S&P pins Phl non-life insurance sector as high risk

MANILA, Philippines - Standard & Poor’s Ratings Services (S&P) has classified the Philippine non-life insurance industry as “high risk.”

Based on its assessment of high country risk and moderate industry risk, the high country risk reflects the Philippines’ high economy and financial system risks.

In the just-released report, S&P said that the industry is constrained at the moderate level in light of very low barriers to entry and a weak institutional framework.

“The market situation is highly fragmented because of a large number of market players that have very small market shares,” it added.

The country’s non-life insurance industry (also referred to as property/casualty insurance sector) has 78 players. The minimum paid-up capital is P250 million.

But the top 10 players account for roughly 50-percent of annual business, and the top 20 account for nearly 80-percent of all premiums.

“We view the country’s regulatory framework as lesser developed than seen in sophisticated markets such as Australia and Japan, though it does seem to be largely in line with the regional standard,” the S&P report said.

“In our view, the industry’s profitability level, product risk, and growth prospects are neutral factors on the industry risk assessment,” S&P said.

Last year, the industry reported a net income of P2.57 billion, down 22 percent from the 2011 earnings level of P3.3 billion.

However, assets ballooned to P125.5 billion in 2012, up 12 percent from the P112 billion in the previous year.

Gross premiums written were valued at P50.3 billion, down 4.5 percent from the P52.7 billion in 2011. Thus, net premiums written fell 10.8 percent to P23.1 billion in 2012, from the P25.9 billion in the previous year.

Premiums earned also fell 2.5 percent to P23.9 billion last year, from the P24.5-billion in 2011.

Total paid up capital inched higher to P21.1 billion last year from the P20 billion in 2011.

The non-life insurance market of Australia, Hong Kong, and Korea have been classified as “low risk”, while China, Japan, Taiwan and Thailand were ranked as “intermediate risks.”

For Thailand specifically, S&P’s view reflects its assessment of moderate country risk and intermediate industry risk.

“Our view of Thailand’s moderate country risk mostly reflects the economic, political, payment culture, and rule of law risks, moderated by our view of the country’s financial system risk. These assessments draw from Standard & Poor’s sovereign and bank industry criteria. We consider the industry risk faced by property/casualty insurers to be intermediate, driven by our positive view of market’s growth prospects. We view the market’s profitability, barriers to entry, product risks, and institutional framework as neutral factors,” it added.