YEARENDER: Despite catastrophes, insurance industry turns in good year

MANILA, Philippines - Key insurance players in the country are highly optimistic the industry will experience strong growth in 2014, riding on strong economic fundamentals, consistent healthy growth rates in both net income and premium income, and favorable regulations.

The Insurance Commission (IC) expects 2013 to be a good year despite the natural catastrophes that ravaged the country.

In nine months this year, total net income of life and non-life insurance firms rose 30 percent to P13.9 billion from P10.7 billion in the same period last year. In fact, it was the highest net earnings recorded by the industry.

Total assets likewise grew 30.41 percent, from P655.2 billion in the first nine months of 2012 to P854.4 billion at the end of September 2013.

Finance Secretary Cesar Purisima said insurance industry assets should be able to surpass the P1-trillion mark before 2016.

Riding on the same optimism, IC Commissioner Emmanuel M. Dooc estimates that the industry will grow in terms of assets by a minimum 20 percent in 2014. “It could be bigger but we should first look at the performance in the first semester,” he said.

Life insurers are the principal generators of huge premium income and assets. From a gross premium income of P120 billion in 2012, life insurers have surpassed the P135 billion mark after just nine months in 2013 and is anticipated to break the P150-billion ceiling next year.

 â€œI think it will surpass the P200 billion level in 2014,” said.

Dooc has been re-appointed by President Aquino for a fresh six-year term as IC commissioner. It also came at a time when the law was passed amending the 1974 Insurance Code.

Meanwhile, Philippine Life Insurance Association (PLIA) president Esther Tan said that the insurance industry could be one of the pillars of the country’s financial sector. PLIA is composed of al the licensed life insurance companies in the Philippines.

 â€œThis is not far fetched. Based on projections of the IC, it will soon reach the one-trillion peso mark. The life sector is robust and well positioned to meet the challenges in the coming year,” Tan, who is also the president of PNB Life Insurance, said.

However, Tan is concerned that the momentum could be derailed if new investment products can not be sold through the country’s banking system.

The practice of bancassurance allows life insurers to sell their products through the branch network of a partner bank.

However, a circular by the Bangko Sentral ng Pilipinas (BSP) on cross-selling and collective investment scheme restricts the sale of variable unit-linked (VUL) life insurance products in bancassurance.

“The industry is bullish and poised to grow exponentially. However, we see some stumbling blocks with the recently issued BSP circulars on cross selling, more particularly on CIS (collective investment scheme). This is currently being addressed by the IC and the BSP and we are a waiting its resolution,” Tan said.

In the past few years, VUL, or life insurance products with an investment feature has been selling briskly, increasing to over 30 percent share of total sales when sold through banks.

 â€œIt could well be the Super Typhoon Yolanda of the life insurance industry and its bank partners, since commissions or fees from bancassurance are a contributor to their fee-based income,” another insurer said.

Meanwhile, Tan noted that the industry is been playing host to a growing number of foreign insurers and financial institutions interested in investing in the industry.

Already, FWD Life Insurance is preparing to get off the ground by the first semester of 2014. It is the first major foreign life insurer to invest in the industry since the early 1990s ‘when it was liberalized.

 â€œI met several groups who were conducting exploratory talks as well as foreign newspaper groups asking about the Philippine insurance industry,” Tan said. “So I dare say it will grow in the form of joint ventures or mergers depending on the investors appetite and our local players inclination.”

She said the local insurers can benefit from alliances with foreign insurers through state- of- the-art technology, product innovations and bigger capital outlay.

Meanwhile, the non-life insurance sector has performed satisfactorily in 2013. Net income in the first three quarters grew 69 percent to P2.7 billion from P1.57 billion in the same period in 2012.

Philippine Insurers and Re-insurers Association (PIRA) president Emmanuel Que said the sector managed to absorb all losses brought about by five major catastrophes: Typhoons Maring, Santi, Odette, Yolanda, and the Bohol earthquake.

PIRA represents the country’s non-life insurance companies.

“Companies have expeditiously settled adjusted claims,” Que, who is also the president of Charter Ping An Insurance, said.

However, he admits that the challenges for 2014 and beyond are daunting, with the increase number and intensity of natural disasters.

The formation of the earthquake fund and other environmental preparedness and protection schemes could help mitigate losses as well as minimize the financial burden on the national government.

The increased popularity of micro-insurance is already mitigating losses –to a certain extent—to victims of catastrophes.

Unfortunately, the importance of protection through regular or micro-insurance was hastened through the disaster losses.

Que forecasts that 2014 will still be a good one for the non-life sector although it may turn into “a year of reckoning for most companies.”

The scheduled increases in capital may force more players to close down or seek alliances or acquisitions.

 â€œWe expect further reduction of companies in the coming years, although there will also be a likely entry of foreign players,” the PIRA chief executive added.