Inflation surge hurting insurance sector — AXA

07/24/2008

The economic downturn as a result of high prices has affected the insurance industry with some companies reporting a 30 to 60 percent decline in new sales.

Philippine AXA Life president and chief executive officer Andrew Alcid, however, told reporters the impact of the current situation has only affected the industry’s unrealized component or “paper losses” but not its operating component.

“The operating component is still healthy,” he said.

He explained that profit is not as high as before but it is expected to rebound in the coming days as inflation, which hit a 14-year high of 11.4 percent last June, was seen to subside before the end of the year.

He said the industry remains optimistic, noting that their budget retains its original figure until 2012, although he declined to give details.

The current situation is not the worst in the country but the 1997 financial crisis in the Asian Region was, he said.

“It only looks worst now because of the amount of losses that have been reported,” Alcid stressed.

To counter high inflation, the Bangko Sentral ng Pilipinas (BSP) raised its rates by 50 basis points, the highest in several years, last week to tame the continued surge of rate of price increases.

To date, the BSP’s borrowing rate is at 5.75 percent while lending rate is at 7.75 percent.

The rate hike will certainly impact on the industry’s products that are invested in bonds, which are longer-term instruments, and securities, both of which are now down, Alcid said.

Alcid said bonds are one of the most important investment instruments for the industry.

He, however, said they remain confident that their investment in this instrument will not greatly affect their income since they hold the instrument to maturity.

Income of Philippine AXA Life is expected to be lower this year compared to the past years, Alcid said.

In end-2005, the company posted an P84 million net income followed by the P534 million the following year and P821 million by the end of 2007. PNA

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