1.

The rise of Gen AI

One of the, if not the, biggest technological advancements made in 2023 was generative
Artificial Intelligence. The advancements made in tech since the pandemic have boomed and
ultimately changed the financial sector. This is something we’re likely to see more of this year.
Specifically, the influence on fintech and the application of generative AI on chatbots is expected to
grow this year through banking technology, such as apps and other online money services, which
could produce new revenue streams.

What generative AI has done is open a new world of innovations that can help personalize
financial planning and investment management. One example of this is in insurance. Since AI has
an ability to find trends in data, AI helps insurers create personalized products which could lead to
more accurate risk assessments and ease insurance costs for individuals.

2. Capturing Digital Dividend

After 25 years, most banks have mastered the digital customer experience, with a strong
focus on service. This has made digital banking functionally correct and emotionally devoid. 99%
of banking touchpoints today are remote; no one is talking to a banker anymore.

Chatbots and virtual assistants powered by AI have become prevalent in the banking sector
to provide quick and efficient customer support, answer queries, and assist with basic
transactions.

Like for example, i don't know if your familiar with MIA of Metrobank. MIA stands for
Metrobank Interactive Assistance. Instead of calling the customer service hotline, Metrobank credit
cardholders can go to Facebook Messenger for assistance from Mia (Metrobank Interactive
Assistant).[1] With Mia, you can learn more about your credit card application, balance, recent
transactions, and rewards redemption.

Banks can use their vast stores of consumer data along with gen AI to move beyond basic
demographic segmentation and treat each customer as an individual. The ultimate objective is to
offer the same authentic, personal experience through digital channels that banks have always
provided in branches.

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The purpose of non-bank audited financial statements is similar to that of audited financial
statements for banks or any other type of organization. Audited financial statements provide an
independent and objective assessment of an entity's financial position, performance, and cash
flows. While the specific regulatory and reporting requirements may vary for different types of
entities, the fundamental purposes of audited financial statements remain consistent in providing
reliability, transparency, and credibility to financial information.

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Have you ever heard about these words like Reinsurance assets? Insurance receivables?
Insurance Contract liabilities? These might sound family to some of you or some would be
wondering where are these words coming from. So, let me explain those words that are
exclusively for the specialized industry.
As I observe in the Financial Position of The Manufacturers Life Insurance C0. There are some
unfamiliar words that I observe. One of these are Insurance Receivables, Reinsurance Assets,
and Insurance Contract liabilities.

Now, what are these words?

Let’s tackle about the Reinsurance Assets:

Did you know that the most expensive insurance claim of all time were collectively 15.4 trillion
made during the financial collapse in 2008. This amount is more than the GDP of the entirety of
the US. And well you might be wondering how herculean a tasked it must have been for the
insurance company to pay out this amount?

Ever wondered if insurance firms have any sort of insurance for times like these?

Well, this is where the concept of REINSURSANCE comes in the picture.

Reinsurance- is also known as insurance for insurers or stop loss insurance

It is the practice whereby insurers transfer portion of their risk portfolios to other parties by some
form of agreement. It reduces the likelihood of paying a large obligation resulting from an
insurance claim. These term was the most important term in an insurance business.

What is reinsurance?

Suppose you buy an insurance policy from an insurance company. Then you will have to pay
premiums for this policy, in return the insurance company will safeguard you in case of any risk . in
this way, the insurance company will have a lot of liability or a lot of possible claim of amounts.
During the COVID-19 or other natural disaster, the insurance company had a difficulty in paying
these huge amoung of liabilities. This is where reinsurance companies come to rescue.

Reinsurance- are the insurane of the insurance company. Here, the insurance company transfer
portion of its risk profiles to other parties, which are the reinsurers, by some form of agreement to
reduce the likelihood of paying a large obligation resulting form high insurance claims. Here, the
insurance company that seeks the risk cover is known as a "cedent". And the reinsurance
company is known as the "ceded" or "reinsurer".

Here, THE MANUFACTURERS LIFE INSURANCE CO. (PHILS.), INC.is the cedent whose asking
help to cover some or portion of its risk profiles to MUNICK RE wherein they both have an
agreement named QUOTA SHARE REINSURANCE AGREEMENT in 2016 whereby the Company
will cede to the reinsurer proportionate share of premiums reinsured as stipulated in the
agreement. Even though the Parent Company may have reinsurance arrangements, it is not
relieved of its direct obligations to its policyholders and thus a credit exposure exists with respect
to reinsurance ceded, to the extent that any reinsurer is unable to meet its obligations assumed
under such reinsurance agreements.

The Parent Company is neither dependent on a single reinsurer nor are the operations of the
Parent Company substantially dependent upon any reinsurance contract.

As of December 31, 2022 and 2021, the balance of reinsurance assets amounted to P=65.75
million and P=125.83 million, respectively. The decrease in the reinsurance asset might be from
the losses incurred by the company. If the insurance company experiences higher-than-expected
claims or losses in a given period, the reinsurance coverage may be triggered, leading to a
reduction in the reinsurance asset.
By spreading the risk, an insurance company can take on clients whose coverage would be too
great of a burden for a single insurance company to handle alone. In this way, bothe the insurance
and the reinsurer earn more business as well as revenues.

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The insurance contract liabilities of an insurance company represent the estimated future
obligations to policyholders, including potential claims, benefits, and other expenses.

 Claims Settlements: If the insurance company settles claims with policyholders during the period, it
will reduce the outstanding liabilities associated with those claims. The payment of claims is a
significant factor in the decrease of insurance contract liabilities.
 Policy Expirations and Lapses: As insurance policies expire or policyholders choose not to renew
their coverage (lapse), the associated liabilities decrease. This is common in certain types of
insurance, such as property and casualty insurance.
 Reinsurance Recoveries: If the insurance company has entered into reinsurance agreements, it
may receive recoveries from reinsurers to cover a portion of the claims. Reinsurance recoveries can
decrease the net amount of insurance liabilities.

Life Insurance Contracts

For life insurance contracts with fixed and guaranteed terms, estimates are made in two stages. At the
inception of the contracts, the Parent Company determines assumptions in relation to future deaths,
voluntary terminations, investment returns and administration expenses. These assumptions are used for
calculating the liabilities during the life of the contract. A margin for risk and uncertainty is added to these
assumptions.

Material judgment is required in determining the liabilities and in the choice of assumptions relating to
insurance and investment contracts. Assumptions used are based on past experience, current internal data
and conditions and external market indices and benchmarking, which reflect current observable market
prices and other published information. Such assumptions are determined as appropriate and prudent
estimates at the date of valuation, and no credit is taken for possible beneficial effects of voluntary
withdrawals. Assumptions are further evaluated on a continuous basis in order to ensure realistic and
reasonable valuations. Assumptions are also subject to the provisions of the Code and guidelines set by
the Insurance Commission.

Terms

Life insurance contracts offered by the Parent Company mainly include whole life, term insurance,
endowments and unit-linked products.

Whole life and term insurance are conventional products where lump sum benefits are payable on death,
provided death occurs within the terms of the policy.

Endowment products are products where lump sum benefits are payable after a fixed period or upon death
if it occurs before the period is completed.

Unit-linked products differ from conventional policies in that premium, net of applicable charges, are
allocated to units in a pooled investment fund and the policyholder benefits directly from the total
investment growth and income of the fund.

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3. Insurance companies are considered risk-takers, and various financial ratios are used to assess and
manage the risks associated with their operations. Several key financial ratios help evaluate an insurance
company's risk exposure, financial stability, and ability to meet its obligations. Here are some common
ratios used in the insurance industry:

1. Expense Ratio:

 Definition: The expense ratio is the ratio of underwriting expenses to earned premiums. It
measures the efficiency of an insurer's operations.

 Implication: A lower expense ratio suggests cost-effective operations.

2. Return on Equity (ROE):

 Definition: ROE measures the profitability of an insurance company by comparing net

income to shareholders' equity.

 Implication: A higher ROE indicates better profitability and efficient use of equity capital.

3. Liquidity Ratios:

 Current Ratio: This ratio compares current assets to current liabilities, indicating the
insurer's short-term liquidity.

 Quick Ratio: Similar to the current ratio but excludes inventory from current assets.

4. Leverage Ratios:

 Debt-to-Equity Ratio: Measures the proportion of debt used to finance the insurer's
operations compared to shareholders' equity.

 Interest Coverage Ratio: Assesses the ability of the insurer to cover its interest payments.

These ratios are crucial tools for investors, regulators, and insurance company management to assess risk,
financial performance, and overall stability. It's important to note that the interpretation of these ratios may
vary based on the type of insurance (e.g., life, property and casualty) and the regulatory environment in
which the insurer operates. Insurers actively manage their risk profiles to maintain financial soundness and
fulfill their obligations to policyholders.