Fitch sees risks to insurance industry


Fitch Ratings is optimistic on the expansion of the Philippine insurance industry but warned that risks in the form of a catastrophe may hinder growth.

In its special report “Philippine Insurers Show Ample Growth Potential, Face Changes,” the ratings agency noted that the country’s insurance industry has been on a recovery path since the global financial crisis in 2008.

From reported P177.2-billion gross premiums in the third quarter of 2013, Fitch said that the industry’s gross premiums averaged an annual 18.9-percent growth between 2009 and 2012.

The agency said that it expects further ample growth for the country’s life insurance, as coverage stood at 23 percent as of the third quarter of 2013.
Fitch also believes that life insurers are likely to continue to concentrate more on variable unit-linked (VUL) products than traditional protection products.

“VUL policies have enjoyed growing popularity, which life insurers see as opportunities, underpinned by an increasingly sophisticated and rising-income population. VUL policies are nontraditional plans which are less capital-intensive, and investment risks are borne by the policyholders,” it said.

The ratings agency noted that the life sector contributes an estimated 80 percent of total annual industry premium income; and on a standalone basis, gross premiums have grown by 20 percent or more each year since 2010.

Modest growth for nonlife
However, Fitch said that it is seeing a modest growth in nonlife sector, as the sector will continue to face constraints in catastrophe perils, given the rising number of incidences.

“The loss ratio is also expected to peak in fourth quarter of 2013 as a result of the devastating Typhoon Haiyan [Super Typhoon Yolanda] in November 2013. Fitch views both catastrophe perils and the tax burden as likely to hinder nonlife sector premium growth if not addressed and managed well,” it warned.

The agency said that the nonlife sector posted a total of P41-million gross premiums for the nine months to end-September 2013—slower than the life sector—which can be attributed primarily to frequent price-cuts, catastrophe claims and high operating costs.

“The nonlife industry loss ratio ranged between 40 percent and 50 percent in 2009 to 2012, and is computed by Fitch at 43.8 percent as of the third quarter of 2013,” it said.

Fitch also believes that natural hazards, if improperly managed, have the potential to create volatility in the underwriting performance of individual insurance companies.

The ratings agency said that December 2013 data from the Insurance Commission showed that the total Yolanda-related claims are expected to result in a net loss for the nonlife sector in the fourth quarter of 2013.

“Yet Fitch believes that the disaster is unlikely to cripple overall industry growth—given the stellar premium growth posted by the life sector in first nine months of 2013, and the Philippines’ very low penetration rate,” it added.


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