SINGAPORE--(BUSINESS WIRE)--The Philippine non-life industry experienced another year of solid premium growth in 2016, with gross and net premiums growing faster than the overall economy. However, this growth was likely not supported by sufficient net profitability or capital growth, according to a new A.M. Best briefing, and net underwriting margins remain thin for a catastrophe-exposed market like the Philippines.
The Best’s Briefing, titled, “The Challenges of Balancing Growth With Profitability,” states that the average four-year net combined ratio (2012-2015) of a sample group of eight non-life insurers was 102.9. While higher pricing to incorporate a larger allowance for catastrophe claims could lead to positive average net underwriting results over a longer period, competitive constraints make this hard to implement. Moreover, as expense ratios dominate the net combined ratio in the Philippines, realizing efficiencies will likely play an important role in achieving improvements in net underwriting margins.
While overall net profits from 2012 to 2015 were positive and relatively stable, they were insufficient to strengthen risk-based capital. Return on equity (ROE) averaged only 3.6% during this period and lagged behind growth in premiums, indicating that the insurers’ capital generation capability failed to match the growth in insurance risk. As of 2015, risk-based capital was estimated to have remained below the levels in 2012, the year before Super Typhoon Yolanda hit the Philippines. A temporary fall in risk-based capital after a catastrophe is not unusual, but strong insurers would be able to restore their risk-based capital. However, this was not evident for the sample group between 2012 and 2015 as low net profitability impeded capital growth.
To access the full copy of this briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=260719.
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