Philippine Catastrophe Insurance Facility (PCIF) means less risk ceded to reinsurers (to begin)

Philippine Catastrophe Insurance Facility (PCIF) means less risk ceded to reinsurers (to begin)

The Philippines will have a brand-new private sector disaster insurance coverage threat pooling facility in operation this quarter, with the preliminary launch of the Philippine Catastrophe Insurance Facility (PCIF) expected in Q1 2021. The Philippines Insurance Commission said that the new Philippine Catastrophe Insurance Facility (PCIF) will be the very first private sector focused disaster risk financing initiative of scale, permitting all insurance providers to pool their catastrophe dangers and therefore benefit from performances.
Commissioner Dennis Funa described that the PCIF has actually been established by the Insurance Commission, working together with the National Reinsurance Corp. of the Philippines (Nat Re) and the Philippine Insurers and Reinsurers Association (PIRA).
Through the facility, non-life insurance providers will be able to cede a portion of their catastrophe risks, with the outcomes being a more varied and bigger pool, which will permit the facility to benefit from economies of scale.
Rather than looking for worldwide reinsurance for this pool of catastrophe risk, the concept is to allow the PCIF to share the pooled dangers back to the non-life insurers.
The concept is to help the insurance companies more efficiently handle their disaster direct exposures, probably by providing a slice of the more diversified swimming pool rather of their own more focused danger portfolio, which the Commission thinks will increase their capacity to take in more disaster risks.
“We acknowledge the considerable role that the non-life insurance coverage industry should play in guaranteeing the Philippines catastrophe strength and in bridging the catastrophe insurance coverage gap that we require to urgently deal with as our nation is amongst the most vulnerable to the attack of natural disasters,” Funa stated.
“The PCIF also intends to create a more risk-appropriate ranking environment that would ensure sustainable disaster premium rates and supply the public wider access to catastrophe insurance defense,” Funa even more described.
The strategy is developed to see more risk stay onshore in the Philippines, in addition to the risk premium, instead of being transferred globally to global reinsurance business.
This breaks a great deal of the theories around management of catastrophe risk, with most in the industry thinking that keeping all the threat within a nation can really be negative when major disaster strike.
However the method of pooling and mixing the dangers, then sharing a pro-rate piece of that pool back does have some benefit.
When the swimming pool ends up being so big that catastrophe threat concentrations build-up and insurance companies would normally benefit from reinsurance security, the concern is what occurs.
But at this moment, maybe the Philippine Catastrophe Insurance Facility (PCIF) might look to the capital markets for reinsurance, such as in catastrophe bond type, perhaps taking advantage of the appetite of the capital markets and economies of scale to cede a layer of threat from the PCIF more financially.
Its an intriguing model being taken by the Philippines, quite distinct from other regions where catastrophe danger pools aggregate the direct exposure to then deliver it to reinsurance capital more cost effectively.
“The goal of the PCIF is to pool resources available in the country to keep the majority of the funds here and make it possible for non-life insurance providers to grow the premium base, which would then permit them to broaden the range of disaster insurance products offered to Filipinos,” the Commission said.
Which does suggest that, in time, as the premium base grows, there will come a point where collective reinsurance will be the only option, to avoid the PCIF from developing excessive exposure.
Possibly the idea here is to aggregate danger, mix, benefit from diversity and share, then reinsure some in the future as the threat pool establishes and gains higher scale.

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