The government of the Philippines will go back to the global reinsurance market to invite fresh bids to provide the capacity to underpin its roughly US $19.6 billion insurance of state-owned assets and infrastructure, with the application process now simplified somewhat.
Last December we reported the Philippines government had entered into a 1 trillion pesos insurance cover with its own Government Service Insurance System (GSIS), to protect against catastrophe related exposures and some other property risks covering a range of government owned and funded assets and infrastructure.
The GSIS put the reinsurance coverage of the program out to tender, seeking bids from reinsurers for a one-year source of indemnity to cover the subject assets and infrastructure, in what could have been a landmark deal in terms of size and coverage provided to the country.
But the bidding failed and the plan was shelved. Now the government is heading back to the market to secure this reinsurance protection as another layer within its disaster risk management plans, with a simplified bidding application process to make it easier for respondents.
The initial bidding process had not received the response that the Philippines government had hoped for, which reinsurance markets suggest was because it was seen as overly onerous and giving away more information than they wanted to.
Seemingly in response to this, the government procurement department has issued a resolution, approving newly proposed bidding documents that take away some of the challenging aspects that had held reinsurers back from making bids the first time around.
The program, dubbed the National Indemnity Insurance Program, aims to provide the government with insurance protection covering a range of state assets, such as schools, roads and bridges, across parts of its eastern seaboard, with the program underpinned by global reinsurance market support.
Roads and bridges would be covered across 25 named provinces of the Philippines, while schools would have been covered in 32 provinces, cities or municipalities.
The program would provide indemnity insurance protection against damages from fire, lightning and natural catastrophe events including typhoons, floods, earthquakes, volcanic eruptions and storm surges, while the claims paying ability would be funded by the reinsurance market.
The more simplified bidding process now adopted means reinsurance markets responding will not need to provide as detailed documentation on previous sovereign related work they have done with governments around the world, with just a statement of sovereign or government clients worked with in the last ten years now required.
In addition, the provision of financial information to support any bid is now simplified to use international standards and some of the technical documentation that had to be submitted has now been removed from the process.
A new timetable has not yet been set for the bidding from reinsurance markets to start again, but it’s expected this will occur after the mid-year renewals, according to our sources, to allow for a greater focus from reinsurers, who are generally very busy through this time.
It’s not clear whether bids from capital market players would be welcomed. The documentation associated with the program has never made that clear, at least not the bid documents we’ve seen.
But it seems likely collateralised reinsurance would be accepted as part of the program, given the security full collateralisation can offer is perhaps greater than rated balance-sheet capacity anyway.
Added to the Philippines other disaster insurance and reinsurance arrangements, including its first catastrophe bond arrangement, a $225 million transaction that provides the government with a source of tropical cyclone and earthquake insurance protection issued towards the end of last year, this new indemnity program will add greater resilience to the government in case of disaster once it is completed.
These initiatives have been slowed due to the impacts from the Covid-19 coronavirus pandemic, but as countries emerge from strict lockdowns it’s expected the focus on resilience will return and perhaps be redoubled, given the clear need for greater disaster related insurance and risk financing.