AM Best has revised its outlook on the Philippine non-life insurance market segment to “negative” from “stable”. AM Best says this is due to increased negative pressure on the balance sheet strength and operating performance of domestic insurers amid rising challenges in accessing reinsurance capacity. The market historically has relied on reinsurance to mitigate underwriting volatility and exposure to catastrophe accumulations and to subsidise acquisition costs, according to Best’s market segment report, “Market Segment Outlook: Philippines Non-Life Insurance.” The Philippines has witnessed a reduced appetite for property catastrophe risks amid hardening reinsurance market conditions globally. This has meant that carriers struggled to place proportional reinsurance programmes in the most recent 1 January and 1 April reinsurance renewals. ‘This led to changes in the reinsurance programmes for many non-life insurance companies in the Philippines’, it adds. AM Best expects that underwriting performance would be subject to greater volatility, driven by increased retained exposure to natural catastrophe risks. With higher retention, non-life insurers bear a heightened sensitivity to climate risks and modelling inaccuracies. Mitigating factors to the negative outlook include insurers’ strengthened capitalisation in recent years, supported by a phased increase in the minimum capital requirement. Commenting on the mitigating factors, Michael Dunckley, director of analytics at AM Best, says: “This enhanced capital position may provide some Philippine non-life companies better opportunities to support portfolio diversification via expansion into non-property lines; for example, travel and personal accident insurance.”
