Non-life insurers face weak growth prospects

MANILA, Philippines - The Philippine non-life insurance sector will likely register weak growth this year, after experiencing losses in gross written premiums (GWP) in 2013.

In a report, Fitch Credit Ratings said that the non-life sector would continue to be burdened by several growth constraints including regulatory policies and increased incidence of natural catastrophes.

Last year, the sector reported P54.56 billion in GWP, or a drop of five percent from P57.6 billion in 2012. Gross premiums first broke the P50-billion ceiling in 2011, hitting P52.8 billion from P48 billion in 2010.

Fitch said catastrophe perils and the tax burden will likely hinder non-life sector premium growth if not addressed and managed well.

“Non-life insurers in the Philippines, unlike advanced markets such as Singapore and Korea, generally underwrite simple and ‘short-tailed’ products – with fire, property and motor insurance constituting approximately 65 percent,” the report said.

Roughly 26-percent of premiums paid for non-life products are actually government tax products including withholding tax, documentary stamp tax (DST), value-added tax, local government unit (LGU) fees, fire taxes, among others.

Michael F. Rellosa, deputy chairman of the Philippine Insurance and Re-insurance Association (PIRA) said that the recent proposal of the Insurance Commission (IC) to increase the existing rate of fees and penalties only added to the industry’s woes.

“Its triple jeopardy for our struggling industry,” Rellosa said, adding that the proposed increase in fee and penalty rates comes at a time when they were campaigning for a reduction of their tax burden.

Likewise, the increased number of natural catastrophes globally prompted international re-insurers to mull increases in their treaty rates.

Rellosa said that these might force non-life insurers to consider an increase in premiums, which ironically could result in even lower sales.

The non-life industry loss ratio ranged between 40 and 50 percent in 2009-2012, Fitch said. 

“High operating expenses stem from reinsurance costs, fixed overheads and insurance commissions, but heavy tax expenditure is one of the main factors that limit non-life growth,” the report said.

Fitch said that the Philippines is the 12th most densely populated nation, with over 97 million people. Yet insurance remains heavily under-penetrated compared with its regional peers – attributable to the fact that the public does not fully appreciate the benefits of insurance, together with issues of insurance affordability for the low-income population.

“A Swiss Re report shows that profit penetration rate in the Philippines was 1.4 percent in 2012, against 4.8 percent for Malaysia and 5.02 percent for Thailand, suggesting tremendous insurance potential growth,” the international credit rating agency said.

The increasing number of constraints had in fact reduced the number of players from 85 in 2010 to just 69 in 2013. 

Fitch believes the vastly untapped insurance market – with no restriction on foreign ownership and improving macroeconomics – will continue to attract foreign investors. A number of foreign firms, such as Mitsui Sumitomo Insurance Co. Ltd. and Starr International, entered the market last year.

Fitch sees the non-life sector as relatively controlled by locals, but saturated by small and family-owned players where cutthroat pricing is common. Unsustainable premium rates and rising underwriting expenses like reinsurance costs resulted in a decline in non-life return on average equity (ROAE) and return on average assets (ROAA) in the last four years.