A study on the effect of liberalization on the profitability of selected Philippine non-life insurance companies from 1990-1999

• Main Authors: Balatbat, Katherine D.S., Chiong, Ana Lin T., Col-long, Jaymee Lynne Y., Mujar, Beejay B.
• Format: text
• Language: English
• Published: Animo Repository 2001
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/17118
• Institution: De La Salle University

This paper is entitled A Study on the Effect of Liberalization on the Profitability of Selected Philippine Non-life Insurance Companies from 1990-1999 . The total liberalization in the Philippine insurance industry started on October 24, 1994. The study therefore attempted to determine whether or not the liberation had an effect on the problem on the financial performance, particularly, the profitability of selected Philippine non-life insurance companies. The factors used as a basis for comparison were the NAIC ratios namely: (1) Capital and Surplus ratio, (2) Investment Yield ratio, (3) Number of Policies in Force, (4) Net Retention, (5) Net Profit Margin, (6) Return on Asset, and (7) Return on Equity. The main objective of this study is to compare the financial performance of the Philippine Non-life Insurance Industry before and after liberalization. Specifically, the researchers aimed to measure the said effect in terms of the changes in the aforementioned mentioned NAIC ratios. NAIC is the acronym for the National Association of Insurance Commissioners which is an organization in the U.S.A. that coordinates the supervision of interstate insurance companies within a state regulatory framework, and plays an integral role in the Federal insurance industry regulatory framework. This paper had seven hypotheses. The null hypotheses were the following: There is no significant difference between the financial performance of selected Philippine non-life insurance companies before and after liberalization as measured by the change in capital and surplus ratio, investment yield ratio, number of policies in force, net retention, net profit margin, return on asset, and return on equity. The alternative hypotheses were that there is a significant difference among them, respectively. The sample sized used was represented by the top twenty-eight (28) non-life insurance companies, with each having total admitted assets of at least P400 million as of December 31, 1999. Furthermore, these twenty-eight companies must have been existing since 1990. Otherwise, they cannot be part of the sample. The level of significance used in the study was 0.05. In the theoretical framework, the independent variable was liberalization, while the dependent variables were the indicators of the changes in the financial performance of the non-life insurance industry. In the conceptual framework, the independent variable remains unchanged and the dependent variables were the NAIC ratios. A schematic diagram was presented for the operational framework. This shows a downward flow starting from liberalization leading to entry of new foreign firms, followed by the increase in competition, and ended in the change in chosen companies' financial performance. The paper made use of a descriptive research design. The selected 28 companies financial performance were analyzed using both time-series and cross-sectional analyses. After testing the hypotheses, the researchers concluded that liberalization has no significant effect on the profitability of the selected 28 non-life insurance companies. The researchers recommend that a study should be done on the same topic when consolidations of insurance companies materialized. That is, when the companies are mandated to have an authorized paid-up capital and contributed surplus of at least P 1 billion. This will surely force the insurance companies to close ranks and consolidate financial resources and manpower capabilities. In addition, an in-depth study must be undertaken regarding the taxes such as premium taxes, documentary stamps etc. that adversely affect the profitability of non-life insurance companies. The VAT imposed on insurance companies should be also included in the study since this is charged to policyholders and therefore unnecessarily increasing the insurance costs on the part of the policyholders. Lastly, a similar study could be undertaken but using a different statistical tool. Hopefully, this study and the ones to come would contribute to the further growth and development of the insurance industry.