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MARKET REPORT – PHILIPPINES
years, with general elections scheduled for May 2016. A.M. The future of the market
Best has rated the political risk of the Philippines as high, Given the Philippines’ robust economy, continually growing
citing, among others, “general political instability and weak consumer base, and improvements in the ease of doing business,
political institutions”. the already competitive insurance industry is attracting new
players. In the life sector, FWD Hong Kong entered the market
Another factor is intense competition – particularly for in 2013, and EastWest Bank and Ageas are expected to finalise
motor car and property insurance – which may lead to the the establishment of a joint venture within the year. The
possibility of insufficient premiums being charged. Transaction eventual establishment of the ASEAN Economic Community
taxes are also among the highest in the ASEAN region, though and further liberalisation of the insurance industry as guided by
the Philippine Insurers and Reinsurers Association is lobbying the ASEAN Insurance Integration Framework could contribute
for legislation to mitigate this. to further interest from companies in the region.
Furthermore, insurers face another challenge in the form of Local insurers will need to rapidly augment their financial
stricter regulations – notably, the adoption of the Risk Based and technical capacities to protect their market share from
Capital (RBC) Framework 2 in 2016, and biennial increases in multinationals, while taking advantage of new opportunities in
minimum net worth requirements until all insurance companies the region. On the other hand, incoming insurers will need to
reach PHP 1.3 billion (around US$29.2 million) by 2022. adapt to the highly competitive Philippine market. This could
The role of reinsurers in the face of regulatory offer opportunities for reinsurers and insurers to collaborate:
changes companies entering the market can benefit from reinsurers’
In light of these regulatory changes, valuation and capital understanding of local markets, for instance, in terms of
management will become increasingly important; mergers and domestic underwriting practices, operational challenges and
realignments are expected in the next few years. exploring new lines of business.
Capital adequacy issues aside, more sophisticated pricing Aside from the entry of new players, some other changes
and reserving techniques will be key to maintaining a could affect the industry. With a view to supporting the
company’s solvency, and reinsurers could play a key role country’s resilience against natural disasters by mitigating the
in helping companies deal with these changes by providing effects of a catastrophe on the government, the Philippines’
technical advice and risk-transfer tools. For example, the Insurance Commission has proposed a catastrophe insurance
NRCP, the national reinsurer, offers insurers analysis using fund.
catastrophe modeling tools to help them deal with challenges
through improved executive decision making regarding According to the IC, 2014’s penetration rate of around
their portfolio mix, pricing and reserving. The NRCP also 1.8% was one of the deepest yet, though it is still below the
uses capital modeling tools to counsel insurers on capital average rate in the ASEAN region (about 3%). In terms of
allocation in compliance with RBC, as well as their reinsurance microinsurance, however, coverage grew from 20% to 28.1%
optimization. Reinsurers can also play a key role in insurers’ from 2012 to 2014.
risk and capital management strategies by offering ways to
transfer risk and ease the capital strain associated with growing Overall, the future of the Philippine insurance industry can
their businesses, particularly under RBC regulations. be viewed with cautious optimism – tempering forecasts based
on past growth with awareness of prospective risks.
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