AP PHOTO
The local nonlife insurance sector has been tagged as a “high risk” industry owing to the country’s fragile institutions, a sub-standard payment culture and weak rule of law.
In a new report, debt watcher Standard & Poor’s (S&P) said it gave the local nonlife insurance industry, also referred to as property and casualty (P&C) insurance, a high-risk Insurance Industry and Country Risk Assessment (IICRA) score.
The IICRA score reflects the risks typically faced by P&C insurers operating in the Philippines and covers both personal and commercial lines. The firm said the country’s score was derived from the view of the Philippines’ “high” country risk and “moderate” industry risk.
“Our assessment of ‘high’ country risk of the Philippines is based on our views of the country’s economic risk, political risk, financial system risk, payment culture and rule of law,” S&P said.
“The Philippines’ economic and financial-system risks, payment culture and rule of law constrain our assessment of the country risks and that of the P&C insurance sector,” it added.
S&P said the Philippine economy’s low income level also constrained its country risk assessment. The firm said it viewed the payment culture and rule of law in the Philippines as “weak.”
The assessment of “moderate” industry risk for the Philippines’ P&C sector was based on an evaluation of two main factors, mainly barriers to entry and the institutional framework in the country.
While S&P considered barriers to entry for the Philippines’ P&C insurance sector to be low, the weakness of the country’s institutions—a result of poor governance and transparency—made the business environment difficult for industry players.
“Neutral factors include profitability (as measured by return on equity), product risk and market growth prospects,” the firm said.
Documents released by the Insurance Commission last January showed that in 2013, combined premium collection of life and nonlife insurance companies in the country jumped by nearly 50 percent to P210 billion from year-ago levels.
The portion of the Philippine population with access to insurance products was estimated at 1.89 percent as of the end of the third quarter of last year. This was much lower than the penetration rates for Malaysia and Thailand, which stood at 4.8 percent and 5.02 percent, respectively, in 2012.