellosa said that the industry is already receiving queries regarding underwriting of EVs but does not see any impact on the premium pricing considering that motor car rates in the Philippines are dependent on the use of the vehicle. “If the EV is for private use, then the premium rate will be calculated under a private car and if it is for commercial or business purpose, then commercial vehicle rate is used,” he said. Absence of claims data to impact underwriting The Philippines government has gone all out to promote EVs and plans to impose zero tariffs on EV imports and to this effect the department of energy has endorsed to the board of investments a PHP2.5bn ($44.9m) investment by Century Peak Energy Corporation to bring in 20,000 EVs into the country and eventually build 5,000 EV charging stations. Mr. Rellosa believes that the greatest challenge for EVs and the motor insurance industry is the absence of credible and accurate data on claims for EVs. “Initially there would be hesitancy on the industry to underwrite EVs but given that EVs are already on the roads in a number of countries, we can learn from these countries,” he said. He believes that PIRA can touch base with similar organizations in other countries and compare practices and processes. Source: asiainsurancereview.com

Insurers in the Philippines are collaborating to factor the value of mangrove forests into portfolios, underwriting processes and business development opportunities to improve the insurability of assets. Asia Insurance Review spoke to Earth Security’s Mr Alejandro Litovsky and PIRA’s Mr Michael Rellosa about potential mangrove projects in the pipeline. By Nadhir Mokhtar Mangroves are not just a source of natural carbon capture and storage; they save an estimated $65bn per year in avoided losses from floods and storms and can be 50 times more cost-effective at resisting storms than building concrete seawalls according to research from sustainable finance firm Earth Security. The firm said insurers and reinsurers have paid more than $300bn for coastal storm damages in the last decade and this is expected to increase by 10 times in the next decade as climate change proliferates. It has launched a report ‘Insurance Underwriting with Nature: How Mangroves Can Transform the Climate Strategy of Companies, Cities and Re/insurers’, that focuses on incorporating the economic value of coastal mangrove forests as natural storm barriers. Considering mangroves for pricing The report said recognizing and pricing the value that mangroves provide in damage limitation would give (re)insurers a competitive advantage by offering better-priced policies. It could also help provide cover for physical assets that would otherwise be considered uninsurable. According to the report, coastal ecosystems have been found to reduce annual damages to property from extreme weather in the Philippines by 30%, saving up to $1bn each year. After strong typhoons hit the Philippines repeatedly, communities and infrastructure surrounded by mangroves have sustained fewer losses than neighbouring areas where mangroves had been cleared. Earth Security CEO Alejandro Litovsky said, “Insurers have shared that this would allow them to look at areas that they previously thought were uninsurable. I think that changes the landscape of how the sector can think about market development in a way. Twenty to 30 years from now, we’re going into a scenario where many areas that are insured will most likely be uninsurable. Mangroves are providing that extended shelf life of insurability. I think there is a possibility of lower premiums.” Earth Security believes the (re)insurance sector could lead climate innovation by including the value of mangrove forests into CAT modelling and the development products for corporate and government clients. PIRA has convened a working group with Earth Security to collaborate on pilot projects based on the findings of the report. “There are a lot of mangroves in the Philippines. We’re in the epicentre of typhoons. Most built assets in the Philippines are coastal or found near the coasts given the archipelagic nature of our country. So, a study that then demonstrates the productive value of mangroves, coastal assets against storm surges waves, will be a valuable tool in both risk assessment and loss mitigation … But underwriters are a cynical lot and my job is to get them to understand the value of that relationship,” said PIRA executive director Michael Rellosa. Regulatory support Insurers will also need to persuade global reinsurers and brokers to understand the value of mangroves. However, Mr. Rellosa believes persuading underwriters will be easier as the Insurance Commission has expressed interest to provide incentives for insurers working on projects to utilize the value of mangroves. “I think the devil is in the details. You have a report that shows the value of things but turning that into something concrete is another story. So, we must plan carefully and see how we can go forward. Most importantly, we have the regulators on board,” he said. “We have had several meetings on potential or possible incentives that can be granted to regulated entities for mangrove insurance. We support future moves to have tax incentives on this. A tax exemption or tax incentive is a matter that is not within the ambit of the Insurance Commission. However, the Insurance Commission will support PIRA, if requested, in any technical working group moving forward,” said Insurance Commission deputy commissioner Erickson Balmes, speaking at a roundtable discussing the findings of the mangrove report. Improving CAT models The report said proprietary CAT models do not specify climate change scenarios and are based on past data. According to the report, this makes the issue of climate change and weather system disruption a critical challenge for modelers and the (re)insurance companies they serve. “The proprietary models that are used to underwrite are not produced by the insurers themselves and they’re pretty much black boxes. What we thought would happen once in 100 years are happening many times in one year and that really is shaking everyone up … On a positive note, models are starting to emerge that are linking up natural assets with catastrophe modelling and the range of discussions we’ve had with scientists that say this can be done. It’s just that the insurance sector hasn’t seen it yet. And so, there’s a need to connect these dots,” said Mr. Litovsky. However, there is an open-source CAT modelling platform that is widely used in the Philippines that allows for adjustments, the inclusion of new datasets, as well as climate change and ecosystem-related information. The platform is currently undergoing beta testing. Insuring the mangroves Philippine insurers also discussed the possibility of developing insurance products to cover the mangroves. Such products could support post-event reconstruction in the aftermath of typhoons, especially in cities and locations that are dependant on mangroves for protection. “When cyclones hit and mangroves get destroyed, there’s usually a financing gap to deploy money to rebuild, to replant, to restore and this is another opportunity to create a product that will help these locations trigger funding for reconstruction. “This can be done in a variety of ways such as parametric insurance products. We believe there’s a range of ways to create streams that will pay for premiums. That is something that needs to be explored in more detail with specific companies that will be interested in in venturing into that space,” said Mr. Litovsky. Source: asiainsurancereview.com

An increase in extraction of groundwater, oil, and gas, as well as the rapid construction of buildings and other urban infrastructure is making many coastal cities vulnerable to rising sea levels as large measures of their land is sinking. A team of international scientists has found that many densely populated coastal cities worldwide are becoming vulnerable to sea level rise. A comparison carried out by the researchers showed that the fastest velocities of relative local land subsidence are concentrated in Asia, especially in Southeast Asia. The team of researchers from NTU Singapore, University of New Mexico, ETH Zürich, and NASA’s Jet Propulsion Lab managed by the California Institute of Technology, processed satellite images of 48 cities from 2014 to 2020 using a cloud-based processing system called Interferometric Synthetic Aperture Radar. A media release by NTU Singapore says that sea levels are rising globally as Earth’s ice sheets melt and as warming sea water expands. According to scientists sinking land can aggravate the problem. Land subsidence varies at a neighbourhood and even block level but across the 48 cities surveyed, the team found a median sinking speed of 16.2mm per year, while some of them have land that is sinking at 43mm a year. The current global mean sea-level rise is 3.7mm/year. The results of the study have been published in the September 2022 issue of scientific journal Nature Sustainability. NTU ASE and the Earth Observatory of Singapore PhD researcher and first author of the paper Cheryl Tay said, “By estimating how much and how fast these densely populated coastal cities are subsiding, our study helps constrain projections of coastal flooding in the coming decades, as we expect more land to be flooded due to rising sea levels and land subsidence.” The researchers had selected 48 cities based on the criteria of a minimum population of five million in 2020 and a maximum distance of 50kms from the coast. Asian School of the Environment at NTU acting chair and co-author of the study professor of Earth sciences Emma Hill said, “In coastal areas, sinking land leads to higher sea level and an increased flood risk. Our findings enable affected communities and policymakers to identify which areas are at particular risk from high levels of land subsidence and take action to address their coastal risks.” The researchers hope to further their study by projecting the rates of sinking land, factoring in variabilities and sensitivities from different climate and weather scenarios. Source: asiainsurancereview.com

Majority of the world's energy is still dominated by non-renewable sources such as coal, oil and gas. While there are some insurers who have stopped covering unsustainable energy projects, the dependence on traditional energy sources ultimately requires coverage. “The way forward for all insurance companies is that there's no option other than to stop insuring situations where we are heading for trouble. By 2050, we will have nearly half of the world's energy requirement coming from renewable sources. If that is so and today, we stop insuring the thermal based or geo-based power plants, what happens to these 25 years that we have in between? We need to have some sort of a stopgap arrangement - a slow process that gives time to particularly developing nations that they should be able to switch over from a traditional mode of power generation to a renewable source,” said Risk Management Association of India associate professor Pratik Priyadarshi speaking at the Asia Nat Cat and Climate Change Conference. He said efforts have been made to develop parametric insurance solutions which are catering to some of the requirements to address climate change. However, he said more ‘green insurance’ policies which give back to nature are needed. “The biggest challenge is that we have not been able to support such green policies being issued across the globe. We need to give more right now before it's too late,” he said. Climate crisis in sight He said agriculture is one of the areas which is deeply affected by the climate change and it has been being affected by new strains of such viruses and bacteria that are coming across through migration and travel. He said, “Groundwater levels are depleting, it’s drying up and one of the most common ailments across the globe, malaria, is going to spread. It could be one of the worst killers that we are aware of. Livestock crops becoming more susceptible to disease and climate change and movement of population due to scarcity.” “The time has gone when we refer to this as climate change, now we are in a situation where it is more of a crisis that is happening at hand,” he said. The Asia Nat CAT Climate Change Conference, which ran from 26 to 27 September, was sponsored by Guy Carpenter and organized by Asia Insurance Review. The two-day event returned to a live setting at Singapore’s Grand Copthorne Waterfront Hotel with the theme: ‘Unmask the Possibility’ Source: asiainsurancereview.com

The value of microinsurance premiums collected in the Philippines jumped by 15 percent in the first quarter to P2.65 billion from P2.31 billion in 2021, according to the Insurance Commission (IC). This was from the unaudited Quarterly Reports on Selected Financial Statistics (“QRSFS”) based on data submitted by microinsurance providers, mainly mutual benefit associations (MBAs) but also life and nonlife insurance companies. “It is likely that the continued relaxation of community quarantine protocols, taken together with the increasing awareness of the public of the importance of having affordable insurance products, led to the [first-quarter] increase in premium or contribution production,” IC Commissioner Dennis Funa said in a statement. “We have also observed that the lingering adverse economic impact of the pandemic at the micro level may have contributed to this increase, as those who availed microfinance or credit transactions were able to avail of the bundled microinsurance products,” he added. MBAs contributed P1.57 billion or 59 percent of the total premiums while life and nonlife insurance firms accounted for 28.3 percent and 12.53 percent, respectively—or P749.96 million and P332.38 million. In the January-March quarter, microinsurance providers collected premiums on an estimated 44.81 million life insurance policies. However, the total number of estimated insured lives by microinsurance products contracted by 4.60 percent from 46.97 million. Similar to the share in collections, MBAs accounted for 57 percent of the market or 25.7 million insured lives. Life insurers had 33 percent or 14.95 million and nonlife insurers—which are allowed to sell life microinsurance products—had 9 percent or 4.12 million. During the quarter, there were 23 MBAs, 11 life insurers and 14 nonlife insurers that were actively engaged in providing microinsurance products. Of the three segments, nonlife insurers saw a 39-percent jump in microinsurance premium collection, to P332.4 million from P239.2 million. MBAs also enjoyed double-digit growth at 14.6 percent to P1.57 billion from P1.37 billion. Life insurers recorded a 7.2 percent increase to P749.96 million from P699.45 million. Source: business.inquirer.net

The Philippines had the highest number of disaster-related displacements or forced movements in Southeast Asia from 2010 to 2021, according to a report of the Asian Development Bank (ADB) and Internal Displacement Monitoring Centre (IDMC). In the report “Disaster Displacement in Asia and the Pacific: A Business Case for Investment in Prevention and Solutions” released yesterday, the multilateral lender and IDMC said the Philippines had 49.31 million displacements reported during the period, mostly due to storms. This was the highest among the countries in Southeast Asia as the report showed Indonesia had 6.59 million disaster displacements, Vietnam with 4.79 million, Myanmar 3.75 million, Thailand 2.92 million, Malaysia 801,000, Cambodia 761,000, Lao People’s Democratic Republic 207,000, and Brunei Darussalam 150. “The Philippines has been the country most affected, as it experiences between five and 10 destructive tropical cyclones every year, making it one of the countries most at risk of extreme weather events in the Asia and Pacific region and globally,” the ADB and IDMC said. According to the report, typhoon Haiyan in 2013 was one of the most severe typhoons to hit the country, as it led to 4.1 million displacements, more than one-fifth of the 19.7 million disaster displacements reported in the Asia and Pacific region that year. The Philippines also recorded displacements due to volcanic eruptions. Within Asia and the Pacific, the report found Southeast Asia and East Asia as having the biggest number of disaster displacements from 2010 to 2021. “Countries in Southeast Asia are particularly affected by disasters, a trend that is also expected to continue well into the future,” the ADB and IDMC said, citing the impacts of climate change, increasing urbanization and the damming of major rivers. For countries affected by conflict and violence including Myanmar and the Philippines, the ADB and IDMC said the impact on displacement could be made worse. “Longer-term, sustainable urbanization and development will be key to reducing displacement overall risk,” the ADB and IDMC said. For the Asia and Pacific region, the report said there were around 225.3 million displacements during 2010 to 2021, with large-scale storms and floods, droughts, earthquakes, tsunamis and volcanic eruptions displacing people. “Disaster displacement is already eroding the development gains in Asia and the Pacific and threatens the long-term prosperity of the region,” ADB’s chief of Climate Change and Disaster Risk Management Thematic Group Noelle O’Brien said. “We need to strengthen policies and action on disaster risk management to ensure the region doesn’t regress on its development goals,” O’Brien said. The ADB and IDMC said that while disaster displacement is a significant challenge for Asia and the Pacific, it has unique opportunities to address such, citing the role urban planning and municipal administrations and services can play in preventive action and improved response. “Rather than relying on humanitarian response delivered by an already over-stretched international system and limited national capacities, pre-emptive action through community resilience-building, investing in disaster risk reduction, early warning systems, and climate action will be the only viable strategies,” the report said. The ADB and IDMC also said displacement from disasters must be factored in long-term development planning processes. This will involve measuring and monitoring displacement and displacement risk, using the data for planning and response, and tracking progress. Source: philstar.com

The National Reinsurance Corporation of the Philippines (Nat Re), the Philippines' sole professional reinsurer, has been assigned a financial strength rating of PRS 'A', with a 'Stable' outlook, by Philippine Rating Services Corporation (PhilRatings). A PRS 'A' rating means that an insurer has strong financial security characteristics, but is somewhat more likely to be affected by adverse business conditions compared to higher-rated insurance companies. A 'Stable' outlook is defined as the rating is likely to be maintained or to remain unchanged in the next 12 months. In a report, PhilRatings says that Nat Re's assigned financial strength rating and outlook take into consideration the following: Nat Re’s solid market franchise; the important role it plays in the development of the domestic and regional insurance industry, given its status as the Philippines’ sole domestic professional reinsurer its shareholders of good standing the company’s experienced management Nat Re’s sound investment portfolio more than adequate capital; the external headwinds which weigh down and affect the company’s performance. As the only domestic professional reinsurance firm in the country, Nat Re is considered to have a solid market franchise. Nat Re has a unique advantage granted by the law, which is that of being entitled to take up a minimum 10% share of all the outward reinsurance business of domestic insurance companies, and which would otherwise be ceded abroad. This gives Nat Re significant access to domestic reinsurers’ business, and also a broader view of their reinsurance requirements. Shareholders As of end-June 2022, the Government Service Insurance System (GSIS) remained as Nat Re’s largest shareholder, with a 25.7% ownership stake in the company. GSIS is a government-owned and controlled corporation mandated to provide and administer social security benefits for government employees. The Bank of the Philippine Islands (BPI) and MICO Equities (MEI) were the company’s other large shareholders, with ownership interests of 13.7% and 12.9%, respectively. BPI, the banking arm of Philippine conglomerate Ayala Corporation, is one of the country’s largest and leading universal banks, with services encompassing traditional commercial banking, as well as investment and consumer banking. MEI, on the other hand, operates as a holding company for the Yuchengco Group’s non-life insurance business, Malayan Insurance, which was the largest domestic non-life insurance company in terms of Gross Premiums Written as of end-2021. Investments As of end-2021 and as of end-March 2022, low-risk fixed income investments made up 83.2% and 83.6%, respectively, of Nat Re’s total investment portfolio. Fixed income investments of the company included: corporate bonds, government bonds, treasury bills and short-term investments. Equity securities, on the other hand, accounted for 16.8% and 16.4% of the company's total investment portfolio as of end-2021 and end-March 2022, respectively. Equity securities consisted mainly of shares of stocks in companies listed in the Philippine Stock Exchange (PSE). Nat Re had PHP9.1bn ($157m) in investment assets, as of end-March 2022. With a net worth of PHP5.7bn as of 31 March 2022, Nat Re was substantially ahead of the end-2022 regulatory deadline for a minimum net worth of PHP3bn. Similarly, its risk-based capital (RBC) ratio of 247% as of end-March 2022 was more than double the minimum ratio of 100% required by the Insurance Commission. Challenges Notwithstanding its sound investment portfolio and more than adequate capital, Nat Re has been facing a number of external headwinds. Over the last 3-5 years, the industry has seen that growth in catastrophe losses has outpaced the growth in premium rates. The foregoing was also evident in the company’s loss experience in 2021 and in the first half of 2022. To mitigate the potential impact of higher catastrophe losses on the company's performance moving forward, Nat Re seeks to lower the volatility in its loss experience by gradually revising its business mix. Also weighing down on the company’s performance is accelerating inflation. Management acknowledged that the inflation surge has become a headwind to Nat Re’s operating income and profitability as it directly affected the input costs incurred by the businesses of the company. The other headwind that the company faces is rising interest rates. The Bangko Sentral ng Pilipinas (BSP) has increased its benchmark interest rates by a total of 175 basis points (bps) so far this year — 25 bps on 19 May 2022, another 25 bps on 23 June 2022, 75 bps on 14 July 2022, and 50 bps on August 18, 2022. The foregoing brought the policy rate to 3.75%, up from a record low of 2% in November 2020. While interest rate hikes will improve the yield of the company’s overall portfolio in the medium- to long-term, they adversely affected the present value of the company's investment assets as of end-June 2022. In the first six months of 2022, Nat Re recognized an impairment loss on its available-for-sale (AFS) equity securities amounting to PHP84.8m and a fair value loss on its held-for-trading (HFT) equity securities amounting to PHP24.8m. While Nat Re has taken the necessary steps to mitigate the risks associated with the above-mentioned challenges, these factors may continue to affect the company's performance in the short- to medium-term. Source: asiainsurancereview.com

The East Asian Insurance Congress (EAIC) 2022--Diamond Jubilee opened yesterday, marking the return of the organization's conference that was pushed back due to COVID-19 in 2020. This year’s theme is "Cutting a multifaceted, clear vision for the industry". The programme has been designed to address the qualities of a diamond – cut, colour, carat and clarity, representing the various relevant aspects that the industry must consider. In his welcome address at the virtual conference, EAIC president Allan Santos reiterated the aim of the Congress as one of furthering and developing international collaboration amongst insurance practitioners in the region. With an important milestone as the Diamond Jubilee, this edition of EAIC also takes place amidst several radical changes that have affected the industry. “Climate change, COVID-19 and digitalization, just to name a few. Even today, we continue to experience transformations and disruptions as they affect us and the insurance public,” he said. “Our industry has survived countless challenges over the years. I am certain we will continue to weather the difficulties of the day with resilience and unity,” Mr. Santos said. Mindful of the legacy of cooperation that the Congress started when the organization was founded in 1962, Mr. Santos said that EAIC must continue to play an important role in providing a forum for industry players, for constructive exchanges and dialogue, to understand the challenges that confront the industry and discuss solutions to surpass them. He said, “We will explore how the insurance industry is poised to evolve in the coming years, especially after the difficult two years under a global pandemic,” he said. “We will look into the consumer mindset, competition, technology, climate risks, as well as the ongoing conflict between Russia and Ukraine, key areas that (re)insurers must address to stay relevant and strong, ready to face current and tomorrow’s headwinds.” Making the future sustainable Mitsui Sumitomo Insurance honorary advisor Takeo Inokuchi, the conference's keynote speaker, noted that the number of countries or territories participating in the EAIC has expanded to 23, highlighting the increasing value and scale of the Congress, and how it contributes to the penetration and spread of insurance in the region. “The sound development of insurance is essential to achieving the United Nations Sustainable Development Goals or SDGs, which have become global goals geared toward a sustainable society,” he said, during his keynote address. “In particular, I am referring to Goal One ‘no poverty’, Goal Three ‘good health and well-being’, Goal Nine ‘industry, innovation and infrastructure’, and Goal 11 ‘sustainable cities and communities’.” With these goals in mind, he said that the EAIC’s ability to promote a cross-border exchange of knowledge and personal interaction is extremely important and significant. He spoke of the many changes in the world since he began in the insurance industry in 1965, including the development of the automobile industry and its associated insurance, as well as the increasing use of satellites that the insurance industry has also adopted. “I believe that insurance companies have responded appropriately to the needs of society by responding sensitively to the emergence and recognition of new risks, developing new insurance, and promoting its use,” he said. “It is also noteworthy that newly developed digital technology such as the Internet, and even drones, has begun to be used for insurance sales, insurance contract management, accident response, and insurance payment.” But as customers become more familiar with these methods of commerce, they will begin to demand more from insurance companies and its affiliated services. Thus, the industry must quickly respond to these demands. “Looking at it this way, I believe that insurance and the insurance business must undergo revolutionary changes,” he said. “We cannot sit back and wait for our industry to slowly disappear. In a nutshell, we must become a provider of risk management services.” “Recognizing risks, predicting the damage and losses that risks may bring, creating and providing measures to eliminate or reduce those risks, and even providing insurance to cover the eventual manifestation of risks and the resulting damages and losses. I believe that the mission of an insurance company must be to provide these series of services,” he said. Russia-Ukraine War and COVID-19 Topical issues like the Russia-Ukraine War and the COVID-19 pandemic riveted the attention of participants at yesterday's session. Moody's Analytics chief APAC economist, Mr. Steve Cochrane, speaking of the impact of the Russia-Ukraine conflict on Asia, said that compared to Europe, North America and Latin America, the Asian region is a mixed bag with a lot of strength. However, he added, "Our forecast for 2023 is that many of the fast-growing economies in the region will likely see a slowdown in GDP." Commenting on the lingering effects of COVID-19, Peak Re chief economist Clarence Wong said that there are major changes going on around the world, including changes in the supply chain, government policies and also in terms of digitalization. The future, he said, will not be influenced by these changes alone, as there are other multiple factors affecting consumer behaviour as well as economic performance and these include military conflicts, geopolitical tensions and other socio-economic events. "We have to consider all of these to see what the future will look like and we need to take a see-through approach in order to understand the impact on consumers and societies in order to realize opportunities," he said. The sponsors of the two-day EAIC diamond anniversary conference include Fubon Life, Insurance Institute for Asia and the Pacific, Inc, Korean Re, Moody's Analytics, Peak Re, and Swiss Re. Asia Insurance Review serves as event manager and official media of the conference. Source: asiainsurancereview.com