MANILA, Philippines—Insurers in the Philippines are seeing a windfall of investment in the current high interest rate environment, given their large holdings of government debt securities.
In a June 21 report, the Swiss Re Institute said “the most significant cycle of central bank tightening in decades has begun and we expect much more policy tightening to occur this year and next.” , referring to outsized interest rate hikes globally in an effort to stem soaring inflation, sparked by Russia’s invasion of Ukraine and the post-war economic recovery. crisis caused by the pandemic.
“The silver lining for insurance companies is the higher yielding environment, as insurers are heavy investors in fixed income,” said the think tank of global insurance and reinsurance provider Swiss Re. .
“In 2020, we estimated the non-life profitability gap at around 7-11% of premiums earned due to the low yield environment. Over time, rising interest rates will be reflected in insurers’ current yield and interest income, helping to narrow the industry’s profitability gap,” the Swiss Re Institute said.
Asked for comment, Insurance Commissioner Dennis Funa told the Inquirer that he agreed with Swiss Re’s assessment. “Our local insurance industry can also benefit from the interest rate environment. high interest rates because it can take advantage of this opportunity to build its balance sheet with high-yielding debt securities,” Funa said.
On Tuesday, June 21, new 10-year bonds issued by the Office of the Treasury (BTr) reached a coupon rate of 7.25%, higher than the yield of 6.944% on comparable ten-year-old IOUs on the secondary market. .
“It is also true that the insurance industry in the Philippines is heavily focused on fixed income investments. In fact, according to our latest internal study, 52% of the industry’s portfolio is invested in peso-denominated government debt securities. Add to that peso-denominated and foreign-currency-denominated corporate and government debt, and it will equal 71%,” Funa added.
In a text message, Philippine Life Insurance Association (PLIA) Chief Executive George Mina noted that the Insurance Commission (IC) 2020 Life Sector Balance Sheet Report showed that 992 billion pesos, or 34%, of the sector’s total assets were 2.904 trillion pesos. investment in government securities and bonds as well as private fixed interest securities.
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