Philippine non-life insurance outlook turns sour: AM Best

The negative outlook was attributed to the heightened negative pressure on the balance sheet and operating performance of counterparts.

The Philippine non-life insurance industry is seen to land on dampened soil from previously a “stable” outlook, according to AM Best.

This was attributed to the increased negative pressure on the balance sheet strength and operating performance of domestic insurers. 

However, there are some mitigating factors to the negative outlook. 

Insurers in the Philippine non-life market have strengthened their capitalisation in recent years, partly supported by a phased increase in the minimum capital requirement. 

This could help them navigate through the current challenging environment.

These challenges have arisen as a result of difficulties in accessing reinsurance capacity.

The Philippine non-life insurance market has relied on reinsurance to mitigate underwriting volatility and exposure to catastrophe accumulations, as well as to subsidise acquisition costs. 

However, the global reinsurance market has been hardening, and there is a reduced appetite for property catastrophe risks in the Philippines. 

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This has made it challenging for carriers to place proportional reinsurance programs during recent renewals from 1 January to 1 April, pressed AM Best.

As a consequence, many non-life insurance companies in the Philippines have had to make changes to their reinsurance programs. 

This has increased their retained exposure to natural catastrophe risks, leading to potentially greater volatility in underwriting performance. 

With higher retention, these insurers now bear a heightened sensitivity to climate risks and potential modelling inaccuracies. 

Also, underwriting performance for motor insurance may face pressure due to various headwinds, including claims frequency normalisation post-COVID.