The Philippine non-life insurance market is seen posting solid growth over the long term, a global insurance credit rating agency said.
In a report released on March 17, AM Best assigned a “stable outlook” to the country’s non-life insurance market on the back of the long-term growth prospects and positive regulatory developments.
AM Best said supporting factors include the solid growth prospects driven by the increasing
trend in gross domestic product (GDP) per capita, which is expected to drive higher demand and penetration for retail and commercial insurance products; rising minimum net worth requirements for insures that will lead to market consolidation and strengthening the industry’s capital position; and increased use of digitalization in retail sales and administration that will support expense efficiencies.
The report, however, said these would be partially offset by significant exposures to natural catastrophe risks; near-term economic slowdown due to the pandemic which would drive lower premium volumes and operational challenges; and fierce market competition.
“In the period leading up to 2020, the Philippine non-life insurance segment exhibited one of the highest five-year average compound growth rates observed in Southeast Asia,” said AM Best.
“However as a result of the Covid-19 (coronavirus disease 2019) pandemic, non-life premiums fell sharply during 2020. Premium revenues were impacted by a general slowdown in economic activity, as well as from challenges with distribution arising from insurance agents’ inability to physically meet with clients and to sell products in a conventional manner,” it added.
AM Best said the pandemic will remain as an ongoing challenge for the non-life segment in the near term.
“Although non-life insurers have made progress in adapting to the current environment by bolstering their infrastructure and use of digital solutions to be able to operate in a remote manner, potential future waves of infection are likely to be met with further movement restrictions in the country,” it said.
“AM Best notes that these Covid-19 control measures are likely to have a direct impact on economic fundamentals and investment market conditions in the Philippines, which may subsequently have a dampening impact on non-life insurers’ revenues and earnings,” added AM Best.
Despite the challenges brought about by the pandemic, AM Best said the non-life insurance market has a significant untapped potential.
According to the report, the non-life insurance penetration rate is currently at less than 1 percent compared to the 2.8-percent global average.
“Furthermore, the government’s Build Build Build program, which consists of more than 200,000 infrastructure projects nationwide, is expected to be one of the key drivers of Philippines’ economic recovery; this in turn is expected to catalyze the long-term growth of the property, cargo and engineering insurance segments,” said AM Best.