Market Insight


The Philippines is one of the fastest growing economies in Asia with an annual expected growth rate of 7% projected to 2020. While insurance penetration remains low for both life and non-life products, per capita income has gradually increased and is starting to reach an inflection point at which financial and lifestyle protection will become priorities for the median household.

The Philippines benefits from its investment grade sovereign rating, low levels of debt to income, surging business confidence, and strong human capital. Potential headwinds are particularly relevant to the country’s developing insurance sector. These include exposure to relatively frequent and severe windstorms and floods, high levels of seismic activity, overwhelmed infrastructure in metropolitan areas, undeveloped regions outside Manila, and terrorism and security concerns in southern parts of the country.

In its efforts to foster a strong insurance sector that can cope with these challenges, the Philippines’ Insurance Commission in 2006 introduced a series of step-ups in minimum capital requirements concurrently with incrementally rising risk-based capital (RBC) hurdle rates. These measures are gradually forcing much needed consolidation activity in the highly fragmented non-life sector. While consolidation does not necessarily equate to strength, and nor is it free from negative consequences of regulatory changes, these are steps in the right direction that have made the Philippine insurance market stronger today.

That said, consolidation has not occurred as anticipated or desired by the Insurance Commission and investors alike. While M&A has been sluggish, several small insurers have been forced into receivership and liquidation over the last two years, reflecting, among other factors, a broad mismatch between underlying franchise value and expected market price.

This report will explore the impact of regulatory changes on consolidation. The price-value mismatch will be a focus of this report, as will discussions around the measures Philippine insurers and regulators can take to facilitate a more efficient and stronger insurance sector. As the principles discussed here are generally applicable outside the Philippines as well, JLT Re hopes that this report will serve as a reference to other countries in the region.

Regulatory and change increasing consolidation activity

Like many other regulators in the region, the Insurance Commission of the Philippines has been updating insurance regulations over the last twenty years towards stronger and more risk-sensitive solvency requirements. The need for stronger solvency requirements was clear: The implementation of Solvency II across EU countries, and the series of devastating floods and earthquakes in Asia
-Pacific in 2011 was a catalyst for regulatory change in the region. In addition, the Philippines had also suffered a series of devastating typhoon landfalls in the 2000s and 2010s resulting in economic losses of over PHP 250 billion (USD 5.5 billion) and at least 15,000 deaths. Although these losses have impacted insurers’ profitability and valuation, because of low penetration rates, insured losses in the Philippines accounted only for a small proportion of the economic losses. It is clear that more of the risk burden can be shifted from society to well-capitalized insurance companies. Strong insurers can not only bear severe losses and finance recovery, but also play an essential role in loss mitigation in pushing for improved construction and safety standards.

Figure 1 illustrates a trend in Southeast Asia towards stronger risk-based solvency requirements, including second iterations of RBC regimes that include explicit catastrophe risk exposure estimates and qualitative elements of risk management standards that encourage catastrophe loss stress testing.

The Insurance Commission has enacted more stringent regulatory requirements for the sector, which will be phased in over the next five years. These changes, as detailed in Sideboxes 1 and 2, include both significant increases in minimum capital requirements as well as a new risk-based capital (RBC) regime. These measures, which include a requirement to bring loss reserve estimates up to the 75th percentile of adequacy, will continue ratcheting up pressure on smaller non-life insurers. The Philippine Insurance & Reinsurance Association (PIRA) reported in October 2017 that a gap of PHP 8 billion (about 9% of the industry’s net worth at year-end 2017) remained to bring reserves up to the prescribed standard.

As Figure 2 opposite illustrates, the impact of these changes has been highly predictable, with a sharp but lagging decrease in the number of active insurers that fall below the minimum capital requirements. About thirty-one companies currently fall below the minimum requirement of PHP 900mn that comes into effect in 2019 and an additional thirteen companies are now below the minimum that comes into effect in 2022.

Following an increase in the minimum capital requirement from PHP 250million to PHP 550million at the end of 2016, a total of twenty-one insurers failed to meet this standard (seventeen below PHP 550million and four more still below PHP 250million). This number represented 32% of all non-life insurers. The higher requirement also led to a sharp decrease in the number of active insurers in the market, with six smaller companies ceasing to write new business in 2017, either surrendering their licenses voluntarily or being placed into conservatorship or liquidation by the regulator.

Figure 1: GDP and GDP growth in APAC Economies, 2012 & 2017

Philippines Market Insight

Philippines Market Insight

Source: IMF World Economic Outlook Database, JLT Re

Figure 2: Estimated number of active P&C insurers by Net Worth over time


Diverging fortunes in a two-tier industry

The active insurers in the non-life segment are divided into two increasingly distinct tiers:

  • The 10 or so best capitalized insurers remain largely stable and are least affected by the regulatory changes. The increased barriers to entry should be a further advantage for these established companies and they remain best placed to take advantage of any market disruption over the next few years to consolidate their position at the top.
  • The rest of the sector faces varying degrees of challenge to remain in business. While most insurers in this tier have made efforts to boost their capital positions recently (particularly those who were previously under the current minimum capital requirement of PHP 550million), many will face yet another challenge to meet the PHP 900million minimum that will come into force at the end of 2019. For those who manage to satisfy this requirement, many will struggle yet again to meet the PHP 1.3billion minimum in 2022. The pressure to consolidate or attract investors will remain high in this segment for the next few years.


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For further information please contact William Pang, Managing Director, JLT Re Philippines on +63 2 885 8500 or email

This publication is for the benefit of clients and prospective clients of JLT Re. It is not legal advice and is intended only to highlight general issues relating to its subject matter but does not necessarily deal with every aspect of the topic. If you intend to take any action or make any decision on the basis of the content of this bulletin, you should first seek specific professional advice.