New solvency regime forcing consolidation in Philippine insurance sector

Recently installed commissioner for the Philippines Insurance Commission Dennis Funa has revealed that the national insurance market is undergoing a process of consolidation as its new capital and solvency rules kick in. In January of 2015 the commission announced a new insurance code and stronger minimum capital requirements designed to prevent insolvencies and bolster the national market. The tougher new rule-book is forcing a consolidation and M&A process in the sector, as confirmed by the Insurance Commission recently. Under the new code, for new insurance companies the required paid-up capital/ statutory deposit is 1bn. For existing companies the minimum networth/trusteed surplus rose from 250m up to 550m at the end of last year. By 31 December 2019 the required level will rise again to 900m and again up to 1.3bn by the end of 2022. For new professional reinsurance companies the capitalisation requirement is 3bn paid-up capital. At least 50% of the capitalisation requirement needs to be contributed surplus or 400m. For existing professional reinsurance companies the minimum net worth has risen from 2bn up to 2.25bn by the end of 2016. It will rise again up to 2.5bn by the end of 2019 and again up to 3bn by the end of 2022. In mid-January, Commissioner Funa warned Philippine insurers that they need to take the new rules seriously. Mr Funa explained that companies that fall short of the new capitalisation only had until this month (April) to reach the threshold. “One of the important drivers in the growth of the insurance industry is the higher capitalisation requirements of insurance companies leading to higher public confidence in insurance,” said the new commissioner. Despite the rising strength of the local insurance market, as shown by latest figures published at the end of last year, mergers and acquisitions are expected to occur as a result of the new solvency requirements. It is thought that four insurers will have to cease trading as a result of the new rules and mergers are being considered by at least eight non-life players. Two other non-life insurers are said to be looking for fresh investors. The Manila Standard recently reported that Mr Funa said that insurers that have submitted plans for mergers but are unable to meet the 30 April deadline would be given “ample” time to complete the deals and go through the proper due diligence process. The underlying strength of the Philippine insurance market is, however, improving based on latest numbers published by the commission. The figures showed strong growth in premiums written, particularly in casualty and fire, higher profits, higher assets held by the insurers and a higher net worth for the industry as a whole. At the same time the Insurance Commission reported good progress on its raft of changes introduced in 2015 to modernise the industry and ensure that it is able to meet policyholder liabilities and play a bigger role in the national effort to eradicate poverty. The market has also adopted the ASEAN Corporate Governance Scorecard in preparation for the ASEAN Financial Integration as endorsed during the ASEAN Capital Markets Forum (ACMF). New solvency requirements introduced in January 2015 required a significant increase in reported surplus by the end of last year for both new and existing insurers. This level will increase in two more steps between now and 2022. At the end of last year the Insurance Comm-ission reported that the Philippines non-life insurance sector achieved total combined gross premiums written of 63.66bn, a 15.56% increase from the 55.09bn reported in 2014. This was attributed to increases of 18.67%, 15.81% and 11.95% in casualty, fire and motor businesses, respectively. Fire business held the largest share accounting for 34.53% of the total. This was followed by motor that accounted for 30.91%, then casualty with a share of 21.06%. Total net premiums written in 2016 rose by 14.07%, a rise from 32.06bn in 2014 to 36.57bn in 2015. This comprised 21.42%, 16.80% and 12.18% increases in casualty, fire and motor businesses, respectively, and constituted 86.79% of the total net premiums written. The bulk of the total net premiums written came from motor business that accounted for some 50.12% of total net premiums written. This was followed by casualty business at 21.08%. Total premiums earned by Philippine non-life insurers grew to 34.38bn in 2015, up 10.69% compared to the total of 31.06bn in 2014. Losses incurred rose by 10.17%, from 12.49bn in 2014 to 13.76bn in 2015. The increase was attributed mainly to the 50.00%, 19.26% and 12.26% increases in losses from surety business, motor and casualty, respectively. In 2015, the overall loss ratio slightly fell by 0.47% year-on-year, from 40.21% to 40.02% in 2015. The Insurance Commission said that the improvement was led by a fall of 18.82% and 7.38% in the loss ratio of fire and allied perils and marine, respectively. The Philippine non-life insurance sector posted net income of 2.73bn, up by 37.88% from 1.94bn in 2014. This was led by a 22.63% increase in underwriting gain. Domestic companies accounted for 88.92% of these assets. The growth in the total reported total assets was led mainly by an increase in assets among domestic companies. This rose from 139.72bn in 2014 up to 143.90bn in 2015. The corresponding liabilities grew slightly up to 97.22bn, a minimal increase of 3.41% compared with 2014. The rise was attributed to increases of 50.96%, 43.73% and 11.60% respectively for other liabilities, reserves for unearned premiums and premiums due to reinsurers. Total net worth of the Philippine non-life insurance sector reached 64.58bn in 2015, slightly up by 2.57% year-on-year from 62.96bn. The Insurance Commission said that this was primarily caused by increases of 6.89%, 1.68% and 1.41% in investments in fluctuation reserves, unassigned surplus and paid-up capital, respectively, which constituted 85% of the total net worth. During 2015, the Insurance Commission issued Certificates of Authority (CAs) to four composite insurers, 66 non-life insurance companies and one professional reinsurer. It also granted CAs to 34 Mutual Benefit Associations (MBAs) 22 of which were microinsurance MBAs and 12 were regular MBAs. There were a total of eight foreign non-life firms authorised in the Philippines in 2015 of which one was a composite and eight pure non-life.

New solvency regime forcing consolidation in Philippine insurance sector

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