The Philippine Life Insurance Association (PLIA), in a reaction paper, said that the country’s life insurance industry has a minimum capital base of P50 million or roughly $1 million, which is roughly the same as Thailand and Hong Kong which was given a "stable" rating.
"Isn’t the weak or negative (rating) rather inappropriate to use for the Philippines, whether capitalization is looked at as a percentage of gross domestic product (GDP) or premium income?" it said.
The Philippines has GDP of $86 billion, and the total premiums written by the country’s life insurer is $783 million, or 0.91 percent of GDP. However, its annual growth rate has been dropping from double digits to single in the past three years.
Thailand has a GDP of $163 billion, and total premiums of $3.1 billion, or 1.94 percent. Hong Kong has a GDP of $165 billion and total premiums of $12.9 billion, or 7.88 percent.
S&P said that the outlook for the Philippine life insurance industry is negative, due to the industry’s weak capitalization and constant strain on profitability caused by the heavy tax burden on the industry.
In fact, it got the lowest rating in the region.
The country’s life insurance industry, or the entire insurance industry for that matter, is considered the most burdened by taxes in the region.
However, the 34-member insurer trade association seemed to agree with the S&P analysis that the other major barrier is the tax environment.
"The onerous taxes, the undue tax burden on the life insurance industry has been a long-standing problem which the government has simply turned a deaf ear to," PLIA said.
The five-percent premium tax is unique only to the Philippines, which in effect penalizes a citizen for getting a life insurance policy.
The documentary stamp tax (DST) of life insurance policies on account of basing the amount paid on premium instead of the face amount, the very concept of paying the DST each time premiums are paid makes it tantamount to paying additional premium tax, it added.
"If the government can provide support and spend taxpayers’ money to rehabilitate floundering banks, why can’t it remove the taxes it is imposing on the people’s savings?" PLIA asked. "Instead of helping our countrymen secure better future for themselves (which the government is finding difficulty to manage), the government makes it difficult for Filipinos to purchase life insurance coverages with which to look forward to a better tommorrow."
Statistical information and analysis undertaken by the Swiss Re Economic Research and Consulting office indicate that life insurance growth, and increased life insurance market penetration will not go anywhere unless per capita GDP moves.
The S&P outlook said that government instituted market reforms. However, domestic political events are expected to slow the implementation of other reforms, which are necessary to overcome structural weaknesses in the insurance indsutry.
Adding to the country’s life insurers woes is the current problems besieging the pre-need industy.
Instead of being able to fill in the vacuum left by the pre-need, insurers are being dragged down due to the misconception that pre-need and life insurance are the same.