PH insurers’ investments seen benefiting from high-interest regime

MANILA, Philippines—Insurers in the Philippines see an investment windfall from the current high-interest rate environment given their hefty holdings of government debt securities.

In a June 21 report, Swiss Re Institute said that “the most significant central bank tightening cycle in decades has begun and we expect much more policy tightening to come this year and next,” referring to supersized interest rate hikes globally in a bid to stem skyrocketing inflation, wrought by Russia’s invasion of Ukraine and economic recovery from the pandemic-induced slump.

“The silver lining for insurance companies is the higher-yield environment, since insurers are fixed income-heavy investors,” said the think tank of global insurance and reinsurance provider Swiss Re.

“In 2020, we estimated the non-life profitability gap at roughly 7-11 percent of premiums earned due to the low-yield environment. Over time, higher interest rates will be reflected in insurers’ running yield and interest income, helping to soften the industry profitability gap,” Swiss Re Institute said.

Sought to comment, Insurance Commissioner Dennis Funa told the Inquirer he agreed with Swiss Re’s assessment. “Our local insurance industry may also benefit from the high-interest rate environment as they may take advantage of this opportunity to build up their balance sheet with high-yielding debt securities,” Funa said.

On Tuesday (June 21), new 10-year bonds issued by the Bureau of the Treasury (BTr) fetched a coupon rate of 7.25 percent, higher than the 6.944-percent yield of comparable decade-old IOUs in the secondary market.

“It is also true that the insurance industry in the Philippines is heavy on fixed-income investments. In fact, per our latest internal study, 52 percent of the industry’s portfolio is placed in peso-denominated government debt securities. Add peso-denominated corporate and foreign currency-denominated corporate and government debt securities to that, and it will equate to 71 percent,” Funa added.

In a text message, Philippine Life Insurance Association (PLIA) general manager George Mina noted that the Insurance Commission’s (IC) 2020 life sector balance sheet report showed that P992 billion—or 34 percent—of the sector’s P2.904-trillion total assets was investment in government securities and bonds as well as private securities with fixed interests.

TSB

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