Climate Change: The Role of the Insurance Industry and the Public Sector June 22 and 23, 2022 at 9AM to 12NN via zoom Seminar Fee: Foreign Participant - USD $70 Local Participant - PHP 3,360 (INCLUSIVE OF VAT) For details and registration: https://insurancesummit2022.wixsite.com/iiap

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 or exiting from loss-making non-life treaties, as well as business growth in the more profitable domestic life reinsurance segment, says AM Best. The global credit rating agency says that it has affirmed Nat Re's Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb” (Good). 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 Nat Re’s balance sheet strength is underpinned by its risk-adjusted capitalisation, which remained at the strongest level in 2021, as measured by Best’s Capital Adequacy Ratio (BCAR). 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 reduced gradually over recent years, with the expectation of continued portfolio de-risking over the medium term. Nat Re has a moderate dependence on retrocession, and exposure to counterparties that are non-rated on an international financial strength rating scale. The company’s balance sheet is sensitive to natural catastrophe exposure in the Philippines, although this risk is mitigated in part through the use of retrocession. Operating performance Nat Re’s operating performance is assessed as adequate, with a five-year average return-on-equity ratio of 2.5% (2017-2021). Net profits showed an improvement in 2021 compared with the prior year, supported by better overall investment results although dragged by poorer underwriting results. Underwriting results in 2021 were negatively impacted by catastrophe losses that affected both the domestic and foreign non-life portfolios. These losses were mitigated in part by robust profitability from its life reinsurance business. Nat Re’s investment income arising mainly from interest and dividend income continues to contribute positively to operating earnings. Profile AM Best views Nat Re’s business profile as neutral given its strong relationships with local cedants and access to business through mandatory local cessions. As the only domestic reinsurer in the Philippines, Nat Re is well-positioned for business opportunities emanating from government initiatives. For instance, Nat Re is engaged in the design and launch of underwriting facilities for the Philippines market, which enables it to write greater business volumes in excess of the level stipulated by the mandatory cessions. The company maintains a portfolio that is diversified by geography through reciprocal business arrangements with regional and global reinsurers, and whilst remaining weighted toward catastrophe-exposed property business, recent growth in the domestic life reinsurance segment is viewed to have supported an improvement in portfolio diversification. AM Best considers Nat Re’s ERM framework as appropriate given the 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

By Herminia S. Jacinto RECENT events in the country and elsewhere in the world have highlighted the serious problems brought about by climate change. Typhoons and floods are events that have become ordinary happenings in the Philippines. But of late, we have had more serious ones such as storm surges, heavy flooding and landslides, caused by nonstop strong rains. Earthquakes have come more frequently than before, and it looks like the dormant volcanoes have suddenly awakened. The latest was the mild eruption of Mount Bulusan in Sorsogon, which had been inactive for a long time. Pagasa has declared that the rainy season has officially started, and true to form, the " announcement" came with thunderstorms and rains almost everyday. There is no way by which these events can be stopped or controlled. So, all that can be done is to reduce the impact of these disasters if and when they happen. All over the world, governments and the private sector are collaborating to mitigate the negative results of these disasters. Measures to protect property, people and the environment are the subject of various discussions in conferences and meetings among experts on the subject. What are we doing in the Philippines? It will be good for the public to know that protection is being thought of and steps are being taken to protect them from these catastrophes or disasters. Both the government and the private sector have to join forces to have a scientific and concerted approach to the problems brought about by climate change. The Climate Change Commission, which was created under the Office of the President, is the sole policy making body tasked to coordinate, monitor, and evaluate the programs and action plans of the government relating to climate change pursuant to the provisions of the Philippine Climate Change Act (RA 9729), also known as the "Climate Change Act of 2009." The President of the Philippines is the chairman of the commission with three commissioners assisting him. It is the local government units which are the frontline agencies in the implementation of the action plans as determined by the commission. The other government agencies with which the commission has to coordinate and work closely with are the National Disaster Risk Reduction and Management Council (NDRRMC). We are signatories to the Sendai Framework for Disaster Risk Reduction, an international document adopted by the United Nations member states at the world conference held in Sendai Japan in March 2015. The Sendai Framework aims to achieve the substantial reduction of disaster risk and losses in lives and in the economic, physical, social, cultural, and environmental assets of persons, businesses, communities and countries over the next 15 years. The private sector has established Arise-Philippines, the Local Network of Arise (the private sector alliance for disaster-resilient societies). The partnership between SM Prime Holdings and UNDRR paved the way for the creation of Arise-Philippines. To date, the network has 88 private sector organizations as members that share the vision of a resilient, prosperous future where fewer lives are lost to disasters, capital assets, and investments are risk informed, and infrastructure is resilient to natural and man-made hazards. Arise-Philippines is co-chaired by Hans Sy, chairman of the executive committee of SM Prime Holdings and (ret.) vice admiral Alexander P. Pama, consultant for disaster risk resilience. Source: manilatimes.net

In 2021 year-on-year ransomware attacks increased by 13%, a rise greater than the past five years combined according to the Verizon Business 2022 Data Breach Investigations Report (2022 DBIR). The 15th edition of the report released in May 2022 analyzed 23,896 security incidents, of which 5,212 were confirmed breaches. The report revealed that roughly four out of five breaches can be attributed to organized crime, with external actors approximately four times more likely to cause breaches in an organization than internal actors. 2022 DBIR also found that human element was involved in 82% of all breaches analysed over the past year. It terms 2021 as an unprecedented year in cyber security history. The report says as criminals look to leverage increasingly sophisticated forms of malware, it is ransomware that continues to prove particularly successful in exploiting and monetising illegal access to private information. Heightened geopolitical tensions are also driving increased sophistication, visibility and awareness around nation-state affiliated cyber attacks. Verizon CEO and chairman Hans Vestberg said, “Over the past few years, the pandemic has exposed a number of critical issues that businesses have been forced to navigate in real-time. But nowhere is the need to adapt more compelling than in the world of cyber security. “As we continue to accelerate toward an increasingly digitized world, effective technological solutions, strong security frameworks, and an increased focus on education will all play their part in ensuring that businesses remain secure and customers protected,” said Mr Vestberg. For many businesses, the past year has also been dominated by supply chain issues, and this trend was also reflected across the cyber security landscape and 62% of system intrusion incidents came through an organization's partner. Compromising the right partner is a force multiplier for cyber criminals and highlights the difficulties that many organizations face in securing their supply chain. In a finding that exposes the cost of human influence, people remain - by far - the weakest link in an organizations' cyber security defenses. Of the total breaches in the 2022 report 25% were the result of social engineering attacks, and if human errors and misuse of privilege are added, the human element accounts for 82% of analyzed breaches over the past year. Source: asiainsurancereview.com

Global cyber security spending in industrial critical infrastructure sectors (energy, transport, water and waste management and more) is expected to touch $23bn by the end of 2022 and grow at a CAGR of 10% to reach $36.67bn in 2027 according to a new report by technology intelligence firm ABI Research. The 19-page new report State of Cyber & Digital Security released in June 2022 said, “Organizations and verticals continue to integrate technologies like the internet of things, 5G and blockchain, meaning more points of connection - and points of vulnerability - than ever before.” The report says, “Security is a complex, multi-layered discipline that touches upon many notions: From protection and trust to resilience and offense. In today’s connected societies, security needs to permeate all aspects of modern technologies to support successful digital and cyber ecosystems. A weak link in a chain can present an open door to a threat or be at risk from misconfiguration. “The biggest challenges for security implementation lie in understanding the value of the technology as an enabler and then finding the right solution, before applying it effectively. There is unanimous agreement that security is needed; but where and how and when and to what degree are not as easily determined.” As a result, ensuring ‘security’ is not just a hardware issue or a software issue - it is a web of challenges and solutions spanning entire technology ecosystems. The report also focuses on: Growing presence of mobile identities The emergence of next-generation cryptography Central banks embracing digital currency Critical infrastructures primed to adopt enabling cyber security solutions Optimizing data security in telematics to enable intelligence-driven monetization The drive toward embedded cellular connectivity continues The impact of a remote workforce Source: asiainsurancereview.com

In the Philippines, farming is a risky business. The country is battered by an average of 20 typhoons a year and as the storms become more intense due to climate change, the stakes get bigger for Filipino farmers, who make up a quarter of the country’s workforce. Melinda Grace Labao knows this all too well. She saw firsthand the hardships that typhoons caused her now 77-year-old father as he managed the family’s one-hectare rice farm in Bulacan province, north of Metro Manila, for over 40 years. “When farms are hit by a typhoon, farmers are back to zero,” said Ms. Labao, Officer-in-Charge for Microinsurance at private insurer CARD Pioneer Microinsurance, Inc. “They are wiped out financially because they cannot recover their investments in the crops.” The government and crop insurers are trying to change that, with support from the Asian Development Bank (ADB). On Feb. 3, the state-owned Philippine Crop Insurance Corp. (PCIC) and CARD Pioneer signed an agreement launching the country’s first public-private partnership on crop insurance, a move that could revolutionize the country’s agriculture insurance industry. INSURING HIGH-VALUE CROPS “Agriculture insurance empowers our farmers and farm managers to open up to new technologies and innovations in the market,” said Insurance Commissioner Dennis Funa during the signing ceremony. Insurance can reduce farmers’ risks, he said, allowing them to try new technologies to increase and improve their farm yield. Under the co-insurance agreement, CARD Pioneer and PCIC will share, at a ratio of 70:30, the risk underwritten for each insurance policy to be issued under a pilot test. The product will initially target farmers of high-value crops, namely coconut, coffee, cacao, banana, sugarcane and pineapple — a segment of the market that PCIC has had limited coverage so far. Crop damage from typhoons and natural calamities can ruin farmers’ livelihood, wreak havoc on the food supply, and drive up prices in the country. Agricultural losses from Typhoon Odette, a category 5 typhoon that pummeled central Philippine regions in December 2021, were estimated at $82 million (P4.2 billion), affecting more than 178,000 farmers and fishermen, according to the government’s National Disaster Risk Reduction and Management Council. Crop insurance aims to give farmers relief during typhoons and in dry seasons, such as the El Niño drought phenomenon when crops, especially in rainfed areas, become too wilted to be harvested. But only about one-third of the estimated 10.9 million farm owners in the Philippines are covered by crop insurance, according to the PCIC. PRIVATE SECTOR PARTICIPATION CRITICAL The PCIC, the country’s dominant agricultural insurer, provides subsidized coverage to mostly small farmers for losses due to natural calamities, plant diseases, and pests. Commercial farms comprise just 2% of the PCIC’s client base. “Clearly, there is a huge market and a need for participation from the private insurance industry,” said PCIC President Jovy Bernabe. “That participation is increasingly critical, considering that the risks that farm producers are facing… have been exacerbated further by climate change.” Discussions among ADB, the Department of Finance (DoF), the Insurance Commission, and private insurers on how to expand crop insurance began in 2018. A technical working group was created, with representatives from government agencies, development partners such as the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), and the Philippine Insurers and Reinsurers Association. “With private sector involvement in the crop insurance market, there will be more options for farmers, which, in turn, will help increase their financial resiliency,” said ADB Senior Financial Sector Specialist for Southeast Asia Kelly Hattel. EXPANDING CROP INSURANCE COVERAGE With the agreement, CARD Pioneer is also expanding its operations into high-value crops. It currently offers insurance coverage against typhoons, floods, and monsoon rains for rice and corn under its Binhi (Seed) Crop Insurance Program launched in 2016. CARD Pioneer will help widen high-value crop insurance in the country by offering the product in areas not reached by PCIC. It plans to tap its existing partners from rural banks, cooperatives, nongovernment organizations, and sellers of farm inputs to market the product. Crop insurance could be offered as an add-on to agricultural loans, said Ms. Labao. “If the pilot testing is successful, CARD Pioneer will learn from us, they get the technology from us, the know-how. They might even expand to other portfolio like rice, corn, livestock. There is a huge market for livestock — swine, poultry,” said Mr. Bernabe. ADB is assisting the crop insurance industry with a technical assistance grant, which builds on $600 million in ADB loans supporting government reforms since 2016. The Inclusive Finance Development Program aims to increase financial inclusion in the country over the long term, with ADB currently preparing additional support worth $400 million. ADB has been assisting the government in developing its microinsurance industry since 2008. It supports implementation of the government’s National Strategy for Financial Inclusion and the Insurance Commission’s efforts to strengthen regulation for private insurers offering crop insurance. In November 2021, the commission issued guidelines for an agriculture insurance regulatory framework, under which falls the PCIC and CARD Pioneer partnership. Source: www.bworldonline.com

The Philippines' Financial Stability Coordination Council (FSCC) launched its Systemic Risk Crisis Management (SRCM) framework yesterday. The SCRM involves the continuous surveillance of risk trends; review of infrastructure; conduct of systemic stress tests; and arrangements for communications both under normal and stressed conditions. The FSCC comprises the central bank (Bangko Sentral ng Pilipinas or BSP), Insurance Commission, Philippine Deposit Insurance Corp (PDIC), Securities and Exchange Commission (SEC), and the Department of Finance. The SRCM framework was “in keeping with the objective of managing systemic risks and strengthening the resilience of the system,” BSP governor Benjamin Diokno said in a speech at the launch ceremony. “It defines arrangements among the FSCC agencies that we will rely on in good times so that we are best organised under stressed conditions,” Mr Diokno said. “As we develop the tactical plans that underpin this strategic document, the SRCM is thus a living document that evolves with the market and the needs of its stakeholders.” Mr Diokno said the SRCM will monitor risks during good times so that the domestic economy will be prepared for times of stress. “We look at all the possible risks, not only on the part of the public sector, but also on the part of the private sector.” He said that at present, he did not see any domestic-caused risks to the financial system as most challenges emerge externally, such as slowing global growth, higher oil prices due to Russia’s invasion of Ukraine, as well as the US Federal Reserve’s interest rate hikes. “But other than that, we don’t see any risk for the Philippine economy.” Source: asiainsurancereview.com

Read the last of the three series of articles on Cyber risks. There is a 'disproportionately high' mismatch between cyber risk awareness and implementation of protection measures given the increasing frequency and severity of attacks according to Munich Re. A new report, Munich Re Global Cyber Risk and Insurance Survey 2022, warns that lack of human resources and skilled personnel, poor integration and interoperability of security solutions and insufficient collaboration between individual departments, are among the main challenges for companies looking to improve cyber security. The new survey, which included more than 7,000 participants from 14 countries across all industries and company sizes revealed that although cyber risk awareness among managers has risen by nearly 10% since 2021, 83% of surveyed representatives said that their own company is still not adequately protected against digital threats. This is despite 38% of C-level respondents admitting that they are ‘extremely concerned’ about a potential attack, up from 30% last year. More than 70% of companies surveyed have now been affected by ransomware or a data breach, up from 53%. On a more positive note, 43% of executives said that they had been offered cyber insurance, up from 34% in 2021, and 35% are now considering coverage for their company. “Supply and demand for cyber insurance have increased slightly, but most respondents are still not adequately protected or even prepared,” according to the report. Munich Re estimates that the global value of cyber premiums was $9.2bn at the start of this year and expects this to reach approximately $22bn by 2025. A lack of historical data and non-existent or inconsistent legal obligations related to reporting ransomware or cyber business interruption events are also making it difficult for insurers when pricing cyber risks. The report said, “The insurance industry finds itself able to collect and analyse more and more information from covered losses. Insurers and Munich Re are in a uniquely privileged position to collect proprietary information from risk owners. Cyber insurance, together with other stakeholders, can leverage this data to reshape cyber risk assessment and better explain the modelling of cyber risks to its insured.” Source: asiainsurancereview.com

Read the second of the three series of articles on Cyber risks. The toll of almost three years of unrelenting workplace disruption, digital transformation and ransomware attacks means most leaders are no more confident in their ability to manage cyber risk than they were two years ago. A new 26-page report The State of Cyber Resilience published jointly by Marsh and Microsoft Corporation analyses how cyber risk is viewed by various functions and executives in leading organisations, including cyber security and IT, risk management and insurance, finance and executive leadership. Over 660 cyber risk decision makers globally participated in the study. The report has revealed that leadership confidence in their organisation’s core cyber risk management capabilities – including the ability to understand/assess cyber threats, mitigate/prevent cyber attacks, and manage/respond to cyber attacks – is largely unchanged since 2019, when 19.7% of respondents stated they were highly confident, compared to 19% in 2022. Marsh head of cyber Sarah Stephens said, “Given the continued rise of ransomware and the current tumultuous threat landscape, it is not surprising that many organisations do not feel any more confident in their ability to respond to cyber risks now than they were in 2019.” Many organisations are still struggling to understand the risks posed by their vendors and digital supply chains as part of their cyber security strategies. Only 43% of respondents stated that they have conducted a risk assessment of their vendors or supply chains. Other findings of the report include: Only 41% of organisations look beyond cyber security and insurance to engage their legal, corporate planning, finance, operations or supply chain management functions in making cyber risk plans. Nearly four in 10 respondents (38%) said their organisation uses quantitative methods to measure their cyber risk exposure, which is a critical step in understanding how cyber attacks and other events can create volatility. This is an improvement from the 2019 survey, when three in ten respondents (30%) stated that their organisation uses quantitative methods. Marsh US and Canada cyber risk practice leader Tom Reagan said, “Cyber risks are pervasive across most organisations. Greater cross-enterprise communication can help organisations bridge the gaps that currently exist, boost confidence and better inform overall strategic decision making around cyber threats.” Source: asiainsurancereview.com