S&P’s Affirms ‘Bbpi’ Ratings on Pair of Philippine Insurers

August 2, 2002

Standard & Poor’s Ratings Services affirmed its double-“B”-pi public information ratings on two Philippine insurers, Malayan Insurance Co. Inc. and Pioneer Insurance and Surety Corp.

At the same time, it expressed concerns about the companies’ high level of equity investments and the sustainability of their profitability, in view of the weak investment markets and difficult operating environment.

The affirmations are based on their strong market positions in the Philippines general insurance industry, as well as their strong solvency and satisfactory reserving levels. These factors are counterbalanced by the weak performance trend of the companies’ underwriting profitability, a high reliance on reinsurance support, and relatively high exposure to the volatile equity markets.

Malayan Insurance is the largest general insurer in Philippines by assets, at Philippine peso (PHP) 6.3 billion (U.S. $127.7 million) in 2000, while Pioneer Insurance is the third-largest general insurer in the market, with assets of PHP3 billion. Capitalization, as measured by solvency (the ratio of risk written to shareholders’ funds) for Malayan Insurance and Pioneer Insurance has remained strong in 2000, at 29.3 percent and 39.9 percent, respectively.

Faced with the intense competition and increased claims experience, both insurers turned in technical underwriting losses in 2000, resulting in combined ratios (expense ratio plus loss ratio) of 118 percent and 113 percent for Malayan Insurance and Pioneer Insurance, respectively.

The companies’ overall profitability has been supported by their investment income. S&P’s noted that the companies’ investment portfolios had proportionately high exposures in equities in its investment portfolios.

Given the sustained drop in equity values, coupled with the continued tough operating environment, the more rapid fall in investment values could impact the companies’ future profitability.

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