In face of the political and economic challenges faced by the Philippines over the last four decades, the insurance sector has shown resilience. Many of the local non-life companies are affiliates of the country's major financial services groups and family-owned conglomerates. They have the financial strength and the risk tolerance to ride out storms - sometimes literally. In contrast, the life segment is dominated by the local subsidiaries of AIA, Manulife, AXA, Sun Life Financial and Prudential plc. That the small minority of Filipinos who actually use life insurance - rightly - trust these multinational giants is a part of the strength of the entire sector.
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The Philippines is at an early stage of a transition from a situation where the non-life segment consists of dozens of tiny, and under-capitalised firms. As is the case in some other Southeast Asian countries (and in the Middle East) it is not obvious that many of these companies have a clear competence in insurance.
The slippage in non-life penetration over recent years is a clear sign of a lack of discipline in pricing risks. Minimum capital requirements are being increased - as a part of the preparation for 2015, when the arrival of the ASEAN Free Trade Agreement (AFTA) could result in much higher competition from other companies that are based elsewhere in the region. In practice, BMI is not certain that other ASEAN-based non-life insurers will see the opportunities inthe Philippines as being more attractive than those at home.
However, BMI would be amazed if there is not a wave of mergers & acquisitions over the coming two years.
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