MANILA, Philippines—Economic recovery in the Philippines being supported by infrastructure development would help the non-life insurance sector rebound, global insurance credit rating agency AM Best said.
In a March 18 report, AM Best said the Philippines’ non-life market had a “stable” outlook, “underpinned by long-term growth prospects and positive regulatory developments.”
“In the period leading up to 2020, the Philippine non-life insurance segment exhibited one of the highest five-year average compound growth rates observed in Southeast Asia,” AM Best said.
“However, as a result of the COVID-19 pandemic, non-life premiums fell sharply during 2020,” it said.
As the Inquirer earlier reported, the latest Insurance Commission (IC) data showed that the 62 non-life players in the country saw their total net premiums written, premiums earned and gross premiums written wither by 19.5 percent, 4.2 percent and 11.3 percent year-on-year as of end-September 2020.
“Premium revenues were impacted by a general slowdown in economic activity, as well as from challenges with distribution arising from insurance agents’ inability to physically meet with clients and to sell products in a conventional manner,” AM Best said.
“Looking ahead, AM Best expects the pandemic to remain an ongoing challenge for the non-life segment at least over the near term,” its report said.
“Although non-life insurers have made progress in adapting to the current environment by bolstering their infrastructure and use of digital solutions to be able to operate in a remote manner, potential future waves of infection are likely to be met with further movement restrictions in the country,” it said.
“AM Best notes that these COVID-19 control measures are likely to have a direct impact on economic fundamentals and investment market conditions in the Philippines, which may subsequently have a dampening impact on non-life insurers’ revenues and earnings,” it added.
But as the Philippines expected to revert to positive gross domestic product (GDP) growth of 6.5-7.5 percent in 2021 and reverse the worst post-war recession in 2020 partly through infrastructure development under its ambitious “Build, Build, Build” program, AM Best sees glimmers of hope for the non-life insurance sector.
“The government’s ‘Build, Build, Build’ program, which consists of more than 20,000 infrastructure projects nationwide, is expected to be one of the key drivers of Philippines’ economic recovery,” AM Best said.
“This in turn is expected to catalyze the long-term growth of the property, cargo and engineering insurance segments,” AM Best said.
A major risk, however, remained to be the Philippines being among the countries most prone to natural disasters like earthquakes and volcanic eruptions given its location on the Pacific Ring of Fire, plus some 20 typhoons passing through the archipelago yearly, AM Best said.
“Non-life insurers in the Philippines continue to face very high exposure to natural catastrophe risks,” it said.
“Catastrophe hazards are a key feature of the risk landscape and a notable challenge for non- life insurers, particularly in respect of managing aggregation and accumulation of exposure,” it added.
In the long term, AM Best sees “positive” macroeconomic fundamentals supportive of non-life insurance growth in the Philippines.
“At present, the country’s non-life insurance penetration rate is very low at less than 1 percent, as compared to the global average of 2.8 percent, which suggests the market’s significant untapped potential,” AM Best said.
Article and Photo originally posted by Inquirer last March 19, 2021 7:02pm and written by Ben O. de Vera.
About Post Author
More Stories
Banks’ total assets up at P26.2 trillion end-June
Lamudi sees heightened developer confidence with rise in ad spending
Phase 1 of PHINMA’s Bacolod township to finish by next year