AM Best downgrades Philippines non-life insurance outlook to negative

The hardening reinsurance market is significantly affecting the country's carriers

AM Best downgrades Philippines non-life insurance outlook to negative

Insurance News

By Kenneth Araullo

Credit agency AM Best has revised its outlook on the Philippines non-life insurance sector from stable to negative, a downgrade caused by negative pressure on the market’s balance sheet strength and operating performance of domestic insurers amid challenges in the reinsurance market.

In the agency’s latest report, the Philippines market is revealed to be heavily reliant on reinsurance to mitigate underwriting volatility and exposure to catastrophe accumulations, as well as subsidise acquisition costs. As the reinsurance market continues to harden globally, and with appetites for property catastrophe risks in the country reducing, Philippine insurers are struggling to place proportional reinsurance programs in the most recent renewals.

“Property insurance is the largest line of business in the Philippines and has represented 30% to 40% of gross premiums in recent years,” AM Best associate director Chris Lim said in a news release. “Faced with shrinking proportional reinsurance capacity and a reluctance to lose market share, domestic non-life insurers may have limited alternatives but to increase their premium retention and assume higher net retained liabilities.”

Underwriting performance will be under greater volatility, AM Best noted, driven by increased exposure to natural catastrophe risks. Non-life insurers in the country must also bear higher sensitivities to climate risks and modelling inaccuracies as retention goes higher. The performance of the motor sector has also been highlighted, with AM Best noting that underwriting for the market will be pressured given various headwinds such as post-COVID claims frequency normalisation.

AM Best analytics director Michael Dunckley said that this situation presents a unique opportunity for non-life insurers in the Philippines via portfolio diversification through expansion in other non-life lines like travel and personal accident insurance.

“Greater demand for motor insurance given a higher number of vehicle sales projected for 2023 is likely, while growth of the domestic insurtech space, as well as an increasing use of e-commerce apps, also presents opportunities for insurers,” Dunckley said.

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