MANILA, Philippines - Standards & Poor’s Rating Services (S&P) has rated the country’s insurance regulatory environment as “weak” while the Investment Information and Credit Rating Agency (IICRA) places the industry at “high risk.”
In a report, S&P said that the legislative amendments to the 38-year-old Insurance Code of the Philippines during 2013 makes the regulatory environment more relevant.
“The legislative amendments to make it relevant to the changes that have already occurred in the industry, and in anticipation of the inevitable future transformation arising from the increasing sophistication of global insurance markets,” the report said.
The good point also raised was the adaption of the risk-based capital requirements in 2006, which among others enhances the capital base of Philippine insurers.
But the Philippines is still considered as “the downside outlier.”
S&P said that the institutional framework in the Philippines insurance market lags behind the Asia-Pacific region, with a “weak” assessment reflecting the less-developed nature of the insurance market and the supporting legislative frameworks, which undermine Insurance Commission’s (IC) ability to effectively implement prudential policies and measures.
“Further, the legal protection offered to supervisory staff in the performance of their duties appears to be lacking,” it added.
The report states that the insurance industry in the Asia Pacific region in general is a far cry from its more regulatory sophisticated status of Europe, Canada and the US.
It assessed that the emerging regulatory change in the region is generally not to the favor of small insurers, because of limited scale and cost efficiencies.
Thus, the region’s regulators anticipate further withdrawal of players or consolidation for some over-crowded markets such as Hong Kong and the Philippines.
“However, it is expected that regulators would allow flexibility over the transition period for implementation of the enhanced solvency regimes,” the S&P report said.
It stated that the more advanced insurance industries in Japan, Australian, and Singapore, are entering the “second stage” of sophistication wherein regulatory environments are aligning with the developed economies. The first stage is basically increase in capital base, using the risk-based capital framework.
In the second stage, the more developed markets and some developing markets in the region are becoming more aligned with the IAIS ICPs and the newly heightened global expectations for risk management and group supervision.
“We see the proactive markets of Australia and Singapore as the region’s leaders in regulatory sophistication, with Japan expected to narrow the gap over the coming years. Other markets also pursuing alignment with the ICPs include Hong Kong, China, Taiwan, Malaysia, and Thailand,” S&P added.
The emerging Asean Economic Community (AEC) will likewise forced respective insurers and their regulators to make the necessary adjustments and upgrades.