Non-life insurance sector in the Philippines changed to stable: AM Best

Global rating agency AM Best revised its outlook for the Philippine non-life insurance market segment from negative to stable, citing a number of factors, including high investment returns amid insurance market and economic growth conditions.

In a new report published by the agency, Best states that high national interest rates will keep insurer interest rates high as companies reinvest their assets in higher-yielding fixed income instruments at maturity.

At the same time, the growth of the insurance market is also believed to be driven by opportunities in personal and commercial insurance. While fire and motor insurance remain the main non-life business lines in terms of premium share, the market saw double-digit growth in 2023 in accident, health and casualty insurance.

Best also noted that primary rate increases in the real estate segment are catching up with reinsurance rate increases, however, pressure on interest rates remains due to intense competition in the market.

Susan Tan, Financial Analyst at AM Best, comments: “The market has struggled to keep pace with increases in reinsurance rates for property lines due to a general reluctance to lose market share, but this trend is now changing. Previously anticipated increases in minimum catastrophe premiums aimed at increasing premium rates are no longer seen as a prerequisite for ensuring adequate premium rates to achieve insurance profitability.

Moreover, the Central Bank of the Philippines projects real GDP growth of 6-7% in 2024, supported by improved global economic growth prospects, a recovery in tourism, an improving labor market and increased infrastructure spending.

It is important to note that the new accounting standard for the insurance market, Philippine Financial Reporting Standard 17 (PFRS 17), takes effect on January 1, 2025.

Best believes that the implementation of IFRS 17 together with the Own Risk and Solvency Assessment Framework (ORSA) adopted in 2023 is a positive development that will increase the quality of risk management and financial resilience in the insurance market.

Finally, other factors mitigating the change to the stable outlook include the market maintaining net underwriting risk, which may cause earnings volatility, as well as exposure to natural catastrophe risk, which is particularly high in the Philippines.