National Re Receives Investment Grade Rating

The National Reinsurance Corporation of the Philippines (PSE: NRCP), the Philippines’ sole domestic professional reinsurer, was assigned a financial strength rating of PRS A by the Philippine Rating Services Corp. (PhilRatings).

A PRS A rating means that an insurer has strong financial security characteristics, but is somewhat more likely to be affected by adverse business conditions compared to higher-rated insurance companies.

The assigned financial strength rating takes into consideration NRCP’s: a) solid market franchise; b) shareholders of good standing; c) experienced management; d) sound investment portfolio; and e) the expectations of continued industry growth. PhilRatings also took into account the company’s volatile profitability.

As the only domestic professional reinsurance firm in the country, NRCP has a solid market franchise. As granted by the law, NRCP is entitled to take up a maximum 10% share of all the reinsurance business ceded abroad. This gives NRCP unparalleled access to domestic reinsurers’ business, and also a broader view of their reinsurance requirements. The company’s marketing strategy is supported by its technical know-how, industry track record and familiarity with the domestic market.

As of end-June 2018, the Government Service Insurance System (GSIS) continued to be NRCP’s largest shareholder, with 25.7% ownership stake in the company. GSIS is the sole government-owned and controlled corporation mandated to provide and administer social security benefits for government employees. The company’s other major shareholders are The Bank of the Philippine Islands (BPI) and MICO Equities, Inc. (MEI), with ownership interests of 13.7% and 12.9%, respectively. BPI, the banking arm of Philippine conglomerate Ayala Corporation is one of the country’s largest and leading universal banks. MEI, on the other hand, operates as a holding company for the Yuchengco Group’s non-life insurance business, Malayan Insurance Company Inc., which is the largest domestic non-life insurance company in terms of Gross Premium Written (GPW, PhP9.6 billion) as of end-2017.

NRCP is led by a management team with extensive experience and understanding of the insurance and financial markets, both domestic and global. While relatively new to the company, members of the management team bring with them solid experience in the insurance industry. Since the last rating review, there were a number of changes in the composition of the company’s Board of Directors and Executive Officers. In January 2018, Cezar P. Consing assumed the Chairmanship of NRCP’s Board. Also recently appointed as Directors were Antonio Rubin, Wilfredo Maldia and Maria Consuelo Lukban, replacing Ms. Helen Y. Dee, Atty. Nora Saludares and Luis Urcia. The new directors bring to NCRP 25 to 40 years of experience in underwriting, banking and finance.

Heading the management team since August 2018 is Allan R. Santos. Before his appointment, Santos served as Executive Vice President and Chief Operating Officer (COO) of the company. Prior to joining NRCP in April 2016, he was the COO for Affiliate Companies and Head of Vitality of the Philippine American Life and General Insurance Company (Philam Life).

Joining Santos as new key officers are Christian Ladoux (Chief Underwriting Officer) and Tisha Darvin (Head of Data and Analytics). Ladoux has 35 years of international experience in reinsurance underwriting. Darvin, on the other hand, is an actuary by profession with over 25 years of experience in the industry.

As of June 30, 2018, low-risk bonds made up 53% of the total portfolio. Bond investments of the company include government securities and debt issues of Philippine private corporations. Equity securities, on the other hand, represented 25.9% of the total portfolio. Equity securities consist mainly of shares of stocks (common and preferred) in companies listed in the Philippine Stock Exchange (PSE); in particular, blue chip companies belonging to various industries. Cash and cash equivalents, which include cash in banks and short-term placements, comprised 18.9% of the company’s total investment portfolio, as of June 30, 2018. In 2017, the insurance industry set new record highs in terms of assets (PhP1.56 trillion), investments (PhP1.33 trillion), net worth (PhP320.30 billion), net income (PhP36.39 billion) and premium (PhP259.82 billion). Other indicators consistently point toward positive growth, as well. As of December 31, 2017, the insurance density (or premiums over population) grew by almost 10% at P2,477 per person; insurance penetration (premiums over the country’s Gross Domestic Product or GDP) also grew from 1.61% to 1.64%; and the life insurance coverage (provided by private insurers) rose from 46.22% to 52.07%, out of an estimated population of 104.9 million Filipinos.

While NRCP holds a lot of unique opportunities as the sole domestic professional reinsurance firm, PhilRatings notes that its profitability continues to be volatile. Operating results were weak for the historical period 2011 to 2015, although underwriting profit margin and returns have improved beginning 2014. In the last three years, however, net profit had a declining trend. While investment yields have been consistently positive, inconstant growth across business lines and higher than expected loss and expense ratios negatively impacted operating performance results.

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