Mr Sherwin Parungao of Aon Benfield Analytics gives an update of the Philippine insurance sector with its double-digit growth in 2013. Despite the series of natural catastrophes, most players and the Insurance Commission say they are
still optimistic.
The combined premium generated by the Philippines’s life and non-life insurance sectors has continued to rise over recent years with the recorded PHP198.1 billion (US$4.5 billion) for 2013, 37.28% higher than PHP144.3 billion in 2012, according to the Insurance Commission Annual Reports and The Philippine Star.
Despite the devastation brought about by the series of natural disasters that hit the country in the last quarter of 2013, Rappler.com reported that Insurance Commissioner Emmanuel Dooc was optimistic about hitting the target of PHP200 billion gross premium for 2013 for the combined life and non-life insurance sectors.
The insurance industry posted total assets of PHP891.8 billion in 2013, at a growth rate of 18.84% from PHP750.4 billion recorded in 2012. Total investments likewise rose from PHP511.5 billion in 2012 to PHP550.8 billion in 2013, a 7.68% increase. The bulk of these investments were placed in government securities, stocks, real estate, short-term investments and other investments permitted under the provisions of the Insurance Code.
The life insurance industry
According to the Insurance Commission, about 25 million people are now covered by life insurance.
The penetration rate of life insurance marked sustained increase for the past five years as shown below.
According to Insurance Commissioner Emmanuel Dooc, during an interview by the Philippine Daily Inquirer, he was quoted saying: “Given that our population is now 100 million, the latest penetration rate means there are now about 25 million people in this country that have life insurance.”
The number includes only those who purchased insurance from private insurers. It does not include insurance provided by either the Social Security System (SSS) or the Government Service Insurance System (GSIS). He also added that the growing penetration of life insurance was credited largely due to the growth of the micro-insurance business in the country.
An impressive PHP171.2 billion in total premiums has been generated by the life insurance sector in 2013. The said amount represents a 42.31% growth from the PHP120.3 billion gross premiums that were collected in 2012.
Based on the preliminary reports issued by the Insurance Commission for 2013, the total assets for the life insurance industry reached PHP738.5 billion last year, or 18.75% higher than the PHP621.9 billion in 2012. Total investments generated by the life sector amounting to PHP489.4 billion dominated the insurance market, an amount which is 7.35% higher than PHP455.9 billion in 2012.
The non-life insurance industry
Based on the submitted annual statements by 71 non-life insurance companies to the Insurance Commission, the gross premiums written in 2013 totalled to PHP57.7 billion.
The non-life insurance industry in the Philippines posted a total of PHP47.8 billion in written gross premiums in 2012, 12.18% higher than the prior year’s premiums of PHP42.61 billion. These figures are sourced from the Insurance Commission Annual Report 2012 which was released in December 2013. The annual report for the year 2013 is yet to be released.
Fire has been the biggest contributor in 2012 having 32.68% share of the total gross premiums, followed by motor – 30.59%, casualty 22.76%, marine – 9.58%, suretyship – 4.14% and life for professional reinsurer – 0.25%.
All lines of business contributed to the growth of premium collection in 2012. Fire increased by 21.46%, followed by suretyship with 11.86%, casualty with 9.46%, motor car with 8.06% and marine with 2.69%.
Life for professional reinsurer increased by 140% from PHP0.05 billion in 2011 to PHP 0.12 billion in 2012.
Amended Insurance Code
Republic Act No. 10607, signed by Philippine President Benigno S. Aquino III last August 15, 2013, amended the 38-year old Presidential Decree No. 612, otherwise known as “The Insurance Code.”
An increase in the paid-up capital requirements for both life and non-life insurance companies was introduced in the amended Insurance Code to strengthen the country’s insurance sector.
The amended law is requiring domestic life and non-life insurance companies to possess paid-up capital equal to at least PHP1 billion. Provided that a domestic insurance company is already doing business in the Philippines, the following minimum net worth requirements have been imposed which will increase every three years until 2022:
Minimum net worth consists of sum of paid-up capital, retained earnings, unimpaired surplus and revalued assets as may be approved by the Insurance Commissioner. The objective of the said increase is to ensure that insurance companies will be in a position to meet their obligations to their policyholders at the time of a catastrophe event.
A fixed six-year term for the Insurance Commission
The new Insurance Code also established bancassurance, a partnership between a bank and an insurance firm where the latter can sell its insurance products to the bank’s clients without requiring the bank to have equity ownership of the insurance company.
Micro-insurance business was also institutionalised to provide protection to low-wage earners against specific perils in exchange for regular premium payment proportionate to the likelihood and cost of the risks involved.
Finance Secretary Cesar Purisima said the new Insurance Code will pave the way for a stronger insurance sector that can better compete with foreign counterparts. This will also help the insurance industry become a key link in savings mobilisation and capital market development and making insurance more affordable and relevant to the clients’ needs.
The amended law also gives a fixed six-year term to the Insurance Commissioner.
Regulatory updates
A new schedule of fees, charges and penalties as per IC Circular Letter No. 2014-15 dated 15 May 2014 was imposed by the Insurance Commission which have taken effect starting 31 May 2014 as duly approved by the Secretary of the Department of Finance.
Compulsory insurance coverage for agency-hired migrant workers was designed and imposed by the Insurance Commission covering all Overseas Filipino Workers (OFWs) to provide some form of financial relief in the event of an accident.
Recent catastrophe events
Typhoon Rammasun, locally known as Glenda, was the first typhoon to hit the Philippines this year, following eight months after super typhoon Haiyan.
Catastrophe modelling firm AIR Worlwide reported that with sustained winds of 157 kph (98 mph), typhoon Rammasun made landfall in the province of Sorsogon on July 15, late afternoon local time, and headed toward Manila.
According to updates from National Disaster Risk Reduction and Management Council (NDRRMC), as of 23 July 2014, a total of 98 people were reported dead, over 118,000 houses were damaged, of which nearly 29,000 were totally destroyed while over 89,000 were partially damaged. The cost of damages reached over PHP10.46 billion (US$243 million), 85% of which accounted for agricultural damage.
Based on the Philippines industrial cluster catalogue of Risk Management Solutions (RMS), another catastrophe modelling firm, the industry is clustered around Metro Manila and in areas to the north and south of the capital in Central Luzon, which are located within the affected area of Rammasun.
Given that insurance penetration rate in the Philippines is relatively low, insured losses are not expected to be significant as a result of this typhoon.
Conclusion
Due to the current legal requirement to increase capital and the recent exposure of the Philippines to significant catastrophic events (earthquake, super typhoons and floods) resulting in the rise of reinsurance spend, the challenges that the industry confronts are becoming more and more complex.
The industry is on the verge of a paradigm shift as more and more companies look for ways to effectively manage their risks and improve bottom line. Analytics capabilities are becoming more prevalent within the market to assist insurers and reinsurers in the challenges they face around catastrophe management, actuarial, rating agency advisory and risk and capital strategy expertise.
Mr Sherwin Parungao is a Catastrophe Analyst at Aon Benfield Analytics.