AM Best has downgraded its outlook for the Philippine non-life insurance sector from stable to negative, citing growing pressure on insurers’ balance sheets and operating performance. The primary driver of this shift is the increasing difficulty in securing reinsurance capacity.
The local market has traditionally depended heavily on reinsurance to manage underwriting volatility, cover catastrophe exposures, and support acquisition costs. However, global reinsurance conditions have hardened, with reduced appetite—particularly for property catastrophe risks in the Philippines.As a result, many non-life insurers struggled to place proportional reinsurance programs during recent renewal periods, forcing them to restructure their coverage arrangements.
Property Insurance Sector Under Pressure
The property insurance segment, which accounts for 30% to 40% of gross premiums and is the largest line of business in the country, has been hit hardest. With shrinking proportional reinsurance options and strong competition discouraging market share loss, insurers are retaining more premiums and assuming higher net liabilities.AM Best warns this trend will likely lead to greater volatility in underwriting results due to increased exposure to natural disasters. Insurers are now more vulnerable to climate-related risks and potential inaccuracies in risk modeling.
Motor Insurance Faces Additional Headwinds
Motor insurance performance is also expected to weaken in the near term. A normalization of claims frequency following the lower levels seen during the pandemic is putting renewed pressure on loss ratios, adding to sector-wide challenges.
Capital Strength and Emerging Opportunities Provide Some Relief
Despite the negative outlook, AM Best notes several mitigating factors. Insurers have bolstered their capital positions, supported by a phased increase in the minimum capital requirement. This stronger capital base may allow some companies to diversify into non-property lines such as travel and personal accident insurance.
Additionally, rising vehicle sales in 2023 could boost demand for motor coverage. The expanding insurtech ecosystem and growing use of e-commerce platforms also offer new distribution and innovation opportunities for non-life insurers.
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