24 February 2014 Insurance

Fitch backs Philippines earthquake fund

A proposed earthquake insurance fund for the Philippines, which would be developed by the Insurance Commission (IC) and the Asian Development Bank (ADB) has won the backing of Fitch.

The rating agency said such a scheme would not only free the Philippine government from financial burden but would also reduce the risk to the country’s struggling non-life insurance industry.

“Fitch takes a positive view of this risk-pooling initiative, as it improves the adequacy of pricing natural perils and reduces government’s recovery burden,” it said in a statement.

The proposed fund would be managed by the Earthquake Protection Insurance Company (EPIC).

The burden of having to take on the responsibility of billions of pesos in claims would likewise to passed on to EPIC, thus allowing the national government to spend more on social services and infrastructure, Fitch noted.

The region has been hit by a number of severe catastrophes in recent years including the flooding caused by Habagat in August 2012, Typhoon Pablo in December 2012, the Bohol earthquake and Super Typhoon Yolanda in late 2013.

Fitch said that the rising catastrophe trend and limited underwriting capacity means most non-life insurers’ retention ratios average about 50-percent, with the remainder ceded to reinsurers.

“The demand for reinsurance is high, but increasingly costly due to previous high losses. Insurers are also required to offer 10-percent of the risk to the Philippines’ sole reinsurer, the National Reinsurance Corporation of the Philippines,” Fitch said.

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