Philippines’ non-life insurance sector revised to stable: AM Best

Global credit ratings agency AM Best has revised its market segment outlook on the Philippine non-life insurance market to stable from negative, citing a variety of factors that include strong investment yields amid insurance market and economic growth.

In a new report released by the agency, Best states that the high domestic interest rate environment will keep insurers’ investment yields strong as companies reinvest their assets into higher yielding fixed-income instruments upon maturity.

At the same time, opportunities within personal and commercial lines also are said to be driving insurance market growth. While the main non-life business lines, in terms of premium share, remain fire and motor, the market experienced double-digit increases in the casualty, health and accident lines of business in 2023.

Best also noted that primary rate increases in the property line are catching up to reinsurance rate hikes, however rate pressure remains due to heavy market competition.

Susan Tan, financial analyst, AM Best, commented: “The market has struggled to keep pace with reinsurance rate increases for the property line given a general reluctance to lose market share, but this trend is now shifting. Earlier anticipated hikes in minimum catastrophe tariffs to drive premium rate increases are no longer seen as a prerequisite to ensure adequate premium rates to achieve underwriting profitability.”

Moreover, The Central Bank of the Philippines has projected real GDP growth of 6% to 7% in 2024, set to be driven by an improved global growth outlook, a boost in tourism, labour market improvements, and increased infrastructure spending.

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

Best believes that the implementation of PFRS 17, along with the Own Risk and Solvency Assessment (ORSA) framework adopted in 2023, is a positive development that will elevate risk management quality and financial resilience in the insurance market.

Lastly, other moderating factors in the outlook revision to stable include the market’s net retention of underwriting risks, which could create earnings volatility, as well as the exposure to natural catastrophe risk, which is particularly high in the Philippines.

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