Philippine Insurers Under Pressure to Meet New Capital Requirement Amid Pandemic

AM Best believes local companies in the Philippine insurance industry will still face significant pressure on underwriting growth and profitability amid the ongoing COVID-19 pandemic with the recent rejection of a proposal to relax minimum capital requirements.

A new Best’s Commentary, titled, “Philippine Insurance: Dropped Proposal to Amend Minimum Capital Rule May Have Mixed Impact,” notes that the government has stood firm on the capitalisation requirement, which is to be met by 2022.

According to the commentary, the requirement not only prompted capital injections in the market to strengthen the insurers’ capitalisation, but also led to increased merger and acquisition (M&A) activity in Philippines’ highly fragmented insurance market.

However, in view of the economic fallout from COVID-19, AM Best notes that there is a possibility that M&A momentum and the impetus to shore up capital positions may falter over the near term.

All insurers will need to have a minimum net worth of at least PHP 1.3 billion by 31 December 2022. Many small- and medium-sized companies will need to bolster their capital bases to comply with the increasing minimum net worth requirements, and given the remaining time period, AM Best said it expects that this will likely be achieved through capital raised with new/existing shareholders, rather than through internal capital generation

Topics Carriers COVID-19