A Perspective on the
Non-Life Insurance Industry
By Michael F. Rellosa
Philippine Insurers and Reinsurers Association
13th Philippine General Insurance Summit
Dusit Thani Manila Hotel
27 April 2016
Commissioner Dooc... Mr. Ronnie de Dios... fellow speakers... colleagues in the industry... good morning.
Exactly 13 days from now, we Filipinos will be going to the polling places to cast our vote for the President, Vice President, 12 Senators, 297 congressmen, 81 governors and vice governors, 772 provincial board members, 145 city mayors and vice mayors, 1,489 municipal mayors and vice mayors, and 11,924 seats in municipal councils.
That is more than 16,000 elected positions available. Give it just an average of 3 candidates per position, you can say that we have almost 50,000 people with a direct stake in the coming elections.
Well, we too as an industry have a stake in it. Our work may not be political in nature but we cannot deny that in many ways than we care about, we are directly and indirectly affected by the decisions of the leaders we elect into office.
Thus my presentation to you this morning has a major portion devoted to the leaders we need.
My presentation is divided into two parts.
The first part is an update on the non-life insurance industry that we traditionally give in this summit.
The second part, as I said earlier, is about the coming general elections. I will be outlining the important qualities that we should look for in the leaders that we will be voting into office come May 9.
So let's start.
Our industry, as expected, has gotten smaller once again. We now have 62 companies with non-life insurance licenses and 4 companies with composite licenses.
Despite this, however, the industry's assets have grown by 1.79 percent in 2015 -- or about 3 billion pesos from 160.9 billion in 2014 to 163.8 billion in 2015.
The industry's liabilities on the other hand went down in 2015, from 96.599.8 billion in 2014 to 95.49 billion or a 1.15 percent reduction.
The industry's paid-up capital also grew by 2.33 percent from 25.5 billion in 2014 to 26.1 billion in 2015.
This, of course, is due to the Capital Build-Up program that the government mandated starting 2013 with the advent of the New Insurance Code.
Our net worth rose by 6.21 percent from 64.3 billion to 68.3 billion.
This is expected again as a result of the higher capitalization requirements.
Based on data from the Insurance Commission, we know now that 13 non-life companies have net worth of over 1 billion pesos each.
And following are 26 companies with net worth of over 500 million pesos but lower than 1 billion.
Next are 13 companies with over P400 million in net worth, and the rest are all below P400 million but over P250 million.
We expect the number of companies and their net worth to change come 2017 as the capital build-up continues.
Now we go to investments.
Despite the low interest rates, our investments still managed to post a 4.22 percent year-on-year growth from 60.58 billion to 63.145 billion.
As for our Operating Results, I would like to start with our Gross Premiums Written.
It is very interesting to note that even with less number of companies, we were able to post higher gross premiums.
From P64.3 billion in 2014, our gross premiums for 2015 was P71.4 billion, or an increase of 11.1 percent.
I have yet to see the breakdown of these premiums per line of business, but I have reasons to believe that most of the growth came from the Fire and Allied Perils line as well as the Motor Car line.
We all know that we are experiencing a property boom. Just look around you and you will see all the condominium towers going up. All of these towers are new business for us.
We also know that car sales are on the upswing. All car manufacturers have recently launched new models and this is the reason why we will definitely be experiencing a substantial growth in our Motor Car insurance business.
Even our Net Premiums posted a considerable increase, even higher than our Gross Premiums in terms of percentage.
From 31.131 billion in 2014, our Net Premiums for 2015 reached 35.795 billion, an almost 15-percent increase.
Again I would credit this to the growth in the Motor Car line where all of us have a high retention rate.
Since we had a big jump in Net Premiums, it follows that a similar jump was also registered in Premiums Earned.
Our Premiums Earned grew by 12.75 percent from 29.78 billion in 2014 to 33.58 billion in 2015.
Now we go to losses incurred.
The year 2015 was marked by a 4.86 percent in losses as we experienced major fires, including one that completely razed to the ground a footwear factory in Valenzuela City, killing 75 people.
There was also a passenger ferry that was destroyed by fire in August 2015 that added up to our industry's losses to 13.5 billion from 12.88 billion the previous year.
Yet despite the increase in losses, our industry was able to post a very good net income to the tune of 3.285 billion, an increase of more than 800 million or about 36.8 percent from the 2.4 billion we registered in 2014.
To sum it up, 2015 was a good year for the non-life insurance industry.
It was a year of growth, a year of expansion, and a year of manageable losses for many of the industry players.
Yet I could not help but notice one area where we also posted a major growth.
And that is in the area of fines and penalties.
According to the Insurance Commission, our industry paid a whopping 24 million pesos in fines and penalties for 2015.
That's 2 million pesos a month.
And believe it or not, 21 million of what we paid were for tariff breaches.
Yes, tariff breaches.
For outsiders, it is easy to think that we are probably earning so much by breaching tariff rates that we do not mind paying 21 million in fines.
But no. On the contrary, the tariff we breached were not price ceilings but floor rates. We charging rates below those prescribed by the tariff.
In effect, we paid fines for giving our clients low rates.
I am not questioning the wisdom of the IC in penalizing us, but maybe it is high time that we reviewed the relevance of the tariff in the era of free trade and economic integration.
The ASEAN integration is slowly unfolding. This is the reason why our government made us raise more capital than we could actually use at the moment.
The increased capital is meant to promote stability and level the playing field in the industry.
The ultimate objective is to make companies competitive.
But how could we reconcile this with a tariff regime where we are not given enough leeway to have competitive rates?
The complaint I always hear from companies is, "What can we do when everybody's lowering their rates?"
"Should we follow the tariff and risk to lose our clients?"
"What can we do when it was brokers themselves who are forcing to lower our rates?"
And other questions I always hear: "Why are we the only ones being fined? Why not the brokers too?"
Don't get me wrong. I am not picking a fight with the IC or the brokers. I am just relating to you the questions that I get from time to time.
This topic about tariff is one of the hot issues we are discussing on October 7 when we hold the 2016 PIRA Regional Dialogue at the New World Hotel.
With your indulgence, Ronnie, I would like to invite everybody who are here today to be with us at the Regional Dialogue.
We will have the theme, "One World, One Future," and we will focus on the effects of globalization on our business.
Other topics we are focusing on are
- Money Laundering and Insurance
- How to be Competitive in a Global Marketplace
- And many more.
Also on October 7, we will be holding this year's PIRA Awards which we have transformed into a biennial event.
We shall be choosing an Icon of the Industry awardee this time and you may already nominate your choices starting next week.
We shall be sending you nomination forms and guidelines in the coming days.
Now I come to the second part of my presentation.
Less than two weeks before E-Day, do you already have a presidential candidate in mind? Or vice presidential candidate? How about your choices for Senators? Or your Congressman? How about a Party List?
I have yet to finalize my choices. And if you are like me, allow me to share with you some pointers on how I choose the leaders that I believe we need.
The first quality that I am looking for in a leader is this: He must believe in insurance.
Before you label me as self-centered, let me explain.
We are all insurance professionals here, and we definitely believe in what we do. Or else we probably would have left this industry a long time ago.
We believe in insurance.
But what exactly do we believe in?
We believe in utmost good faith.
We believe in complete honesty.
We believe in word of honor.
We believe in having a fiduciary duty to our clients.
And we believe that we have to honor our promises to our clients when the thing, for which they are insured, happens.
Aren't these the same qualities that our leaders must have?
A leader who believes in insurance will not treat us as milking cows.
Instead, he will treat us as partners.
He believes in the important role insurance plays in nation-building. Thus, that leader will promote us, will allow us to not only survive but also grow.
But of course, we cannot expect all leaders to automatically be believers of insurance.
We have to admit that our industry suffers from a perception problem. Many people doubt our credibility. Many think insurance is a waste of money, or worse, a racket.
If we cannot have a leader who already believes in insurance, at least have someone who knows how to listen and act accordingly.
We don't need an all-knowing, all-seeing visionary. What we need is an open-minded collaborator. Such a leader knows how to listen to the people.
Once the next Congress resumes, we will be once again filing the bill that seeks to lower the premium tax on non-life insurance.
We hope that this time the leaders that we will have to deal with would see the big picture and would acknowledge the benefits of insurance to our countrymen, particularly the poor.
And third, we need a leader who treats climate change seriously.
Let me rephrase that: We need a leader who treats climate change personally.
Climate change is real. If you need proof, just go to Mindanao and see how the farmers go hungry because of the massive drought.
Typhoons like Yolanda are becoming the new normal.
We need a leader who will consider climate change a matter of survival and not just a timely topic in political campaigns.
Ladies and gentlemen, friends and colleagues in the industry, our next leader must prioritize climate change adaptation measures.
He must invest in alternative energy sources like solar and wind and less in coal.
Our next leader must step up in disaster preparedness.
And yes, our next leader must look farther to the horizon and push for the mandatory Earthquake Insurance which is the only way for our country to be fully ready for the Big One or the earthquake emanating from the West Valley Fault.
And finally, we need a leader who will not divide us but instead unite us.
This ongoing campaign season has been very divisive.
Relatives and old friends have parted ways, have unfriended or blocked each other in Facebook, only because of their differences in their choice of candidates.
I hope we can get over this really soon.
I hope our next leader -- for the next six years -- will forget the colors of his political party and wear only the uniform of One Team Pilipinas.
I pray that our next leader -- for the entire duration of his term -- will cease to belong to a single ethnic group, a particular region, or province, and instead serve as the true President of one united country -- from Batanes to Tawi-Tawi.
We are literally and figuratively a divided nation. We live in an archipelago of 7,100 islands. We are divided not only by water but also by mountains, by language, by religion, even by economic class.
We need a leader who can show us more of our similarities than our differences.
We need a leader who can harness our collective strengths and help us overcome our collective weaknesses.
We need a leader who can lead by example, who can inspire us, who can move us.
Do you already have such leader in mind?
As my final slide, I'd like to remind you of what Mahatma Gandhi once put it, "Let us be the change we want to see in this world."
We may not be able to find the perfect leader that we truly need. No, maybe not in this election.
But what I wish for each of us here today is to discover that we have such a leader inside of us, that each of us can be an agent of change, that each of us can be a leader who would promote insurance, who would listen and learn and act, who would be personally concerned about climate change, and who would promote unity among our people more than anything.
If we are able to realize this, then whatever happens on May 9, we will all emerge as winners.
Thank you very much. I wish you an enlightening summit and a peaceful and meaningful elections.