Best’s Commentary: Philippines Insurers’ Adoption of ORSA Standards a Credit Positive

SINGAPORE--(BUSINESS WIRE)--
AM Best views the Philippines’ adoption of Own Risk and Solvency Assessment (ORSA) standards as a positive development that will elevate the country’s regulations to a higher standard, one more in line with more-advanced regimes.

The announcement from the Department of Finance Insurance Commission for the Republic of the Philippines directs all life, non-life and reinsurance companies to implement the ORSA framework, which builds on the risk-based capital framework introduced in 2020, at the close of fiscal year 2023. ORSA requires that insurance companies identify all material risks and risk correlations, quantify these risks and estimate capital requirements through risk modelling and stress testing.

In a new Best’s Commentary, “Philippines Insurers Adoption of ORSA Standards a Credit Positive,” AM Best states by adopting ORSA, the Philippines insurance industry will be more aligned with markets such as the European Union, United Kingdom, Australia, Singapore, Hong Kong, United States, Bermuda and Japan.

“Formal establishment of an enterprise risk management (ERM) framework will aid in solvency by identifying, measuring, and managing risk in an ongoing and integrated manner,” said Jason Hopper, associate director, industry research and analytics, AM Best. “Insurance company managements will need to articulate to regulators how risk appetite, limits and capital requirements are consistent with their models and stress testing results. Insurers will also be required to implement procedures to monitor risk levels and adhere to limits.”

According to the commentary, just a minority of non-life companies—13 of 57 based on 2021 premiums—will meet the premium threshold for required implementation. What remains to be seen is how many companies that do not meet the threshold opt to implement ORSA.

AM Best views the management of an organization’s exposure to potential earnings and capital volatility, and the maximization of value to the organization’s stakeholders, as the fundamental objectives of an organization’s ERM program. Additionally, given the region’s exposure to natural catastrophes, stress testing will make the industry more resilient due to enhanced capital requirements and reinsurance partnerships.

To access this commentary, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=329071.

AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2023 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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Jason Hopper
Associate Director, Industry Research and Analytics

+1 908 439 2200, ext. 5016

jason.hopper@ambest.com

Michael Dunckley
Director, Analytics

+65 6303 5020

michael.dunckley@ambest.com

Christopher Sharkey
Manager, Public Relations

+1 908 439 2200, ext. 5159

christopher.sharkey@ambest.com

Al Slavin
Senior Public Relations Specialist

+1 908 439 2200, ext. 5098

al.slavin@ambest.com

Source: AM Best