35th Anniversary - 1978-2013
35th Year Anniversary





Year in, year out, we have shared with you both successes and challenges Nat Re celebrated and faced in the past year.

For a while it might have felt like your Company was running on autopilot, with our performance moving at the same steady but slow pace for the past several years.

However, we say with all confidence that things are different this time around. We are convinced that 2016 will be written in Nat Re’s history books as that milestone year where your Company made a turnaround in the course of its growth.

We started 2016 expecting yet another sluggish year for global reinsurance. Experts held their negative outlook on the industry for the longer term, citing declining interest rates, excess capital, weakening demand from primary insurers, and slow global economic growth as some of the key contributors to this prolonged period of dampened growth for reinsurers.

However, the Philippine macroeconomic climate for 2016 was more accommodating for the local (re)insurance industry, with growth prospects for our country still positive. By the end of the year our country’s GDP growth met these expectations and expanded at 6.9%, driven by the booming industry, services, manufacturing, and real estate sectors. Once again the Philippines outpaced the growths of China and the other ASEAN-5 member nations.

Given this more encouraging outlook on the domestic economy, we managed to stay optimistic -- but not complacent -- and strived to fulfill the promises we made at the start of the year. We are proud to say that we made good on our word and are glad to share with you how we achieved these successes.

You may remember that in 2015 we committed to strengthen our core competencies in reinsurance underwriting and catastrophe management. In 2016 we focused on building up our staff’s capability through investing in foreign training on general treaty and marine underwriting, and maximizing our engagement of experienced reinsurance experts as referral underwriters. We have turned to data in transforming our business and formed a pool of analytics experts, including our very own catastrophe management team, to support our underwriting capabilities. With a more capable workforce we have learned to manage our own portfolio more prudently, and calculate our financial and capital needs more accurately.

Recall that we also aimed to diversify our portfolio to restrain its volatility amid an uncertain macroeconomic environment. This year we cut the share of your Company’s domestic premiums to total net premiums written from 85% to a more sensible level of 58%. We have also decreased our maximum policy limits to a more judicious P200 million on any one risk for facultative and treaty arrangements for domestic lines, and P50-100 million for foreign lines.

Lastly, we wanted to make sure we were well-equipped to meet reserving and capital requirements of the new Risk-Based Capital Framework regime (RBC2) rolled out by the Insurance Commission. Under the new regime all (re)insurance companies should, at all times, hold capital that meets the minimum 100% Risk-Based Capital Ratio, computed by dividing a company’s Total Available Capital by the Required Risk-Based Capital. Through a more effective Enterprise Risk Management process implemented in 2016, your Company has attained a comfortable Risk-Based Capital Ratio of 268% based on a 99.5% level of sufficiency, well-beyond the required minimum set by the regulators. We updated our risk tolerance limits to reflect not only this new capital requirement under RBC2 but also AM Best's minimum Capital Adequacy Ratio level, implying Nat Re’s balance sheet strength is comparable with that of an A++-rated company. Overall, we have improved your Company's risk landscape as a result of an organization-wide approach to identifying, assessing, communicating, and managing enterprise risks.

These are only glimpses of what we have accomplished for the year. Through these initiatives and our business lines’ own winning strategies your Company generated a net income of P78.1 million in 2016.

Other performance metrics of your Company are a testament to our good work for the year. Your Company’s combined ratio, which is the sum of incurred losses and expenses divided by earned premium, improved from 128% in 2015 to 99% in 2016, comparable with combined ratios of A-minus-rated reinsurers such as Malaysian Re and Labuan Re. Gross written premiums have increased 55%, of which premiums from the Property & Casualty line shot up by 60% and those from Life & Health increased by 38%. Likewise, net earned premiums grew 43%, of which premiums from the Property & Casualty segment rose 53%. Meanwhile, premiums raked in by Life & Health grew by 28%, a vast improvement from the 1% average growth rate over the past five years. We also posted a hefty P284.9 million in investment income amid an unfavorable interest rate environment.

Our Life & Health and Property & Casualty lines of business have also made their own big wins in 2016, and have already created strategies for 2017 to harness more opportunities for meaningful growth.

Our Life & Health line took on a couple of firsts in this milestone year -- we had our first lead reinsurer role in ten years, for two insurance companies no less, and signed our first treaty agreement with a health maintenance organization. We have also been more active in group facultative cases of three life insurance companies. We participated as a follower reinsurance in a modified co-insurance scheme with an annual premium of about P10M, with your Company raking in its 10% share of this premium.

An expanding labor force, a burgeoning middle-class, and a young population will be golden opportunities for the growth of the Philippine life and health insurance sector and, in turn, our Life & Health reinsurance business. We have already started discussions with a foreign insurance firm and a Philippine government agency in developing new insurance products to keep up with the changing needs of the insuring public. We have also collaborated with a pension consulting firm in establishing an alternative price basis for Group Employee Benefits. Moving forward the Life & Health division will concentrate on both strengthening existing partnerships and establishing new ones with entities within and outside the insurance industry.

We will also continue talks with relevant stakeholders on allowing your Company to do business with health maintenance organizations, a yet untapped group of clients.

The Property & Casualty line, on the other hand, focused its efforts in 2016 on diversifying its book. The share of net premiums written from domestic sources was kept at a manageable 49% of total net premiums written. The share from foreign sources stood at 51%, all with short-tail exposures to lower our risk. The portfolio is more balanced as well with fire insurance only taking 40% of the total property and casualty book, down from almost two-thirds just two years ago.

The Property & Casualty division also made great strides in expanding your Company’s overseas presence. We invested in a Lloyd’s syndicate to further promote stability in our non-life insurance book, and allow us to gain new expertise and exposure to global underwriting capabilities. We have closed contracts as well for a treaty agreement on net retention of an A-rated regional reinsurer and for direct retrocession of selected Asian domestic reinsurers. These and the priority activities for 2017 all dovetail with the division’s overarching strategy of increasing your Company’s participation in the Lloyd’s market, continuing retrocession swaps with other national reinsurers, seeking more private deals, and buying well-reserved portfolios.

We see Philippine policy and regulatory developments in 2017 to also augur well for our Property & Casualty business. As the government ramps up its spending on infrastructure we should see greater demand for property and engineering reinsurance. As regulation shifts to the new RBC2 regime we expect our domestic cedants to pursue more aggressive growth targets in the coming years, which should also mean good business for reinsurers. We also anticipate these cedants to specifically seek reinsurance in the motor segment, the fastest and easiest line of business to grow, to swiftly address new capital requirements under RBC2. We will ensure that your Company will not lose out on these opportunities.

Increasing the value of your Company is our top priority to you, our stockholders. However, we have not overlooked Nat Re's profound role in supporting the development of the local insurance industry and commitment to practicing good corporate governance.

In 2016 we continued to promote sustainable development through Nat Re's commitments to the Principles of Sustainable Insurance under the UN Environment Programme (UNEP) Finance Initiative. We provided our clients technical advisory in managing their risk exposures and improving their risk transfer mechanisms by using catastrophe models and reserving tools. We had enriching discussions as well with local and international partners on how your Company and the insurance industry can take on a more active role in providing disaster risk financing for Filipinos. Next year we will continue these discussions, prioritize talks with the Philippine government, and endeavor to come up with more concrete plans for disaster risk insurance.

These notable achievements in 2016 show that we have overcome that hurdle of bringing your Company out of the recovery stage. The next challenge we face is establishing the momentum for greater and sustained progress.

Over the next two years we will maintain -- at best, improve -- our already first-rate performance metrics and robust balance sheet strength. We will aim to raise both our top- and bottom-line figures by accessing new domestic profit pools, continuing operational enhancements, and investing in our people.

By improving our core business operations, reaffirming our loyalty to our clients, and deepening our knowledge of the local and regional markets, we hope to cement our status as the reinsurer of choice for Philippine insurers and a preferred retrocession provider to Asia-based reinsurers. We will also work towards transforming your Company into a knowledge hub that encourages sharing of effective tools and best practices with our clients and other national reinsurers. We will align these more coherent company aspirations with a more clear mission and vision, and communicate this to the public through a revamping of our brand.

We have come up with this game plan for the next few years with the goal of getting the global recognition your Company so rightfully deserves. We will aim to obtain credentials that will make Nat Re more competitive in the global market, particularly an A-rating from AM Best, a certificate from the Philippine Quality Awards, and a level 3 status on the RIMS Risk Maturity Model for Enterprise Risk Management.

As always we thank you, our stockholders, for putting your trust in your national reinsurer and in the firm commitment of its directors, able leadership of its management, and sheer determination of its employees. We have set our sights on more ambitious targets in the medium-term; you may rest assured we will do our best to turn these into reality.

Here’s to another momentous year ahead!

Chairperson of the Board

President and CEO

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