Strategic Management Paper of ABC Insurance Corporation PDF

ATENEO DE MANILA UNIVERSITY
Graduate School of Business

Rockwell Center, Makati City
A Strategic Management Paper

on
ABC INSURANCE CORPORATION
Submitted to:
Prof. Edgar Juan Surtida III, MBA

STRAMA R10 (SY 2011-2012)
Submitted by:
Michael Reyes Garcia

MBA Candidate
November 8, 2011
TABLE OF CONTENTS
EXECUTIVE SUMMARY ........................................................................................................... 4
1. INTRODUCTION ................................................................................................................... 6
2. RESEARCH DESIGN AND METHODOLOGY ....................................................................... 7
2.1 Research Design ............................................................................................................................ 7
2.2 Scope and Limitations ................................................................................................................... 9
3. MACRO ENVIRONMENTAL ANALYSIS ............................................................................... 9
3.1 Economic Forces ........................................................................................................................... 9
3.2 Political, Government, and Legal Forces..................................................................................... 13
3.3 Technological Forces ................................................................................................................... 15
3.4 Socio-Cultural Demographic Forces ............................................................................................ 17
3.5 Climate and Environmental Forces ............................................................................................. 18
4. INDUSTRY AND COMPETITOR ANALYSIS ........................................................................19
4.1 Value Chain Analysis and Waterfall Chart................................................................................... 19
4.2 Strategic Positioning Analysis and Recommendation ................................................................. 22
4.3 Porters 5 Forces of Competitive Analysis .................................................................................. 24
4.4 Competitive Profile Matrix (CPM) ............................................................................................... 28
5. MARKET ANALYSIS ............................................................................................................45
5.1 Market and Competitors Trends ................................................................................................ 45
5.2 Market Segments ........................................................................................................................ 47
5.3 External Factor Evaluation (EFE) Matrix ..................................................................................... 60
5.4 Strategic Issues Based on External Factors ................................................................................. 67
6. COMPANY ANALYSIS .........................................................................................................68
6.1 Vision and Mission of the Company ........................................................................................... 68
6.2 Internal Audit .............................................................................................................................. 70
6.3 Mckinseys 7S Framework........................................................................................................... 76
6.4 Key Financial Ratio Analysis ........................................................................................................ 88
6.5 Internal Factor Evaluation (IFE) Matrix ....................................................................................... 94
2
6.6 Strategic Issues Based on Internal Factors.................................................................................. 99
7. STRATEGY FORMULATION .............................................................................................100
7.1 Strengths, Weaknesses, Opportunities, Threats (SWOT) Matrix .............................................. 100
7.2 Strategic Position and Action Evaluation (SPACE) Matrix ......................................................... 113
7.3 Internal-External Matrix ............................................................................................................ 114
7.4 Grand Strategy Matrix............................................................................................................... 114
7.5 Boston Consulting Group (BCG) Matrix .................................................................................... 117
7.6 Summary of Strategies .............................................................................................................. 119
7.7 Quantitative Strategic Planning Matrix (QSPM) ....................................................................... 119
8. STRATEGIC OBJECTIVES AND RECOMMENDED STRATEGIES ..................................121
8.1 Recommended Revised Vision and Mission ............................................................................. 121
8.2 Recommended Strategic Objectives ......................................................................................... 123
8.3 Recommended Business Strategies .......................................................................................... 125
8.4 Recommended Organizational Strategies ................................................................................ 128
8.5 Financial Projections ................................................................................................................. 130
8.6 Recommended Departmental Programs and Actions .............................................................. 135
9. STRATEGY EVALUATION, MONITORING, AND CONTROL............................................147
9.1 Strategy Map ............................................................................................................................. 147
9.2 Balanced Scorecard ................................................................................................................... 149
9.3 Contingency Planning................................................................................................................ 151
X. REFERENCES ...................................................................................................................153
XI. APPENDIX ........................................................................................................................155
3
EXECUTIVE SUMMARY
ABC Insurance Corporation is one of the market leaders in the non-life insurance industry.
The company was established in 1954 and has since then grown to become number 4 in the
industry. It has business lines that include Aviation, Bonds, Engineering, Fire, General
Accident, Marine Cargo, Marine Hull, and Motor Vehicles.
It should be mentioned that there is strong rivalry in the non-life insurance industry and
this in turn exerts downward pressure on premium rates. This has even led to the imposition
of minimum premium rates by the Insurance Commission. The industry resembles an
oligopoly that is dominated by a few large players. The top 4, including AIC, hold a total of
41.35% market share. This has led to stiff competition between players of what is
forecasted to be a rapid growth industry. Amidst this strong rivalry, AIC seems to have a
moderate competitive profile as indicated by its slightly above average CPM score of 2.6.
The companys major strengths lie in the perceived high quality of its products and services
and its strong financial position as measured by the companys high networth. AIC is
currently ranked no. 1 by the Insurance Commission in terms of networth. On the other
hand, the companys weaknesses include its relatively lower gross premium generating
capacity, fewer branches and offices, and slower settlement of claims.
Based on the EFE, AIC has a slightly above average responsiveness to threats and
opportunities as indicated by a total weighted score of 2.70. Significant threats to AIC
include the strong rivalry in the industry and the decreasing share of insurance expenditure
by the general population that can affect premium revenue per insurance buyer. The
company seems to have an above average level of responsiveness to these threats. On the
other hand, the EFE matrix also highlights two opportunities that AIC seems to have
neglected. These opportunities include expanding its distribution network through
bancassurance and grabbing a share of the relatively untapped large market for
microinsurance.
4
Based on the IFE, AIC has a total weighted score of 2.75 that indicates an internal
position strength that is above average. The companys major strengths include the
perceived high quality of its products and services and its strong financial position. The
companys weaknesses include a decreasing premium retention rate, significantly fewer
branches and offices compared to two out of three of its key competitors, and the decreasing
performance of its claims settlement process.
The main strategic issues that AIC faces include its relatively smaller distribution
network, low premium retention rate, and the faltering performance of its claims settlement
process. The companys smaller distribution network limits AICs premium generating
capacity and puts it in danger of being left behind by its key competitors. The low premium
retention rate affects its profitability since it decreases the net premium revenue used to
cover expenses. The decreasing performance of its claims process endangers the
sustainability of its growth since it affects its relationship with existing clients and potential
new insurance buyers.
Based on the analysis of external and internal factors and the results of the strategy
formulation tools, AIC should focus on market penetration strategies to help achieve its
objectives and address its strategic issues. Establishing a bancassurance partnership and
expanding its network of brokers and agents will help the company increase its premium
revenue generating capacity and increase both top line sales and market share. In support
of these strategies, adhering to a higher retention rate will result in higher net earned
premiums and help increase net income.
These strategies will enable the company to keep pace with its key competitors and
increase gross earned premiums by the end of 2014 by as much as Php 1,548,589,961, net
earned premiums by Php 1,143,305,221, and net income by Php 163,900,974. These
strategies will also help the company increase its market share to 9.04%.
5
1. INTRODUCTION
ABC Insurance Corporation (AIC) is a domestic corporation established in May 13, 1954 and
owned by DEF Inc. AIC is the flagship company of the AIC Group and is one of the market
leaders in the non-life insurance industry. It posted gross revenues of more than Php 2.7
billion in 2010 that was supported by equity of Php 6.1 billion and managed assets
amounting to Php 11.1 billion. In fact, the Insurance Commission ranks AIC as no. 1 in the
non-life insurance industry in terms of networth. The companys main line of business
involves providing financial protection and security. It is in the business of non-life insurance
and has lines such as Aviation, Bonds, Engineering, Fire, General Accident, Marine Cargo,
Marine Hull, and Motor Vehicles. XYZ Magazine, a reputable organization and a leading
journal for international financial markets, conducted a client-based ranking of the best
providers of insurance services and products in 2010. Respondents were asked to identify
their top three insurance companies in order of quality. The company received four awards
including Best Insurer in the Philippines and Best Insurer in Asia. It should be mentioned
that AIC was also awarded Best Insurer in the Philippines in 20091. According to the
Insurance Commission, AIC is ranked no. 4 in terms of Gross Premiums and has a market
share of 7.37% as of 2010. In contrast, Malayan Insurance Company Inc., the current
market leader, has a market share of 14.49%2.
AIC has a network of 34 branch and offices spread throughout the Philippines and one
office in Chinas Special Administrative Region of Hong Kong. It is headquartered at AIC
House Makati Building Paseo de Roxas Legaspi Village Makati City. The company is
headed by Mr. X as President and Chief Executive Officer. Other key members of the
management team include Ms. Y as Chief Operating Officer and Senior Vice President for
Shared Services, Ms. Z as Senior Vice President for Accounting & Property Administration,
Mr. A as Senior Vice President for Branches, Ms. B as Senior Vice President for Marine &
1
XYZ Magazine Insurance Survey 2010 (www.XYZMagazine.com)
2
Insurance Commission / Non-life Ranking Based on Gross Premiums 2010 (www.insurance.gov.ph)
6
Aviation, Mr. C as Senior Vice President for Non-marine, Mr. D as Senior Vice President for
Business Development, and Mr. E as Senior Vice President for Treasury. AIC employs 388
regular personnel and taps the services of 584 licensed agents and 59 brokers. The
company leverages on the expertise of licensed agents and brokers to sell its wide array of
products and services to clients.
AIC is also the local partner of various insurers around the world including AIOI
Insurance, Allianz SE, The Chubb Group, FM Global, Fubon Insurance, IF P&C, Liberty
Mutual, Nipponkoa, and Samsung Fire & Marine. AIC also serves as the local
representative of Steamship Mutual and the International Network of Insurance.
Some of the more notable coverages of AIC are the historic Ali-Frazier bout Thrilla in
Manila, Las Pinas Bamboo Organ, Manila Southeast Asian Games in 2005, Philippine
season of Miss Saigon, exhibitions of National Artists Fernando Amorsolo, Bencab, and
Anita Magsaysay Ho, fashion shows of Monique Lhuillier and Josie Natori, and concerts of
Christina Aguilera, Beyonce, Alicia Keys, Rihanna, Pussycat Dolls, and Justin Timberlake.
2. RESEARCH DESIGN AND METHODOLOGY
2.1 Research Design

Macro-environmental data used in the external analysis and other sections of the paper were
obtained through various sources. General news, current events, and trends were sourced
from credible online publications such as Philippine Daily Inquirer, Manila Bulletin, Philippine
Star, Manila Standard, The Manila Times, and ABS-CBN News. Economic data were
sourced from publications and articles released by organizations such as the Asian
Development Bank, International Monetary Fund, National Economic and Development
Authority, Department of Trade and Industry, National Statistics Office, Bangko Sentral ng
Pilipinas, Philippine Overseas Employment Administration, Land Transportation Office,
Pulse Asia, Transportation Science Society of the Philippines, and Swiss RE Economic
Research. Economic data was also obtained directly from the Institute for Development and
Econometric Analysis through coordination with its personnel. Materials used to provide
7
briefings by economic experts such as Dr. Ernesto Pernia and Secretary Cayetano
Paderanga Jr. of the National Economic and Development Authority were also utilized.
Industry data was also obtained through multiple sources. Data from the Insurance
Commission of the Philippines was referenced extensively. This includes published
documents of the Insurance Commission such as the Annual Reports for the years 2004 to
2009, Key Insurance Indicators for the years 2004 to 2010, official circulars, lists of licensed
and accredited entities, and ranking files with varying basis. Data was also obtained from
publications of the Philippine Insurers and Reinsurers Association including its recently
released 2011 PIRA Fact Book. Published documents from the International Association of
Insurance Supervisors were also referenced to help identify certain factors deemed critical to
the successful operation of insurance companies.
To gather pertinent information regarding the key competitors of the company, copies of
the audited financial statements for multiple years of the respective companies were
obtained from the Securities and Exchange Commission. Online web sites of key
competitors were also referenced to gather relevant information and acquire copies of
annual reports of some key competitors.
To gather internal information about the company, the permission and assistance of the
Chief Executive Officer and Chief Operating Officer were obtained. Lists of questions
covering the various topics under finance, operations, and marketing were emailed to
company personnel. Numerous interviews were also conducted to gain further
understanding of certain technical details. In addition, key personnel such as the Vice
President for Business Planning and Technology, First Vice President for Organizational
Development and People Management, Assistant Vice President for Reinsurance, Vice
President for Motor Line, Manager for Information Management, and personnel of the
Process Review and Documentation department were also consulted. Various internal
publications, confidential documents, and other materials inclusive of the audited financial
statements were also referenced extensively to gain more information about the company.
8
The 13th Edition of Strategic Management Concepts and Cases by Fred R. David was
also used as the main reference for matrices, tools, and other strategic management topics.
Mr. Florendo Garcia, a financial consultant, was also consulted for the financial projections.
2.2 Scope and Limitations
This paper will be limited to the Philippine operations of ABC Insurance Corporation. The
paper will mainly focus on AIC and will only cover its subsidiary CBA Assurance Corporation
as much as it is relevant to the recommended strategy. Due to the strong rivalry in the non-
life insurance industry and the confidential nature of the information discussed in the paper,
top management of the company has requested that all hard copies of this paper be
retrieved upon the fulfillment of the authors academic requirements.
3. MACRO ENVIRONMENTAL ANALYSIS
3.1 Economic Forces
3.1.1 GDP Growth
Real GDP is forecasted to grow at a rate of 5.0% in 2011, 4.8% in 2012, and 4.7% in 2013.
Growth in GDP indicates growth in overall production of final goods and services within the
country and this can translate into more goods and services that will require insurance
coverage3.
Based on information published by the Bangko Sentral ng Pilipinas the Gross Domestic
Product at constant 1985 prices grew by 4.2% in 2008, 1.1% in 2009, and 7.6% in 2010 4.
The head of the National Economic and Development Authority, Secretary Cayetano
Paderanga Jr., credits the strong recovery witnessed in 2010 to the performance of the
industrial sector as well as some notable increases in private investment5.
3
Institute for Development and Econometric Analysis (IDEA) / 2011 IDEA Midyear Economic Briefing August 8,
2011
4
Bangko Sentral ng Pilipinas (BSP) / Selected Economic Indicators 2000-2011 (www.bsp.gov.ph)
5
National Economic and Development Authority (NEDA) / 2011 IDEA Midyear Economic Briefing August 8,
2011
9
Relevance: According to the Institute for Development and Econometric Analysis, real
Gross Domestic Product (GDP) is forecasted to grow at a rate of 5.0% in 2011, 4.8% in
2012, and 4.7% in 2013. Since growth in GDP can indicate growth in the production of final
goods and services, this can translate into more goods and services that will require
insurance coverage. This presents an OPPORTUNITY for AIC to increase its premium
revenue by offering insurance coverage for the new goods and services being produced in
the country. For instance, the amount of goods that need to be transported will likely
increase and these goods can be covered by AICs Marine Cargo insurance products.
3.1.2 Micro Enterprises
According to the Department of Trade and Industry, 91.4% or 710,822 of the total 780,437
business enterprises operating in the Philippines are micro enterprises as of 20096.
According to PIRA estimates, the local microinsurance market is potentially worth Php 2
billion with around Php 1.8 billion still untapped7.
Relevance: 91.4% of business enterprises operating in the Philippines are micro
enterprises. This segment of the insurance market has been largely ignored until recently
with the emergence of microinsurance. This presents an OPPORTUNITY for AIC to
increase its premium revenue by offering its existing products to this large segment. AIC
can decrease the coverage of existing products thus lowering the required amount for
premium payments and making these products more affordable to micro enterprises. In
addition, providing financial protection to micro enterprises allows AIC to aid in nation
building since this type of enterprise makes up the majority of businesses and contributes a
significant portion of total jobs generated in the country. The Philippine Insurers and
Reinsurers Association estimates the local microinsurance market to be potentially worth
Php 2 billion. In addition, the non-life microinsurance market is presently only estimated to
6
Department of Trade and Industry (www.dti.gov.ph) / MSME Statistics
7
Philippine Insurers and Reinsurers Association / 2011 PIRA Fact Book
10
be generating around Php 200 million. This means that around Php 1.8 billion remains
untapped. AIC should try to grab its share of this large market.
TABLE 3.1.2-A
Potential Microinsurance Market Size 2,000,000,000

AIC's Market Share 7.37%
Effect on Income 147,460,317
3.1.3 Projected Number of Registered Motor Vehicles
The number of motor vehicles in the country is forecasted to grow to around 7.5 million in
2011, 8.5 million in 2012, and 9.5 million in 20138.
Relevance: According to data published by the Land Transportation Office of the
Department of Transportation and Communications, the number of registered motor vehicles
in the country grew from 5,891,272 in 2008 to 6,634,855 in 20109. In addition, the
Transportation Science Society of the Philippines forecasts the number of motor vehicles to
grow to around 7.5 million in 2011, 8.5 million in 2012, and 9.5 million in 2013. This presents
an OPPORTUNITY for AIC to grab its share of the growing market for motor insurance. This
will help AIC potentially increase its premium revenue from its motor car product line by as
much as Php 59.2 million in 2011, Php 68.4 million in 2012, and Php 68.4 million in 2013.
TABLE 3.1.3-A
2010 2011 2012 2013

No. of Motor Vehicles 6,634,855 7,500,000 8,500,000 9,500,000
% increase from previous yr. 13% 13% 12%
Motor Car Premiums 454,046,195.41 513,251,075.66 581,684,552.41 650,118,029.17
Increase in Income 59,204,880.25 68,433,476.75 68,433,476.75
8 th
Transportation Science Society of the Philippines / 17 Annual Conference of the Transportation Science
Society of the Philippines 2009
9
Land Transportation Office (LTO) / Number of Motor Vehicles Registered 2008-2010
11
3.1.4 Decreasing Share of Insurance Expenditure
Based on the Family Income and Expenditure Survey of 2009, insurance expenditure as a
percentage of total family expenditure is decreasing. Insurance expenditure which was at
1.88% in 2006 decreased to a smaller share of only 1.69% in 2009 that translated to around
Php 6.4 billion less premium revenue for the insurance industry10.
Relevance: According to the Family Income and Expenditure Survey of 2009 that was
released by the National Statistics Office, insurance expenditure as a percentage of total
family expenditure is decreasing. The share of insurance expenditure decreased from
1.88% in 2006 to just 1.69% in 2009. This translated to a decrease of around Php 6.4 billion
in potential premium revenue for the life and non-life insurance industries. Thus, the smaller
share of insurance in total family expenditure is a THREAT to AIC and other insurance
companies. Information from A.M. Best Special Report on the Philippine Life and Non-life
Industry seems to support the decreasing share of insurance expenditure. According to the
report, total non-life insurance industry premium revenue as a percentage of Gross Domestic
Product declined from 0.54% in 2007 to 0.51% in 2008 and further down to 0.43% in 200911.
To compensate for the decreasing share of insurance expenditure, AIC and other insurance
companies will need to try and reach more insurance buyers.
TABLE 3.1.4-A
2009
Insurance Expenditure 54,590,000,000
Total Family Expenditure 3,239,186,000,000
% 1.69%
Source: FIES 2009
TABLE 3.1.4-B
Life Non-life Total

Premium Income (billions) 57.24 20.74 77.98
% of Total 73% 27%
Source: Insurance Commission's Annual Report 2009
10
National Statistics Office (NSO) / Family Income and Expenditure Survey 2009
11
A.M. Best / Special Report on the Philippine Life and Non-life Industry April 18, 2011
12
TABLE 3.1.4-C
2006 % Share of Insurance 1.88%

Potential Premium Revenue at 1.88% 60,996,580,249.29
Actual Insurance Expenditure 2009 54,590,000,000.00
Effect on Insurance Industry 6,406,580,249.29
Share of Non-life Insurance Industry 1,703,930,166.33
Share of AIC (based on Market Share) 125,631,040.84
3.2 Political, Government, and Legal Forces
3.2.1 Compulsory Insurance Coverage
The enactment of Republic Act 10022 has led to the Compulsory Insurance Coverage for
Agency-Hired Migrant Workers12
Relevance: The enactment into law of RA 10022 necessitates concerned parties to provide
insurance coverage for migrant workers. This presents an OPPORTUNITY for AIC to
increase its premium revenues by addressing the needs of this market. All insurance
companies that intend to provide coverage in adherence to RA 10022 are required to first
seek approval and accreditation from the Insurance Commission. AIC is one of only 3 non-
life insurance companies that have been successfully accredited to provide coverage. AIC
should prioritize putting in place all necessary operating structures to support the demand
that will be coming from this new market segment. The Bangko Sentral ng Pilipinas believes
there will be continued strong demand for skilled Filipino workers abroad13. According to the
Overseas Employment Statistics document released by the Philippine Overseas
Employment Administration in 2010, there are 1,123,676 landbased and 347,150 seabased
overseas Filipino workers14. Circular 35-2010 issued by the Insurance Commission
stipulates an annual minimum premium rate of $72 for landbased workers and $100 for
seabased workers12. Taking this into consideration, the industry can potentially generate
around Php 4.97 billion in gross premium revenues from this market.
12
Insurance Commission (www.insurance.gov.ph)
13
Bangko Sentral ng Pilipinas (www.bsp.gov.ph)
14
Philippine Overseas Employment Administration / Overseas Employment Statistics 2010
13
Assumption: Php 43 : $1 USD
TABLE 3.2.1-A
Premium Revenue Revenue

per yr (in USD) per yr (in USD) per yr (Php)
Landbased Workers (as of 2010) 1,123,676 72 80,904,672 3,478,900,896
Seabased Workers (as of 2010) 347,150 100 34,715,000 1,492,745,000
Total 4,971,645,896
TABLE 3.2.1-B
Total Premium Revenue 4,971,645,896

AIC's Market Share 7.37%
Effect on Income 366,560,238.75
3.2.2 Graft and Irregularities at LTO Starting to Endanger Systems Vital to Insurers
Graft, corruption, and other irregularities at the Land Transportation Office are starting to
endanger systems vital to insurers15.
Relevance: According to a survey conducted by Pulse Asia from February 24 to March 6,
2011 concerning graft and corruption in government agencies, the Land Transportation
Office is considered by many Filipinos as one of the most corrupt agencies in the country
today16. The graft, corruption, and other irregularities at the LTO have recently escalated to
the point of endangering systems vital to insurance companies. Stradcom functions as the
LTOs information systems support and operations group. It maintains, operates, and
supports all critical systems of the LTO. These systems are interconnected to the Certificate
of Cover Authentication Facility (COCAF) system of the Philippine Insurers & Reinsurers
Association. The COCAF allows for the authentication of CTPL policies and verifies validity
of these policies. It is alleged that there were irregularities in the contract of LTO with
Stradcom17. In addition, a Commission on Audit report alleges that Stradcom illegally
15
The Manila Times / Stradcom to begin layoffs in LTO units starting September August 29, 2011
16
Pulse Asia / Graft and Corruption in Government Agencies March 2011
17
14
earned around Php 2 billion using LTO data18. To compound the problem further, an internal
power struggle has commenced between two factions within Stradcom. This even led to an
incident where 30 armed men tried to take over the Stradcom offices at the LTO. On top of
this, Stradcom now has legal cases filed against the LTO and the LTO is also withholding
payment for Stradcom services. The situation has deteriorated to the point that the LTO
Chief Virginia Torres issued a statement that the LTO was ready to return to manual
operations if ever Stradcom decided to shutdown its computer operations due to non-
payment of its service fees19. This presents a THREAT to insurers since COCAFs
connectivity and interfacing with Stradcom systems may now be in danger. If LTO returns to
manual operations then it will be much more difficult for insurers to protect against fake
policies. On the other hand, if LTO decides to utilize a totally different system then it will
take significant time and resources for insurers to design, develop, and implement a new
system capable of interfacing and communicating with any new LTO system.
3.3 Technological Forces
3.3.1 Projected Growth of Internet Usage in the Philippines
Internet usage has been steadily increasing from 2000 to 2010 with a compound annual
growth rate of 27.8% and is forecasted to continue its rapid growth20. Its continued growth
will make powerful emerging web-based technologies more accessible and cost efficient for
corporations.
18
Philippine Daily Inquirer News / Stradcom Earned P2 Billion Using LTO Data COA October 7, 2011
19
The Manila Times / Stradcom to begin layoffs in LTO units starting September August 29, 2011
20
Internet World Stats (www.internetworldstats.com) 2010
15
TABLE 3.3.1-A
YEAR Users Population % Pop. Usage Source

2000 2,000,000 78,181,900 2.60% ITU
2005 7,820,000 84,174,092 9.30% C.I.Almanac
2008 14,000,000 96,061,683 14.60% Yahoo!
2009 24,000,000 97,976,603 24.50% Nielsen
2010 29,700,000 99,900,177 29.70% ITU
Source: Internet World Stats
Relevance: The number of internet users as a percent of total Philippine population has
been increasing for the past decade. Many Filipinos, including potential insurance buyers,
now use the internet to gather information about products and services. Recognizing this
trend, many companies now try to go beyond merely establishing an internet presence in the
form of a corporate website by integrating features that better facilitate customer interaction.
In a survey conducted by IBM, it was determined that insurance buyers prefer using more
than one interaction point when purchasing insurance plans and policies. These interaction
points include the use of the internet to augment existing means of connecting with potential
buyers21. AIC needs to continue to improve its online presence, including its corporate
website and social networking pages, to ensure it remains competitive. If the growth rate of
internet usage in the country remains constant then AIC can potentially reach more people
through its internet presence without any additional costs. Assuming the same growth rate
of 27.8%, then for 2011 alone, AIC can potentially reach an additional 8,255,703 Filipino
internet users through the internet. By leveraging on the internet, AICs reach will grow as
the internet usage grows. This underscores the importance of strengthening its online
presence and taking advantage of the OPPORTUNITY that the continued growth of the
internet presents. AIC can also utilize web-based technologies to help build stronger
relationships with its brokers and agents. The company can accomplish this by creating a
secure portal for brokers and agents that can serve as an additional medium for
communications and also help facilitate information dissemination. The portal can even use
21
Institute for Development and Econometric Analysis / Industry Analysis: Life, Non-life, and Pre-need
Insurance June 2011
16
mobile technologies such as a GSM model pool that will be capable of sending and receiving
messages to interact with brokers and agents who may be out in the field. In addition, the
increase in internet usage also provides access to new web based technologies that utilize
web 2.0 platforms. This allows web-based technologies to seamlessly communicate with
backend servers that enable front-end applications to become as powerful and feature-rich
as desktop applications. For instance, AIC can use web-based technologies such as
Googles Google+ Hangout that enables up to 10 users to connect and communicate
through voice and video. This application can also be accessed through mobile phones
which will be a useful feature for personnel in the field. AIC can use this web-based
technology to establish stronger relationships with brokers and agents as well as facilitate
real time communication, collaboration, and coordination between branches and offices
spread across the country. Since the application has built in security features, branch heads
can easily setup secure communications that only allow authorized personnel to join in. In
light of the strong rivalry in the industry, these types of productivity enhancing tools that
provide stronger integration between the different organizational units can help the company
compete more effectively.
3.4 Socio-Cultural Demographic Forces

3.4.1 Rising Number of Motor Vehicle Related Accidents
Motor vehicle related traffic accidents are on the rise. Vehicles involved in traffic accidents
has increased from 7,267 in 2007 to 15,750 in 200922 and road accident related deaths is
currently growing at 4.2% per annum23.
Relevance: According to the National Statistics Office, motor vehicle related traffic
accidents have been increasing. Vehicles involved in traffic accidents have increased from
7,267 in 2007 to 15,750 in 2009. The number of casualties resulting from traffic related
accidents has also increased from 4,287 in 2007 to 8,687 in 2009. In a study conducted by
22
National Statistics Office (NSO) / 2011 Philippines in Figures
23
Asian Development Bank / Regional Road Safety Program 2005-2010
17
the Asian Development Bank it was also determined that the number of road accident
related deaths has been increasing by 4.2% per year. This presents a THREAT to AIC
since an increase in traffic accidents will likely put upward pressure on the claims ratio of its
motor car product line. Higher claims costs for its motor product line will in turn bring up its
total losses due to claims and result in lower income for the company. This seems to be
supported by the fact that Gross Claims Liabilities of AIC for the Motor Car line increased by
46% from Php 130,910,998 in 2007 to Php 191,361,433 in 2010.
3.5 Climate and Environmental Forces
3.5.1 Heightened Risk of Extreme Weather
According to the Presidential Task Force on Climate Change, there is heightened risk of
extreme weather due to climate change24.
Relevance: Extreme weather due to climate change is a THREAT to AIC. Extreme weather
brings about damaging typhoons, flooding, landslides as well as droughts and fires. Aside
from potential damage to AICs corporate properties, branches, and offices, the extreme
weather conditions can also increase its losses due to claims. The table below illustrates the
potential impact on operating income of calamities by obtaining the difference in terms of
claims cost between 2009 when Ondoy and Pepeng occurred and 2010 which was relatively
uneventful. There is a difference of Php 56.6 million in terms of claims cost. In the event of
the occurrence of calamities, insurance companies such as AIC need to quickly respond to
the needs of its clients. Claims need to be processed quickly so that the burden of the
aggrieved parties may quickly be alleviated or mitigated. Anti-fraud personnel should also
be wary of false claims that will seriously affect AICs solvency and profitability. AIC needs
to have a well formulated contingency and calamity plan in place before another Ondoy or
Pepeng hits the country. These two severe typhoons caused significant losses to most
insurance companies and seriously affected their financial disposition even long after they
occurred.
24
Presidential Task Force on Climate Change / Climate Change in the Philippines 2011
18
TABLE 3.5.1-A
Claims Cost
2010 397,066,744
2009 453,674,148
Potential Effect on Income (56,607,404)
However, it should be mentioned that the recent calamities may have also helped people
realize the value of insurance. In the long run, this may help increase the demand for
insurance products. This positive effect may eventually compensate for the higher losses
due to claims.
4. INDUSTRY AND COMPETITOR ANALYSIS
4.1 Value Chain Analysis and Waterfall Chart
Source: Insurance Commission
4.1.1 Underwriting
Underwriting entails the selection, evaluation, and acceptance of risks. This step includes
the design, development, and offering of non-life insurance products and services. Risks are
selected and in some occasions actual inspection may be necessary. Proposed coverage,
insured amount, exclusions, and premium rates are submitted to insurance buyers in this
step. Once terms have been approved and finalized by all parties concerned, a policy is
19
then issued. For non-life insurance, policies usually cover one year terms except for projects
that span multiple years. It is also in this step that the risk exposure of the insurance
company is managed to ensure solvency and sustained growth. Risk needs to be spread
among different types as well as geographically. Insurance companies favor low severity
versus covariant types of risk events. It is also in this step where the balance between
cession and retention of risks is managed. This includes allocating and distributing risks
ceded between treaty and facultative agreements. This step also includes managing claims
and losses associated with it. Some claims require adjusters to assess actual losses to
determine the extent of the insurance companys true liability. To supplement its
underwriting revenue and increase its underwriting capacity, an insurance company also
engages in investment portfolio management. This allows the insurance company to utilize
premium revenues in generating more income through investments.
4.1.2 Distribution
The distribution step involves coursing the insurance companys products and services
through the different distribution channels. One channel is through the insurance companys
own network of branches and offices. Another channel is composed of brokers and agents
who serve as intermediaries to insurance buyers or in some cases decision makers in the
insurance buying process themselves. These brokers and agents are licensed and
accredited by the Insurance Commission. This channel captures a significant amount of
value in the form of commissions. Another channel that is starting to gain popularity is
bancassurance. This entails a partnership between the insurance company and a bank.
The Bangko Sentral ng Pilipinas requires that the bank own 5% of the insurance company to
be able to sell insurance products within its bank branches.
4.1.3 Consumption
Individuals and corporations of various industries serve as consumers of non-life insurance
products and services. Consumption of these products and services is classified by the
20
Insurance Commission into five categories, namely, fire and allied perils, motor, marine and
aviation, casualty, and surety. Of the five categories, fire and motor historically have the
largest share of total consumption. As of 2010, the share of fire was at 29.32% while the
share of motor was at 32.02%. On the other hand, marine has 11.02%, casualty has
23.25%, and surety has 4.25%25.
Key Findings and Insights
AIC is in two steps of the value chain, namely, underwriting and distribution. Most of the
value created is in underwriting. However, with 28.73% of the premium going to distribution,
there is significant value also created in distribution. AIC already has downstream presence
in the form of its branches and offices that aid in the distribution step. Nonetheless, brokers
and agents currently play a critical role in the distribution step since they form valuable links
with insurance buyers. This is especially true for those that offer microinsurance because
insurance companies rely more heavily on agents to do the footwork and absorb most of the
selling and marketing costs.
Relevance: The significant value created in the distribution step presents an opportunity for
AIC. It may be profitable for AIC to increase its presence in this step. This will entail
exploring alternative distribution channels such as bancassurance as well as establishing
more branches and offices. This will increase AICs links to insurance buyers and decrease
the bargaining power of brokers and agents.
25
Insurance Commission / Key Insurance Indicators 2006-2010
21
4.1.4 Waterfall Chart
4.2 Strategic Positioning Analysis and Recommendation

4.2.1 Perceptual Map of the Top 10 Insurance Companies in the Non-life Insurance Industry
X-Axis: The x-axis represents the number of types of insurance products & services offered
by a company. A wide product array allows insurance companies to better manage risk by
22
spreading their risk among different types. It also allows insurance companies to have
numerous potential sources of premium revenue.
Narrow Product Array: Fewer insurance products and services offered
Wide Product Array: More insurance products and services offered
Y-Axis: The y-axis represents the Gross Premium revenue amount of each insurance
company that was submitted to the Insurance Commission for 2010.
Low Premiums: Php 1.8 billion or lower. The lowest Gross Premiums amount
posted for the top 10 non-life insurance companies was by MAPFRE at Php 1.66
billion.
High Premiums: Php 2.2 billion or higher. Highest Gross Premiums amount posted
was by Malayan at Php 5.85 billion26.
Based on the perception map, AIC is strategically positioned in the group along with
Malayan, Prudential, and BPI/MS. The strategic group that AIC belongs to is composed of
companies with relatively high premium revenues and a wide array of products. The
advantage of such a positioning is that the wide product array enables companies in this
group to have more potential revenue streams compared to the other players with fewer
products and services. A wide product array also allows companies to better manage risk by
being able to spread its risk exposure over different types of risk. The disadvantage is that
the wide product array coupled with high premium revenues increases a companys
exposure to a higher number of potential risk events. A company in this group should try to
ensure it maintains underwriting discipline to avoid the risk of incurring higher losses due to
claims. It is also worth noting that the members of this strategic group were ranked by the
Insurance Commission as the top 4 in the non-life insurance industry for 2010. Over the
medium to long term, AIC should retain its strategic positioning. AIC should try to develop
new products or generate premium revenue through other means to keep pace with its
current strategic grouping and maintain its current positioning.
26
Insurance Commission / Non-life Ranking Based on Gross Premiums
23
4.3 Porters 5 Forces of Competitive Analysis
4.3.1 Rivalry of Competition
STRONG
There is intense market competition among the different players in the non-life insurance
industry. The industry is composed of 76 domestic corporations, 5 domestically incorporated
foreign corporations, 3 branches of foreign corporations, and 1 domestic professional
reinsurance corporation. As of 2010, the non-life insurance industry resembled more of an
oligopoly with the top 4 corporations in terms of Gross Premiums holding 41.35% market
share while the rest of the players split the remaining 58.65% amongst themselves 27. In
addition, the gap in terms of Gross Premium Revenues for the top 4 players has narrowed in
the last five years. The gap between Malayan and BPI/MS in 2006 which was Php
3,214,581,650 decreased to Php 1,807,300,563 in 2010, the gap between Malayan and
Prudential which was Php 2,473,297,470 in 2006 decreased to Php 1,698,670,340 in 2010,
and the gap between Malayan and AIC which was Php 3,446,984,312 in 2006 decreased to
Php 2,626,410,850. This has led to stiffer competition among the top players. In fact, if
BPI/MS maintains its growth rate, it may surpass Prudential in a few years and become the
new no. 2 in the industry. Although there have been attempts at differentiation, the top
players offer similar products. This homogeneity in products further contributes to the intense
level of competition. On top of this, the strength of the rivalry within the industry resulted in a
price war that forced premium rates downward and led to the imposition of minimum
premium rates by the Insurance Commission.
27
Insurance Commission / Non-life Ranking Based on Gross Premiums 2010
24
TABLE 4.3.1-A
2006 2007 2008 2009 2010

(Php Gross Premiums
Earned)
Market Size 28,219,600,000 29,123,100,000 31,182,000,000 32,501,400,000 36,893,800,000
AIC 1,902,921,338 1,968,258,148 2,057,802,651 2,299,824,733 2,720,185,713
Malayan 5,349,905,650 6,092,837,233 6,134,432,804 6,309,624,015 5,346,596,563
Prudential 2,876,608,180 2,977,308,810 3,038,518,345 3,007,491,798 3,647,926,223
BPI/MS 2,135,324,000 2,336,351,000 2,439,670,000 2,689,849,000 3,539,296,000
All others combined 15,954,840,832 15,748,344,809 17,511,576,200 18,194,610,454 21,639,795,501
% Market Share
Market Size 100% 100% 100% 100% 100%
AIC 6.74% 6.76% 6.60% 7.08% 7.37%
Malayan 18.96% 20.92% 19.67% 19.41% 14.49%
Prudential 10.19% 10.22% 9.74% 9.25% 9.89%
BPI/MS 7.57% 8.02% 7.82% 8.28% 9.59%
All others combined 56.54% 54.08% 56.16% 55.98% 58.65%
4.3.2 Potential for New Entrants
WEAK
The biggest barrier to entry into the insurance industry is the relatively large capital
requirement amounting to Php 125 million imposed by the Insurance Commission. This
minimum requirement will be raised to Php 175 million by 2011. Only upon meeting this
minimum requirement can new players be granted a license and awarded a Certificate of
Authority allowing it to operate. It should also be mentioned that the Insurance Commission
plans to keep on increasing the minimum capital requirement until it reaches the target of
Php 500 million by 2015. This is being done by the Insurance Commission to ensure that
local insurance companies will have the financial strength to compete against its foreign
counterparts once the ASEAN Free Trade Area takes effect in 201528. In addition, the large
combined asset base of the well entrenched top 4 players of the non-life insurance industry
amounting to Php 42,041,300,928 also presents an obstacle to new entrants. This provides
28
25
the top players with a competitive advantage that is difficult to match for incoming players.
The top players also offer a broad array of products with 13 to 14 different product
categories that allow them to spread their risk exposure and help manage losses due to
claims. For new players to compete effectively they will need to offer a reasonable number
of product categories that will allow them to do the same. That will entail a significant
amount of resources on top of the required minimum capital imposed by the Insurance
Commission. The fact that the total number of players in the non-life insurance industry did
not change from 2009 to 2010 also seems to indicate a weak potential for new entrants29.
4.3.3 Bargaining Power of Suppliers
STRONG
Players in the non-life insurance industry do not require any raw materials to offer their
products and services. Insurance companies mostly utilize typical office supplies and other
common items necessary to conduct business operations. These materials and items have
a large number of suppliers, have relatively low switching costs, and are abundantly and
readily available from many alternative sources. The supplier group of these minor items
has weak bargaining power. On the other hand, supplier groups that provide critical sales
services for insurance companies such as brokers and agents have a strong bargaining
power. Brokers normally generate around 50% of total premium revenue in the non-life
insurance industry30. This makes the role they play critical to insurance companies. Large
insurance buyers also like to course their insurance needs through brokers to ensure their
requirements are well met and that they get the best insurance package in the market.
Moreover, considering the similarity between typical insurance products, brokers and agents
may easily switch from selling the products of one insurance company to the next. Adjusters
comprise another supplier group in the industry. This supplier group plays the important role
29
Insurance Commission / Key Insurance Indicators 2006 - 2010
30
Insurance Commission / Annual Report 2009
26
of determining the actual value of losses due to claims. Insurance companies have required
even more of the services of this supplier group in recent years given the high claims / loss
ratio of 44% and the occurrence of calamities such as Ondoy and Pepeng31. Thus, all of this
results in a generally strong bargaining power of suppliers.
4.3.4 Bargaining Power of Buyers
STRONG
The price of a non-life insurance policy is largely dependent on factors beyond the control of
the buyer such as the propertys location, age, history, and other characteristics. However,
considering the homogeneity of insurance products and the relative ease with which a buyer
can switch from one insurance company to the next, there seems to be a generally strong
bargaining power of buyers. In addition, large organizations with insurance requirements
that are of a considerable amount do have bargaining power in terms of determining what
can be potentially included in the coverage of the policy. Moreover, buyers who have
insurance requirements that have a high degree of public relations and marketing value such
as those related to a big event like the Southeast Asian Games also have higher bargaining
power.
4.3.5 Potential for Substitutes
WEAK
A substitute product to non-life insurance is what most people refer to as self-insurance.
This involves judiciously setting aside funds for future use in case an unforeseen event
occurs that will require monetary resources from an individual or an organization. This is
usually only popular with high networth individuals or organizations that do not need to
comply with regulatory requirements imposed by the government regarding insurance. In
addition, self-insurance will most likely require a high propensity for saving. Considering that
31
Insurance Commission / Key Insurance Indicators 2006 -2010
27
according to the Asian Development Bank the current and projected domestic saving rate of
the Philippines is low compared to its Asian neighbors, the likelihood of an individual or
organization to engage in self-insurance is relatively low32. This further weakens the threat
from self-insurance as a substitute to non-life insurance.
FIGURE 4.3.5-A
Source: Asian Development Bank
4.4 Competitive Profile Matrix (CPM)

The three key competitors of AIC are Malayan Insurance Co. Inc., Prudential Guarantee and
Assurance Inc., and Bank of the Philippine Islands & Mitsui Sumitomo Insurance
Corporation. Together with AIC, these three key competitors comprise the top 4 companies
in the non-life insurance industry based on the ranking list published by the Insurance
Commission in 201033.
4.4.1 Key Competitors of AIC
Malayan Insurance Co. Inc.
2010 Gross Premium Revenue: Php 5,346,596,563
32
Asian Development Bank / ADB Economics Working Paper Series October 2010
33
Insurance Commission / Non-life Ranking Based on Gross Premiums 2010
28
2010 Market Share:14.49%
2010 Industry Rank based on Gross Premiums: 1
Malayan Insurance is viewed as the founding pillar of the Yuchengco Group of Companies.
It has been in the non-life insurance business for more than 8 decades and continues to
provide property, motorcar, casualty, accident, and marine insurance as well as surety
bonds to business and families. The company attained market leadership in 1970 and has
been able to maintain its leadership for the past 40 years34. Its consistently high gross
premium revenues, large managed asset base, and broad product array make it currently
the most dominant player in the non-life insurance industry. In addition, Malayan offers a
product array similar to AIC.
Prudential Guarantee and Assurance Inc.
2010 Market Share: 9.89%
Prudential is ranked number 2 and recognized by many as a leader in the non-life insurance
industry. It was founded by Robert Coyiuto Sr. in 1950 and provides a wide array of non-life
insurance products. Mr. Coyiuto himself is considered an industry legend having become
the first Filipino to be a member of the well-known Lloyds of London35. In the past few years,
Prudential has grown in terms of both Gross Premium Revenues and Asset Base. This has
turned it into a strong contender for market leadership and an aggressive challenger of
Malayan. The companys robust performance amidst the turbulent global economic
environment highlights the need for other top players in the industry to keep an eye on its
progress.
34
Malayan Insurance Co. Inc. (www.malayan.com)
35
Prudential Guarantee and Assurance Inc. (www.prudentialguarantee.com)
29
Bank of the Philippine Islands & Mitsui Sumitomo Insurance Corporation
2010 Market Share: 9.59%
BPI/MS was established through a joint venture between the Bank of the Philippine Islands,
a dominant player in the banking industry, and Mitsui Sumitomo, one of the largest non-life
insurance companies in Japan. It offers a wide product array similar to AIC. The company
is ranked 3rd, right above AIC, and poised to maintain a leadership position in the non-life
insurance industry partly due to its continued growth in terms of Gross Premiums Earned for
the past several years36. BPI/MS has widened the gap between itself and AIC from 2006 to
2010 in terms of Gross Premiums Earned. AIC will likely need to surpass the performance
of BPI/MS if it wants to elevate its ranking in the industry. In 2010, BPI/MS grew by more
than 31.58% in terms of Gross Premiums Earned while AIC only grew by around 18.28%.
BPI/MS seems to be AICs closest rival and this underscores the need for AIC to outpace it
in terms of performance.
4.4.2 Critical Success Factors
CSF#1 - High quality of products and services from the perspective of insurance buyers
(15%)
The quality of the products and services of an insurance company directly affects how the
company is perceived and also whether the companys current growth will be sustainable. A
high quality of products and services helps ensure the retention of existing clients and also
becomes the foundation upon which sales and marketing efforts can draw in new clients.
36
Bank of the Philippine Islands & Mitsui Sumitomo Insurance Corporation (www.bpims.com)
30
This is given a weight of 15% since it is important that an insurance company have multiple
sources of premium revenue and different types of risk exposure. The results of XYZ
Magazines Insurance Survey 2010 will be used to ascertain individual ratings for this factor.
XYZ Magazine is a reputable organization and a leading journal for international financial
markets. The XYZ Magazine Insurance Survey is an annual client-based ranking of the best
providers of insurance services and products. Around 250 respondents are asked to identify
their top three insurance companies in order of quality. Respondents include insurance
buyers such as chief financial officers, risk managers, insurance managers, vice presidents,
and heads of treasury.
Methodology according to XYZ Magazine:
Insurance companies received four points for a first-placed nomination, three points for a
second-placed nomination and two points for third-placed nomination. These points were
then totaled to give an overall score.... Respondents then rated their insurance providers
from 1 to 7 (1=very poor and 7=excellent) across seven service categories. The arithmetic
mean was taken for each category for each insurance company to produce a ranking.37
37
31
Survey Results:
XYZ Magazine
Due to the methodology of the survey conducted, the level of brand awareness and
preference may also be gleaned from the results. Respondents were asked to nominate the
top 3 insurance companies from memory and also order them in terms of quality.
CSF#2 - Good risk management as determined by a claims ratio of 44% or less (20%)
An insurance company is in the business of managing risk. Taking this into consideration,
insurance companies should be able to manage the quality of underwriting it undertakes as
well as ensure it is able to minimize losses due to its risk exposure. The claims ratio shows
the losses incurred by the insurance company due to claims and benefits. Managing risk
also includes knowing when and how much risk to cede to reinsurance. This means good
risk management also entails maintaining strong relationships with reinsurers. In addition,
32
managing risk also involves the ability of insurance companies to successfully spread their
risk exposure over various types and different geographical areas.
This is given a weight of 20% since it is critical that insurance companies manage its losses
due to claims and keep it at a reasonable level so it does not completely erode profitability.
CSF#3 - Good investment management that supplements premium revenue by generating
investment income rather than loss (5%)
The non-life insurance industry in the country has a high combined ratio. In fact, the
combined ratio (computed as claims ratio plus expense ratio) was 99.25% in 2008 and
107.7% in 200938. The claims ratio and expense ratio are computed as a percentage of
premium revenues. The fact that the sum of claims and expenses can potentially exceed
premium revenue underscores the need for insurance companies to supplement premium
revenue with income from other sources such as those resulting from investment activities.
An insurance companys income from investment augments revenues generated from
premiums and contributes to the companys overall profitability by helping cover claims and
expenses. A good measure for how well an insurance company utilizes its premium revenue
to generate investment income is the Investment Income Ratio. The investment income
ratio is computed by getting investment income as a percentage of net premiums earned.
This is given a weight of 5% because it is important for insurance companies to maximize
the revenue generating potential of the premium revenue it receives by engaging in investing
activities that help cover claims and expenses.
CSF#4 - Strong financial position with a high capacity for risk as measured by a networth of
at least 350 million (10%)
38
A.M. Best / Special Report on the Philippine Life and Non-life Industry April 18, 2011
33
It is necessary to gauge and closely monitor the amount of risk an insurance company is
capable of handling. The size of an insurance companys assets versus its liabilities can be
indicative of its level of solvency and capacity to handle its existing risk exposure as well as
take on additional risk. An insurance companys high networth can also positively influence
the perception of insurance buyers. A high networth can also be an indicator for sound
financial management. The top 10 players in the industry each have at least a Php 350
million or higher networth39.
This is given a weight of 10% because it reflects an insurance companys capacity for
handling risk.
CSF#5 - Accessible network of offices with at least 10 or more spread across the country
(15%)
It is necessary for insurance companies to ensure its accessibility through a network of
branches and offices spread across the country. This becomes important in its selling
activities as well as in processing claims.
This is given a weight of 15% since it is important for increasing customer touch points and
contributes to higher repeat business.
CSF#6 - Prompt settlement of claims as measured by payment of all claims incurred during
the year (15%)
It is necessary for insurance companies to ensure prompt settlement of all claims incurred
during the year. This becomes critical in attracting new insurance buyers as well as
maintaining existing clients. Thus, it is important that insurance companies avoid any delays
in the processing of valid claims.
39
Insurance Commission / Non-life Ranking Based on Networth 2010
34
This is given a weight of 15% because it affects the companys reputation as an insurance
provider and contributes to retaining existing clients.
CSF#7 - Effective sales organization that contributes to premium revenue generation
resulting in at least Php 1 billion in gross premiums earned (20%)
Even though it can generate income from investments, the primary source of revenue of
insurance companies is still premium revenue. In this light, it becomes essential to have an
effective sales organization that is able to generate gross premium revenue that can help
fuel growth. Premium revenues also help cover claims and general expenses. An effective
sales organization should also be able to establish and maintain strong relationships with
intermediaries such brokers and agents.
This is given a weight of 20% since an effective sales organization that generates high gross
earned premiums is key to the growth of an insurance company.
4.4.3 AICs Critical Success Factor Ratings
CSF#1 - High quality of products and services from the perspective of insurance buyers (4)
AIC received 4 awards from XYZ Magazines Insurance Survey 2010. XYZ Magazine is a
reputable organization and a leading journal for international financial markets. The XYZ
Magazine Insurance Survey is an annual client-based ranking of the best providers of
insurance services and products. Respondents to the survey are insurance buyers mainly
composed of risk managers, chief financial officers, insurance managers, heads of treasury,
and vice presidents. Respondents are asked to identify their top three insurance companies
in order of quality40. AIC ranked no.1 in Asia and the Philippines. Thus, AIC receives a
rating of 4 for the quality of its products and services.
40
35
CSF#2 - Good risk management as determined by a claims ratio of 44% or less (3)
The claims or loss ratio is computed by getting the claims cost as a percentage of net
premiums earned. AIC has a claims ratio of 41.86%. Since AICs ratio is better than its key
competitors average and the average of the industry but less than the best ratio that was
posted by a competitor, AIC gets a rating of 3. AIC also gets a rating of 3 even though
Prudentials claims ratio is slightly higher since the difference is negligible and AICs claims
cost as a percentage of total revenue is actually better than Prudentials percentage as
shown in the table below.
TABLE 4.4.3-A
AIC Prudential
2010 2009 2010 2009
Revenue 1,363,288,030 1,216,512,050 2,271,169,278 2,011,851,588
Claims Cost 397,066,744 453,674,148 858,734,417 877,834,902
% 29.13% 37.29% 37.81% 43.63%
investment income rather than loss (3)
The investment income ratio indicates how well an insurance company is able to use the
premium revenue it receives to generate investment income. The investment income ratio of
an organization is derived by computing investment income as a percentage of net
premiums earned41. AIC posted an Investment Income of Php 216,038,612 and Net
Premiums Earned of Php 948,514,745 that resulted in an Investment Income Ratio of
22.78% for 2010. Since AICs Investment Income Ratio is the second highest compared to
its key competitors, AIC receives a rating of 3 for investment management.
at least 350 million (4)
Based on its Audited Financial Statements for 2010 the company has assets amounting to
Php 11,147,545,949 and liabilities amounting to Php 5,038,536,503 that result in a networth
41
International Association of Insurance Supervisors / A Primer on Non-life Insurance Ratios for Insurance
Supervisors
36
of Php 6,109,009,446 as of 2010. Thus, based on the Audited Financial Statements, AIC
would have the second highest networth in the industry. On the other hand, according to the
Insurance Commissions ranking based on networth AIC is ranked no. 1 in the industry42.
The difference in ranking is mainly due to what the Insurance Commission considers as
admissible assets. Some of Malayans assets were deemed inadmissible by the Insurance
Commission in computing networth. The Insurance Commissions ranking will be followed
since the companies are being evaluated from an insurance perspective. In this light, AIC
gets a rating of 4 since it is ranked no. 1 by the Insurance Commission.
CSF#5 - Accessible network of offices with at least 10 or more spread across the country (2)
The company has 34 branches and offices spread throughout the country. Considering it
has fewer branches and offices than BPI/MS and Malayan, AIC receives a rating of 2.
the year (2)
In 2010, the company paid 79.88% of all claims incurred during the year. Claims incurred
during the year amounted to Php 394,932,068 while claims paid amounted to Php
315,459,805. Since it posted the second lowest percentage, AIC gets a rating of 2.
resulting in at least Php 1 billion in gross premiums earned (1)
The company posted gross premiums earned of Php 2,720,185,713 in 2010. Considering
that it posted the lowest gross premium revenue compared to its key competitors, AIC
receives a rating of 1.
4.4.4 Malayans Critical Success Factor Ratings
42
37
Malayan received enough votes in XYZ Magazines Insurance Survey 2010 to rank no. 7 in
Asia with an overall score of 2.64%43. Since that is the second highest score compared to
its key competitors, Malayan receives a rating of 3.
Malayan has a claims ratio of 54.84% which is the worst ratio compared to its key
competitors and also lower than the 44% average of the industry44. Thus, Malayan gets a
rating of 1.
The company posted an Investment Income of Php 652,976,710 and Net Premiums Earned
of Php 2,426,957,623 that resulted in an Investment Income Ratio of 26.91% for 2010. This
is the highest Investment Income Ratio compared to its key competitors so Malayan receives
a rating of 4.
Based on its Audited Financial Statements for 2010 the company has assets amounting to
Php 18,060,249,292 and liabilities amounting to Php 10,129,801,837 that result in a networth
of Php 7,930,447,455 as of 2010. So based on the Audited Financial Statements, Malayan
would have the highest networth in the industry. On the other hand, according to the
Insurance Commissions ranking based on networth Malayan is only ranked no. 2 in the
industry. The difference in ranking is mainly due to what the Insurance Commission
considers as admissible assets45. Some of Malayans assets were deemed inadmissible by
the Insurance Commission in computing networth. The Insurance Commissions ranking will
be followed since the companies are being evaluated from an insurance perspective. In this
43
44
45
38
light, Malayan will receive a rating of 3 since it is ranked by the Insurance Commission as
no. 2.
The company has 42 branches and offices spread throughout the country. In addition it has
a bancassurance partnership with RCBC which cross-sells its products46. This increases the
companys network of offices to 398. Since it has the second highest number of branches
and offices compared to its key competitors, Malayan receives a rating of 3.
the year (4)
during the year amounted to Php 1,318,374,128 while claims paid amounted to Php
1,727,556,007. In consideration of the fact that Malayan has the highest percentage
compared to its key competitors, it receives a rating of 4.
The company posted gross premiums earned of Php 5,346,596,563 in 2010. Malayan
posted the highest gross premium revenue for 2010 compared to its key competitors so it
4.4.5 Prudentials Critical Success Factor Ratings
Prudential did not receive enough votes in XYZ Magazines Insurance Survey 2010 to rank
in Asia. This means it ranked the lowest compared to all of its key competitors. Thus,
Prudential receives a rating of 1.
46
39
Prudential has a claims ratio of 40.34% which is better than the average of its key
competitors and the industry average but lower than the best ratio. Thus, Prudential
of Php 2,128,674,528 that resulted in an Investment Income Ratio of 4.18% for 2010.
Prudential posted the lowest investment income ratio compared to its key competitors so it
The company has assets amounting to Php 6,864,456,687 and liabilities amounting to Php
6,063,880,937 that result in a networth of Php 800,575,750 as of 2010. Prudential has the
lowest networth compared to its key competitors so it receives a rating of 1.
The company has 34 branches and offices spread throughout the country47. In
consideration of the fact that both BPI/MS and Malayan have more branches and offices,
Prudential will receive a rating of 2.
the year (3)
845,354,061. Prudential posted the second highest percentage so it receives a rating of 3.
47
40
The company posted gross premiums earned of Php 3,647,926,223 in 2010. Prudential
posted the second highest gross premium revenue for 2010 compared to its key
competitors. Thus, Prudential receives a rating of 3.
4.4.6 BPI/MSs Critical Success Factor Ratings
BPI/MS received enough votes in XYZ Magazines Insurance Survey 2010 to rank no. 9 in
Asia with an overall score of 2.49%48. Since BPI/MSs overall score of 2.49% is very close
to Malayans 2.64%, BPI/MS also receives a rating of 3.
BPI/MS has a claims ratio of 38.25% which is the best ratio compared to its key competitors
so it gets a rating of 4.
of Php 1,342,912,000 that resulted in an Investment Income Ratio of 17.77% for 2010.
BPI/MS posted the second lowest investment income ratio so it receives a rating of 2.
The company has assets amounting to Php 5,969,049,000 and liabilities amounting to Php
3,866,486,000 that result in a networth of Php 2,102,563,000 as of 2010. BPI/MS has the
second lowest networth compared to its key competitors. Thus, BPI/MS receives a rating of
2.
The company has 13 branches and offices spread throughout the country. In addition it has
a bancassurance partnership with BPI which cross-sells its products. Bancassurance is only
48
41
implemented in selected BPI Bank branches so not all bank branches have Bancassurance
Sales Executives. This increases the companys network of offices to 68349. BPI/MS has the
most number of branches and offices compared to its key competitors so it receives a rating
of 4.
the year (1)
337,789,000. BPI/MS posted the lowest percentage so it receives a rating of 1.
The company posted gross premiums earned of Php 3,539,296,000 in 2010. BPI/MS posted
the second lowest gross premium revenue for 2010 compared to its key competitors so it
49
Bank of the Philippine Islands & Mitsui Sumitomo Insurance (www.bpims.com)
42
4.4.7 Competitive Profile Matrix (CPM)
Malayan, the current market leader, garnered the highest total score among the four
companies. In terms of total scores BPI/MS placed 2nd, AIC 3rd, and Prudential 4th. This
seems to reflect the performance of these three companies in terms of growth for the last 5
years. For instance, BPI/MS posted the highest compound annual growth rate from 2006 to
2010 among the top four. In fact, BPI/MS grew by as much as 31.58% in 2010 alone. On
the other hand, AIC posted the second highest compound annual growth rate from 2006 to
2010. On top of this, both BPI/MS and AIC gained market share from 2006 to 2010 while
Prudential lost market share.
Malayan rates high for good investment management, claims settlement, and its effective
sales organization. These three factors may be contributing to Malayans efforts to sustain
market leadership in the face of the narrowing gap between the top players. Unlike BPI/MS,
Malayan's 42 dedicated offices seem to have been able to effectively provide support to its
356 bancassurance partner branches in terms of claims processing. Even though Malayans
gross premium revenue decreased from 2009 to 2010, it still posted the highest amount
43
compared to its key competitors. On the other hand, BPI/MS received the highest ratings for
its good risk management and accessible network of offices. These factors seem to be the
main drivers of the company's exceptional growth for the last 5 years. However, possibly
due to its rapid pace of growth in 2010, the company seems to be currently experiencing
some problems with claims settlement. This may be due to the fact that most of the
branches in its network of offices are borne out of its bancassurance partnership with BPI.
BPI/MS only has 13 dedicated offices and when it comes to claims processing these offices
may be having trouble supporting the 670 bancassurance partner branches that are only
staffed by bancassurance sales executives. Looking at Prudential's ratings, its strengths
are in good risk management, prompt settlement of claims, and an effective sales
organization. Prudential needs to work on increasing its networth, improving the quality of its
products and services, and better managing its investment portfolio. On the other hand,
AIC's strengths lie in the quality of its products and services and its strong financial position
as evidenced by its high networth. AIC needs to work on improving its claims settlement and
increasing its reach by expanding its network of branches and offices. Its relatively smaller
network of branches and offices may be limiting its gross premium revenue generating
capacity relative to its key competitors. AIC should consider venturing into bancassurance
by partnering with one of the larger banks in the country. This will allow the company to
better compete by providing additional customer touch points that will support its sales
activities. The company will then be able to increase its capacity to generate premium
revenue.
44
5. MARKET ANALYSIS
5.1 Market and Competitors Trends
TABLE 5.1-A
2006 2007 2008 2009 2010 CAGR

(Php Gross Premiums Earned)
Market Size 28,219,600,000 29,123,100,000 31,182,000,000 32,501,400,000 36,893,800,000 5.51%
AIC 1,902,921,338 1,968,258,148 2,057,802,651 2,299,824,733 2,720,185,713 7.41%
Malayan 5,349,905,650 6,092,837,233 6,134,432,804 6,309,624,015 5,346,596,563 -0.01%
Prudential 2,876,608,180 2,977,308,810 3,038,518,345 3,007,491,798 3,647,926,223 4.87%
BPI/MS 2,135,324,000 2,336,351,000 2,439,670,000 2,689,849,000 3,539,296,000 10.63%
All others combined 15,954,840,832 15,748,344,809 17,511,576,200 18,194,610,454 21,639,795,501 6.29%
The market size of the non-life insurance industry grew by a compound annual growth rate
(CAGR) of 5.51% from 2006 to 2010. The industry is growing at a faster pace than Malayan
and Prudential which posted -0.01% and 4.87% CAGRs respectively. In fact, Malayan has
the lowest CAGR among the top 4 in the industry. Malayans faltering performance presents
an opportunity for the other three competitors, including AIC, to catch up. In stark contrast,
both BPI/MS and AIC grew at a faster pace than the industry. BPI/MS posted the highest
CAGR of 10.63% and increased its gross premium revenue by as much as Php
1,403,972,000. AIC posted the second highest CAGR of 7.41% and increased its gross
premium revenue by Php 817,264,375. On the other hand, Malayans gross premium
revenue instead of increasing actually decreased by Php 3,309,087. It should also be noted
that the gap between Prudential and BPI/MS which amounted to Php 741,284,180 in 2006
decreased to just Php 108,630,223 in 2010. If the trend continues, it would not be surprising
for BPI/MS to surpass Prudential in the next couple of years to become the new no. 2.
TABLE 5.1-B
% Market Share 2006 2007 2008 2009 2010

Market Size 100% 100% 100% 100% 100%
AIC 6.74% 6.76% 6.60% 7.08% 7.37%
Malayan 18.96% 20.92% 19.67% 19.41% 14.49%
Prudential 10.19% 10.22% 9.74% 9.25% 9.89%
BPI/MS 7.57% 8.02% 7.82% 8.28% 9.59%
All others combined 56.54% 54.08% 56.16% 55.98% 58.65%
45
Malayan still has the highest market share among the top 4 in the industry with 14.49% as of
2010. However, it is worth noting that its market share decreased from 18.96% in 2006 to
just 14.49% in 2010. After 2007, it started to lose market share and ended up losing as
much as 6.43 percentage points by 2010. Malayan has expressed a need for the company
to get rid of unprofitable accounts and try to lower its relatively high claims ratio. It also
mentioned that gross premium revenue generation may suffer because of this. Like
Malayan, Prudential also lost some market share between 2006 and 2010. Prudentials
market share decreased from 10.19% in 2006 to 9.89% in 2010. In contrast, BPI/MS gained
the most market share between 2006 and 2010. It was able to increase its market share
from 7.57% in 2006 to 9.59% in 2010 and close the gap between itself and Prudential. AIC
gained the second highest amount of market share between 2006 and 2010. It was able to
increase its share from 6.74% in 2006 to 7.37% in 2010. Generally speaking, the gap
between the top 4 has narrowed in the past 5 years.
TABLE 5.1-C
% Change vs. Prior Year 2006 2007 2008 2009 2010

Market Size N/A 3.20% 7.07% 4.23% 13.51%
AIC N/A 3.43% 4.55% 11.76% 18.28%
Malayan N/A 13.89% 0.68% 2.86% -15.26%
Prudential N/A 3.50% 2.06% -1.02% 21.29%
BPI/MS N/A 9.41% 4.42% 10.25% 31.58%
All others combined N/A -1.29% 11.20% 3.90% 18.94%
The gross premium revenue of Malayan, the current market leader, contracted by as much
as 15.26% in 2010. While the other three competitors posted high growth rates for 2010,
Malayans premium revenue contracted by an exceptionally large margin. On the other
hand, BPI/MS posted the highest growth rate of 31.58% in 2010. Its bancassurance
partnership with BPI may have contributed to this rapid pace of growth. The second highest
growth rate for 2010 was posted by Prudential but the high growth rate only came after a
slight contraction in the previous year. Both BPI/MS and AIC grew every year for the last 5
46
years. Aside from growing in the last 5 years, AICs growth rate has also been increasing
every year.
Relevance: Malayan posted the lowest CAGR for the last five years and also contracted by
a large margin in 2010. On top of this, Malayan lost 23.58% of its market share between
2006 and 2010. The shaky performance exhibited by Malayan in the past 5 years presents
an opportunity for the other three to catch up. This means that AIC needs to be even more
aggressive in trying to grab market share and ensure it remains competitive. AIC should
also try to close the gap between itself and the top 3. It may be wise for AIC to benchmark
against BPI/MS considering the companys rapid pace of growth. AIC should also look into
establishing a bancassurance partnership similar to BPI/MS that will help fuel its continued
growth.
5.2 Market Segments
AIC offers non-life insurance products and services to the general population as well as all
types of businesses. According to the National Statistics Office, the largest sector is
manufacturing with 21.9%, followed by wholesale and retail trade with 19.1%, hotels and
47
restaurants with 14%, education with 13.6%, and real estate with 9.5%. All other sectors
comprise the remaining 22% of Philippine business establishments50. Non-life insurance
companies group these different types of business establishments according to their
insurance needs and the roles that different entities play in the insurance buying process.
The table below lists the profiles of the various entities from the different sectors and the
roles they play in the insurance buying process.
TABLE 5.2-A
Type of Primary Entity Secondary Decision Maker Nature of

Insurance Need Entity business/ industry
Hull Broker Agent Client Ship-owners
- senior officer - individual - senior officer Port/terminal

- 35 yrs. old and up - 50 yrs. - 35 yrs. old and operators
old and up
up Bareboat charterers
Direct Client
Mortgagers
Shipyard owners
Fire Broker Agent Broker Owners of:
- female Direct Client Warehouses

- 35 to 50 yrs. old
Industrial buildings
Commercial/ general
structures
Engineering Broker Contractor Broker Contractors
- usually w/ Direct Client Engineering projects

background in
finance/acctg/
engineering
- male
- 40 to 55 yrs. old
Motor Broker Agent Client Varied companies
with fleet
- mix male/female Direct Client
- 25 yrs. old and up
- Diamond
Motors
Cargo Broker Agent Client Consignees/ importers
Direct Client - finance/logistics Exporters

- late 20s to 50s
50
National Statistics Office (www.census.gov.ph)
48
Aviation Broker Direct Client Finance Officer
Risk Manager
- male
- 40 yrs. old and
up
General Accident Broker Agent Client Varied janitorial,
manpower,
Direct Client - account manufacturing, NGOs,
officers/ education,
managers construction, etc.
- male/ female
25 to 45 yrs.
old
Relevance: Although most of AICs products are not geared towards any specific sector it
would be good marketing strategy to package certain products based on the needs of a
segment. These packaged products can then be branded such as what its key competitors
have done for their respective product arrays. This will make AICs products more relevant
to the insurance buyer and thus underscore its value to the buyer. In addition, one can
glean the important roles that brokers and agents play in the insurance buying process. This
highlights the need for AIC to establish strong relationships with these entities to ensure
continued growth of the company in terms of its capacity to generate premium revenues. In
essence, brokers and agents function as primary entities in the insurance buying process.
This means that the company needs to ensure it provides these entities with up-to-date
information about products and services and that they are also provided with ample support
to facilitate the insurance buying process.
5.2.1 Key Products and Services
TABLE 5.2.1-A
(Php Millions) 2010 2008-09 2009-10

2008 2009 2010 % of total % increase % increase
Fire 10,177.60 10,520.60 10,818.20 29.32 3.37% 2.83%
Marine 3,541.10 3,710.80 4,066.00 11.02 4.79% 9.57%
Motor 9,881.60 10,139.30 11,812.60 32.02 2.61% 16.50%
Casualty 6,368.50 6,845.50 8,579.20 23.25 7.49% 25.33%
Suretyship 1,174.20 1,239.00 1,568.20 4.25 5.52% 26.57%
49
Fire and Allied Perils
As categorized by the Insurance Commission, this product category includes non-life
insurance for Fire, Earthquake/Fire/Shock, Typhoon, Flood, and Extended Coverage. This
category is currently valued at Php 10.82 billion in terms of gross premium revenue with
29.32% share of the total non-life insurance industry51. This category has increased by
3.37% from 2008 to 2009 and by 2.83% from 2009 to 2010.
Relevance: The decreasing growth rate of this category even after the recent calamities that
hit the country seems to indicate the declining appetite of insurance companies for this type
of risk despite what would seem to be a growing interest in Acts of Nature coverage. AIC
should keep a close eye on the growth rate of this category considering that it generates the
second highest amount of premium for the company.
Marine
This product category includes non-life insurance for Marine Cargo, Aviation, and Marine
Hull. This category is currently valued at Php 4.07 billion in terms of gross premium revenue
with 11.02% share of the total non-life insurance industry52. This category increased by
4.79% from 2008 to 2009 and by 9.57% from 2009 to 2010.
Relevance: The continued growth of this category is not surprising considering that the
Philippines is a strategically located island country. On top of this, bodies of water separate
the country into 7,107 islands. AIC should continue to strive to increase its share in this
category particularly for the Marine Cargo line. However, the company should also be
mindful about recent international trends in trade, imports, and exports. The U.S. and
Japan, the two largest trading partners of the Philippines, are currently experiencing some
economic problems that may affect the marine and aviation related businesses and in turn
affect demand for marine and aviation insurance.
51
52
50
Motor Car
This product category includes non-life insurance for CMVL-LTO (Compulsory Motor
Vehicle Liability-Land Transportation Office), CMVL-Non-LTO, other than CMVL-LTO,
and other than CMVL-Non-LTO. This category is currently valued at Php 11.81 billion in
terms of gross premium revenue with 32.02% share of the total non-life insurance industry52.
This category has increased by 2.61% from 2008 to 2009 and by 16.50% from 2009 to 2010.
Relevance: The increasing growth of this category seems to be consistent with the
forecasted growth of registered motor vehicles in the country. This category grew six times
faster from 2009 to 2010 compared to its growth from 2008 to 2009. Considering that this
category generates the most amount of net premium revenue for the company, AIC should
try to be more aggressive in capturing more share of this rapidly growing category.
Nonetheless, the company should continue to focus on lines within this category that are not
too heavily dependent on the LTO in view of the on-going problems and irregularities
between the LTO and Stradcom.
Casualty
This product category includes non-life insurance for Health, Personal Accident,
Engineering, and Miscellaneous. This category is currently valued at Php 8.58 billion in
terms of gross premium revenue with 23.25% share of the total non-life insurance industry53.
This category has increased by 7.49% from 2008 to 2009 and by 25.33% from 2009 to 2010.
Relevance: This category is the third largest in the industry and is second highest in terms
of growth in 2010. AIC should try to increase its share by at least as much as the rate of
increase of this category.
Suretyship
This product category is currently valued at Php 1.57 billion in terms of gross premium
revenue with 4.25% share of the total non-life insurance industry53. This category has
increased by 5.52% from 2008 to 2009 and by 26.57% from 2009 to 2010.
53
51
Relevance: This category seems relatively small compared to the others. However, it
should be noted that it posted the highest growth rate in 2010. AIC should look into
increasing its share of this category in consideration of the categorys rapidly increasing
monetary value.
5.2.2 Prices Risk Based
Pricing in the non-life insurance industry is mainly based on risk evaluation and assessment.
It can factor in characteristics such as age of property, location of real estate, monetary
value of property, historical data of property, safety considerations, scope of coverage, loss
experience, and many other factors. On top of these considerations, insurance companies
also need to adhere to the minimum premium rates stipulated by the Insurance Commission
through its circulars. The Insurance Commission was forced to implement minimum rates
when the strong rivalry in the industry pushed premiums rates down to the point of
endangering the capacity of insurance companies to remain solvent and settle claims.
Moreover, as a member of the Philippine Insurers and Reinsurers Association, non-life
insurance companies also need to abide by the agreed upon rates of members of the
association. Premium rates also vary depending on the type of risk involved or the product
category. Risks with the potential for higher losses due to claims normally merit higher
premium rates since rates are computed as a percentage of the insured amount. This
makes pricing more of a case to case basis which takes into consideration the unique
circumstances of a property. Due to the strong rivalry in the non-life insurance industry,
players do not have much flexibility in terms of pricing. For instance, in the Fire line of non-
life insurance, as members of the Philippines Insurers and Reinsurers Association all
insurance companies need to abide by the same set of rates. These rates are based on the
type of structure, the zone it belongs to, and the class it falls under. Thus, non-life insurance
companies often compete based on what their policies cover as well as what their policies
offer in addition to the basic coverage. For instance, for its comprehensive motor vehicle
insurance, AIC also offers its Auto Rescue package which allows the insured to call for road
side assistance in case of motor vehicle problems. This package includes overnight hotel
52
accommodation for a maximum of two nights in case the vehicle cannot be repaired within
the day. Another example is Malayans Home Protect package which includes alternative
accommodation allowance of Php 5,000 per day for 15 days that will allow the insured to
book temporary residence in case the house covered by the policy is damaged54. Since
premium rates are mostly the same due to the strong rivalry, these add-ons allow non-life
insurance companies to compete in terms of the value they provide to insurance buyers.
Motor Premium Rates:
TABLE 5.2.2-A
BODILY INJURY
Comm. Vehicles Comm. Vehicles
Coverages Private Cars Light/Medium Heavy Motorcycles
50,000.00 130.00 150.00 230.00 50.00
75,000.00 150.00 190.00 270.00 60.00
100,000.00 180.00 230.00 310.00 70.00
150,000.00 230.00 280.00 370.00 80.00
200,000.00 280.00 340.00 440.00 90.00
250,000.00 340.00 390.00 500.00 100.00
300,000.00 390.00 450.00 570.00 N/A
400,000.00 450.00 500.00 650.00 N/A
500,000.00 520.00 570.00 730.00 N/A
750,000.00 610.00 630.00 820.00 N/A
1,000,000.00 700.00 700.00 910.00 N/A
PROPERTY DAMAGE
50,000.00 650.00 700.00 800.00 300.00
75,000.00 690.00 740.00 830.00 340.00
100,000.00 730.00 780.00 860.00 370.00
150,000.00 780.00 830.00 890.00 430.00
200,000.00 830.00 880.00 930.00 480.00
250,000.00 880.00 930.00 970.00 530.00
300,000.00 930.00 990.00 1,010.00 N/A
400,000.00 1,010.00 1,050.00 1,060.00 N/A
500,000.00 1,090.00 1,120.00 1,120.00 N/A
750,000.00 1,280.00 1,400.00 1,470.00 N/A
1,000,000.00 1,490.00 1,690.00 1,820.00 N/A
54
53
TABLE 5.2.2-B
CTPL PREMIUM (1 YEAR)

Classification Premium Doc. Stamps EVAT L.G.T. Other Total Premium w/ Taxes
Private Car 447.01 56.00 53.64 0.89 50.40 607.95
CV - Light/Medium 486.92 61.00 58.43 0.97 50.40 657.72
Not Over 3,930 kgs.
CV - Heavy 957.88 120.00 114.95 1.92 50.40 1,245.14
Heavy Trucks and Buses Over 3,930 kgs.
Motorcycle 199.55 25.00 23.95 0.40 50.40 299.30
Motorcycles / Tricycles / Trailers
CTPL PREMIUM (3 YEARS)
Private Car 1,285.14 161.00 154.22 2.57 50.40 1,653.33
CV - Light/Medium 1,396.89 175.00 167.63 2.79 50.40 1,792.71
Not Over 3,930 kgs.
CV - Heavy 2,746.34 343.50 329.56 5.49 50.40 1,792.71
Heavy Trucks and Buses Over 3,930 kgs.
Motorcycle 574.72 72.00 68.97 1.15 50.40 767.24
Motorcycles / Tricycles / Trailers
Fire Premium Rates:
TABLE 5.2.2-C
Residential Zone 1 Class A 0.100%

Church Zone 1 Class B 0.307%
Residential Zone 2 Class B 0.336%
Brick Warehouse Zone 2 Class A 0.437%
Garments Factory Zone 1 Class A 0.605%
General Accident Premium Rates:
Plate Glass - Usually 0.25% to 1.25% but can go up to 3%
Property Floater 2.5% to 3.5% (Paintings at least 3%)
Merchandise Floater 4%
Aviation Premium Rates:
Hull 5%
Hull War 0.20%
54
Engineering Premium Rates:
TABLE 5.2.2-D
Contractors' All Risk

Works Rate Range
Residential Buildings 0.200% -0.275
Office / Commercial Buildings (up
to 5 stories) 0.225% - 0.300%
High Rise Buildings (max. 4
basements) 0.225% - 0.350%
Factories / Warehouses (max. 2
stories) 0.225% - 0.300%
Bridges (max. 3 spans) 0.400% - 0.500%
Road Works (w/n city limits) 0.300% - 0.500%
Highways / Mountain Roads 0.300% - 0.500%
Erection All Risk
Power Plants 0.300% - 0.500%
Water Supply, Sewage
Treatment 0.300% - 0.500%
Garbage Handling / Treatment 0.400% - 0.500%
Radio, Television, Telephone 0.300% - 0.500%
Pulp and Paper Industry 0.300% - 0.600%
Printing / Packing Materials
Industry 0.225% - 0.400%
Textile Industry 0.225% - 0.400%
Food Industry 0.225% - 0.400%
Food Ref., Canneries, Cold
Storage 0.225% - 0.400%
Relevance: AIC, like other insurance companies, need to ensure it is able to accurately
determine the amount of risk involved so that losses due to claims do not exceed premium
revenue. This entails tapping the services of experienced industry experts such as those
with vast underwriting experience as well as implementing claims monitoring information
systems that can later be mined for information and relevant trends. Considering the intense
price competition that resulted in similar rates for the players and the imposition of minimum
rates by the Insurance Commission, AIC should continue with its efforts in trying to
differentiate through packaged products with add-ons that insurance buyers will value.
55
5.2.3 Distribution Channels
Taking into consideration the distribution channels of the non-life insurance industry, AIC will
need to foster good working relationships with brokers and agents as well as maintain good
business relationships with other insurance companies.
Direct
The direct business of insurance companies is commonly coursed through its branches as
well as through licensed brokers and agents. This channel has an estimated value of Php
23.29 billion in gross premium revenues with a share of 63.13% of the total non-life
insurance industry55. This distribution channel contracted by 1.53% from 2008 to 2009 and
then increased by 12.48% from 2009 to 2010 in terms of Gross Premium revenue. The
share of this channel decreased from 67.44% in 2008 to 63.13% in 2010.
Relevance: Direct business comprises the majority of the business of non-life insurance
companies such as AIC. The recent emergence of bancassurance may signal some
potential changes in the distribution landscape of the insurance industry. The Global
Insurance Center projects the continued growth in popularity and acceptance of the
bancassurance model. In 2010, BSP reviewed 23 bancassurance applications and
55
56
approved 2256. Bancassurance extends the distribution network of insurance companies by
allowing them to sell insurance products in bank branches of bancassurance partners.
Some major players in the industry have already partnered with banks to tap their network of
branches and increase their reach. For instance, BPI/MS has partnered with BPI and
Malayan has partnered with RCBC. AIC may need to establish more partnerships as well to
be able to continue to effectively compete with the current top players.
Indirect
The indirect business of insurance companies is normally coursed through other insurance
companies via treaties or facultative agreements. This occurs when insurance companies
cede risk to other insurance companies in the form of reinsurance. This channel has an
estimated value of Php 13.6 billion in gross premium revenues with a share of 36.87% of the
total non-life insurance industry57. This channel increased by 16.17% from 2008 to 2009 and
by 15.33% from 2009 to 2010 in terms of Gross Premium revenue. The share of this channel
increased from 32.56% in 2008 to 36.87% in 2010.
Relevance: The significant increase in ceded risk in the form of reinsurance can also
indicate a lower retention ratio in the non-life insurance industry. When ceding to or
accepting cession from other insurance companies, AIC should ensure it has sound policies
that protect it against excessive risk exposure to counterparties failing to satisfy their
obligations due to capacity, solvency, or liquidity problems. AIC should monitor its
reinsurance recoverable on paid losses and ensure that counterparties in its treaties and
facultative agreements are able to settle their accounts in a timely manner. This will help
AIC protect its solvency and level of liquidity. Since around 95% of treaty and 75% of
facultative outbound reinsurance of AIC is with foreign entities and in consideration of the
increasing share of this distribution channel, the company should ensure it maintains strong
56
Manila Bulletin / BSP to fast-track bancassurance approvals January 18, 2011
57
57
relationships with these foreign companies. AIC should also build stronger ties with local
entities in view of the fact that all of its inward reinsurance is through local companies.
TABLE 5.2.3-A
(Php Millions) 2008 2010 2008-09 2009-10

Channel 2008 2009 2010 % of total % of total % increase % increase
Direct 21,030.50 20,708.40 23,292.40 67.44% 63.13% -1.53% 12.48%
Indirect 10,151.50 11,793.00 13,601.40 32.56% 36.87% 16.17% 15.33%
5.2.4 Marketing and Promotions
Insurance companies rely heavily on sales generated by its relationships with brokers,
agents, and other insurance companies. Thus, most of its marketing efforts are geared
towards establishing strong working relationships with these entities. Recently,
bancassurance has gained popularity and resulted in banks serving as touch points to
insurance buyers. Some degree of marketing is also coursed through these partner
establishments. In view of the large premium revenue generating potential of the motor
category, some top players in the industry have also partnered with auto servicing shops to
help promote their brands and facilitate faster processing of motorcar claims.
Malayan
Most of Malayans marketing efforts are coursed through brokers, agents, and its 42
branches and offices. It has also partnered with RCBC so that the bank can cross-sell its
products and services. This bancassurance partnership extends its network of branches
and offices to 398.
The company also has 10 branded and packaged products to enable it to differentiate itself
from its competitors. To further strengthen its position in the motor category, it partnered
with Phoenix Petroleum to help market its Todo Karga brand. The company also tries to
leverage on technology with its online presence in the form of a corporate website and social
networking pages58.
58
58
Prudential
Like Malayan, Prudentials marketing efforts are mostly coursed through brokers, agents,
and its 34 branches and offices. Recognizing the significance of the motor category, the
company partnered with PGA cars to help promote its products and also help in claims
processing. The company also has an online presence in the form of a corporate website
and social networking pages59.
BPI/MS
Similar to the other players of the industry, most of BPI/MSs marketing efforts are channeled
through brokers, agents, and its 13 branches and 5 evaluation centers. The company has
also partnered with BPI so that the bank can cross-sell its products and services. This
valuable partnership extends its network of branches and offices to 683 and helps fuel its
impressive growth in the last 5 years. Its network of branches and offices will likely continue
to grow as more bancassurance sales executives are assigned to BPI bank branches
nationwide. Currently, only selected BPI branches have bancassurance sales executives.
The company also engages in branding its packaged products to enable it to differentiate
from its competitors. BPI/MS also makes use of technology by maintaining an online
presence in the form of a corporate website and social networking pages60.
Relevance: Generally speaking, insurance products are intrinsically hard to distinguish
when viewed from the perspective of the buyer. This makes the efforts of some players to
differentiate through branding seem like a sound marketing strategy. AIC should look into
creating more brands for its generic products to try and differentiate itself and compete
effectively. AIC should also try to form more partnerships to increase its reach and improve
its market presence. It can try partnering with a reputable bank that will cross-sell its
products. On top of this, AIC should try to establish more partnerships with auto servicing
shops as well so they can help promote the companys products and further speed up the
59
60
Bank of the Philippine Islands & Mitsui Sumitomo Insurance (www.bpims.com)
59
processing of motor vehicle related claims. Motor is the largest product category with the
highest share amounting to 32.02%61.
5.3 External Factor Evaluation (EFE) Matrix
5.3.1 Opportunities and Importance Weight
O1. Enactment of RA 10022 has led to the Compulsory Insurance Coverage for Agency-
Hired Migrant Workers (Macro - Political)
WEIGHT 10%: This was given a moderate weight since it is still in the initial stages of
implementation by the Insurance Commission but it does have potential to significantly
increase premium revenue. Considering that the Bangko Sentral ng Pilipinas believes that
there is continued strong demand for skilled Filipino workers abroad, providing coverage for
agency-hired workers can potentially be quite profitable.
O2. The Global Insurance Center projects the continued growth in popularity and
acceptance of the bancassurance model. In 2010, BSP reviewed 23 bancassurance
applications and approved 22. Bancassurance extends the distribution network of insurance
companies by allowing them to sell insurance products in bank branches of bancassurance
partners. (Market Analysis)
WEIGHT 15%: This was given a high weight since it can significantly impact an insurance
companys capacity to generate gross premium revenue. Bancassurance allows an
insurance company to considerably extend its distribution network and sell its products
through bancassurance partner bank branches without having to heavily invest in adding to
its own branch network.
O3. 91.4% or 710,822 of the total 780,437 business enterprises operating in the Philippines
are micro enterprises. According to PIRA estimates, the local microinsurance market is
potentially worth Php 2 billion with around Php 1.8 billion still untapped. (Macro - Economic)
WEIGHT 10%: This was given moderate weight since it can potentially increase premium
revenue assuming risk exposure is managed well. Micro enterprises make up 91.4% of all
61
60
businesses thus providing products and services to this large segment will help increase
overall insurance penetration in the country and significantly increase the premium revenue
of any insurance company that will be able to capture this market.
O4. Real GDP is forecasted to grow at a rate of 5.0% in 2011, 4.8% in 2012, and 4.7% in
2013. Growth in GDP indicates growth in overall production of final goods and services
within the country and this can translate into more goods and services that will require
insurance coverage. (Macro - Economic)
WEIGHT 15%: This was given a high weight since growth of GDP can potentially increase
the premium revenue for multiple product lines of insurance companies. Growth in the
production of final goods and services can translate to more goods and services requiring
insurance coverage.
O5. The number of motor vehicles in the country is forecasted to grow to around 7.5 million
in 2011, 8.5 million in 2012, and 9.5 million in 2013. (Macro - Economic)
WEIGHT 10%: This was given a moderate weight since the growth of the motor market
can potentially increase premium revenue for the motor car product category. The increase
in motor market size can translate to more insurance buyers for the TPL and Comprehensive
motor insurance products. The motor car category currently generates the most premium
revenue for the non-life insurance industry. It is the primary source of premium revenue for
most insurance companies including the top 4.
5.3.2 Threats and Importance Weight
T1. Motor vehicle related traffic accidents are on the rise. Vehicles involved in traffic
accidents have increased from 7,267 in 2007 to 15,750 in 2009 and road accident related
deaths is currently growing at 4.2% per annum. (Macro Socio-Cultural)
WEIGHT 10%: This was given moderate weight since it can potentially increase losses
due to claims for the motor car product line of insurance companies. The increase in claims
cost will in turn decrease income and negatively affect the companys profitability. The
motor car line currently generates the highest amount of gross premium revenue for the non-
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life insurance industry and is thus considered by many insurance companies to be one of the
more important lines.
T2. Graft, corruption, and other irregularities at the Land Transportation Office are starting to
endanger systems vital to insurers. (Macro Political / Government / Legal)
WEIGHT 5%: This was given a low weight even though it does have an effect on the motor
car product line since it can only potentially slow down the existing process but manual
operations can still be performed. The graft, corruption, and other irregularities at the Land
Transportation Office are endangering the smooth and continued use of the Certificate of
Cover Authentication Facility (COCAF) system which is used to protect against fake
insurance policies. These irregularities together with some legal issues with Stradcom have
affected LTO operations and can potentially affect its future operations as well. Insurance
policy issuance is closely tied to the registration operations of the LTO.
T3. There is strong rivalry among competitors in the non-life insurance industry (5 Forces)
WEIGHT 15%: This was given the highest weight since the strong rivalry among
competitors has resulted in a price war that has brought down premium rates. It reached a
point where the Insurance Commission had to step in and impose minimum premium rates
to ensure the stability and solvency of insurance companies. Premium revenue is the main
source of revenue for insurance companies and is only supplemented by investment income
and interest income.
T4. Based on the Family Income and Expenditure Survey of 2009, insurance expenditure as
a percentage of total family expenditure is decreasing. Insurance expenditure which was at
Php 6.4 billion less premium revenue for the insurance industry. (Macro - Economic)
WEIGHT 10%: This was given moderate weight because it affects the premium revenue
per family of insurance companies. With a smaller share of expenditure, insurance
companies will need to compensate by trying to reach more insurance buyers. In addition,
the overall impact on the non-life insurance industry as a whole is also significant.
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5.3.3 Opportunities and Responsiveness Ratings
O1. Enactment of RA 10022 has led to the Compulsory Insurance Coverage for Agency-
Hired Migrant Workers (Macro - Political)
RATING 4: AIC immediately sprung into action after recognizing the significant potential
premium revenue that can be generated from the OFW market segment. It is currently 1 of
only 3 non-life insurance companies accredited to provide coverage for RA 10022 and it has
even had its policy form already approved by the Insurance Commission62. The list of those
already accredited to provide coverage does not yet include any of AICs key competitors.
O2. The Global Insurance Center projects the continued growth in popularity and
acceptance of the bancassurance model. In 2010, BSP reviewed 23 bancassurance
applications and approved 22. Bancassurance extends the distribution network of insurance
companies by allowing them to sell insurance products in bank branches of bancassurance
partners. (Market Analysis)
RATING 1: AIC currently does not have any bancassurance partnerships even though
some of its key competitors such as Malayan and BPI/MS have already ventured into
bancassurance. This is primarily why some of AICs key competitors have significantly more
extensive distribution networks.
O3. 91.4% or 710,822 of the total 780,437 business enterprises operating in the Philippines
are micro enterprises. According to PIRA estimates, the local microinsurance market is
potentially worth Php 2 billion with around Php 1.8 billion still untapped. (Macro - Economic)
RATING 1: AIC currently does not offer non-life microinsurance specifically geared
towards capturing the micro enterprise market. Only AIC Life, its sister company, offers
microinsurance.
O4. Real GDP is forecasted to grow at a rate of 5.0% in 2011, 4.8% in 2012, and 4.7% in
2013. Growth in GDP indicates growth in overall production of final goods and services
62
Insurance Commission / List of Accredited Insurance Providers for RA10022 2010
63
within the country and this can translate into more goods and services that will require
insurance coverage. (Macro - Economic)
RATING 3: AIC seems responsive and takes advantage of opportunities presented by
growth. The fact that the company has grown faster than the growth rate of GDP for the last
3 years seems to indicate it is responsive to growth.
TABLE 5.3.3-A
2008 2009 2010

Real GDP Growth Rate 4.2% 1.1% 7.6%
AIC Growth
Pioneer RateRate
Growth 4.55% 11.76% 18.28%
Source: Bangko Sentral ng Pilipinas (Historical GDP)
O5. The number of motor vehicles in the country is forecasted to grow to around 7.5 million
in 2011, 8.5 million in 2012, and 9.5 million in 2013. (Macro - Economic)
RATING 4: AIC is quite aggressive in terms of trying to improve its motor insurance
products to better serve potential and existing motor insurance buyers. On top of the usual
coverage for motor, AIC also offers overnight accommodation in case the motor vehicle
breaks down and it cannot be fixed within the day. AIC offers Hotel Overnight
Accommodation of up to Php 1,000 (maximum of two nights). In addition, AIC also offers
Fastbreak or motor claims processing within 3 hours of claims under 15,000.
5.3.4 Threats and Responsiveness Ratings
T1. Motor vehicle related traffic accidents are on the rise. Vehicles involved in traffic
accidents has increased from 7,267 in 2007 to 15,750 in 2009 and road accident related
deaths is currently growing at 4.2% per annum. (Macro Socio-Cultural)
RATING 3: To compensate for the increasing losses due to claims for the motor car
product line, AIC can strive to better manage its other risk exposures and achieve a lower
overall claims or loss ratio. In addition, the company can also try to increase its premium
revenue to decrease its claims cost in proportion to its total premiums earned. This will also
help ensure there is sufficient amount of premium revenue to cover the increasing claims
cost. In this light, AIC was able to decrease its claims ratio from 53.19% in 2009 to 41.86%
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in 2010. AIC was also able to increase its Gross Premium revenue by 18.28% from Php
2,299,824,733 in 2009 to Php 2,720,185,71 in 2010.
T2. Graft, corruption, and other irregularities at the Land Transportation Office are starting to
endanger systems vital to insurers. (Macro Political / Government / Legal)
RATING 3: AIC has tried to avoid lines within the motor car product category that are more
heavily dependent on and more closely tied to the Land Transportation Office. AIC has
focused more on the line referred to as Other than Compulsory Motor Vehicle Liability
(CMVL) Non-LTO. Around 92.3% of AICs premium revenue for the motor car product
category comes from this line.
T3. There is strong rivalry among competitors in the non-life insurance industry (5 Forces)
RATING 3: Even though strong rivalry is bringing down premium rates, AIC tries to
compensate by increasing its market share. This is evidenced by the increase in AICs
market share from 7.08% 2009 to 7.37% in 2010 as well as the CAGR in Gross Premiums
Earned of 7.41% from 2006 to 2010. In addition, AIC has a broad array of products and also
keeps a close eye on potentially lucrative new opportunities such as the implementation of
the RA 10022 or the Compulsory Insurance for Migrant Workers Act.
T4. Based on the Family Income and Expenditure Survey of 2009, insurance expenditure as
a percentage of total family expenditure is decreasing. Insurance expenditure which was at
Php 6.4 billion less premium revenue for the insurance industry. (Macro - Economic)
RATING 3: To compensate for the smaller share in expenditure, an insurance company
can try to reach more insurance buyers and increase its market share. AICs market share
increased from 7.08% in 2009 to 7.37% in 2010. AIC also increased its gross premium
revenue and posted the second highest compound annual growth rate of 7.41% from 2006
to 2010.
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5.3.5 EFE Matrix Table
Respon-
Importance
siveness Wt.
Opportunity Source Weight
Rating Score
(0%to100%)
(1 to 4)
O1. Enactment of RA 10022 has led to the Compulsory Insurance
Macro 10% 4 0.40
Coverage for Agency-Hired Migrant Workers
Political
O2. The Global Insurance Center projects the continued growth in

popularity and acceptance of the bancassurance model. In 2010, BSP
reviewed 23 bancassurance applications and approved 22.
Market 15% 1 0.15
Bancassurance extends the distribution network of insurance
Analysis
companies by allowing them to sell insurance products in bank
branches of bancassurance partners.
O3. 91.4% or 710,822 of the total 780,437 business enterprises

operating in the Philippines are micro enterprises. According to PIRA
Macro 10% 1 0.10
estimates, the local microinsurance market is potentially worth Php 2
Economic
billion with around Php 1.8 billion still untapped.
O4. Real GDP is forecasted to grow at a rate of 5.0% in 2011, 4.8% in

2012, and 4.7% in 2013. Growth in GDP indicates growth in overall
production of final goods and services within the country and this can Macro 15% 3 0.45
translate into more goods and services that will require insurance Economic
coverage.
O5. The number of motor vehicles in the country is forecasted to grow

to around 7.5 million in 2011, 8.5 million in 2012, and 9.5 million in Macro 10% 4 0.40
2013. Economic
Respon-
Importance
siveness Wt.
Threats Weight
Rating Score
(0%to100%)
(1 to 4)
T1. Motor vehicle related traffic accidents are on the rise. Vehicles
involved in traffic accidents has increased from 7,267 in 2007 to 15,750
Macro
in 2009 and road accident related deaths is currently growing at 4.2%
Socio-Cultural
per annum. 10% 3 0.30
T2. Graft, corruption, and other irregularities at the Land Transportation

Office are starting to endanger systems vital to insurers. Macro 5% 3 0.15
Political
T3. There is strong rivalry among competitors in the non-life insurance
industry 15% 3 0.45
5 Forces
T4. Based on the Family Income and Expenditure Survey of 2009,
insurance expenditure as a percentage of total family expenditure is
decreasing. Insurance expenditure which was at 1.88% in 2006 Macro -
decreased to a smaller share of only 1.69% in 2009 that translated to Economic
around Php 6.4 billion less premium revenue for the insurance industry. 10% 3 0.30
Total 100% 2.70
Rating Score: 4 = superior response, 3 = above average, 2 = average, 1 = poor
AIC has an above average responsiveness to threats and opportunities as indicated by its
total weighted score of 2.70 which is higher than the average of 2.5. This means that AIC is
able to take advantage of opportunities and minimize the effects of threats. However, given
66
that the highest possible score is 4, AIC still has a lot of space for improvement. First, it
should strive to establish a bancassurance partnership with one of the larger banks in the
country that has an extensive existing network of branches. This will extend AICs
distribution network and help the company reach more insurance buyers. Second, the
company should try to offer its products and services to the large micro enterprise market
which can increase its premium revenue and potentially increase its market share. This can
be done by venturing into microinsurance. The company may even opt to leverage on the
microinsurance experience of AIC Life, its sister company.
5.4 Strategic Issues Based on External Factors
Historically speaking, the growth of the non-life insurance industry has been greatly
dependent on the performance of brokers and agents. Brokers and agents have served and
continue to serve as the primary entities in the insurance buying process. Based on the
Value Chain Analysis, brokers and agents are able to capture a significant amount of value
in the distribution step. Unfortunately, this model of generating premium revenue also limits
the industry's growth to the selling capacity of brokers and agents. This limitation becomes
evident in the relatively low level of insurance penetration in the country. The emergence of
bancassurance empowers insurance companies to break free from this limitation and extend
its reach. Bancassurance allows companies such as BPI/MS to expand its network of
branches and offices and connect with more potential insurance buyers across the country.
Thus, it is not surprising that based on Market Analysis and the Competitive Profile Matrix
BPI/MS posted the highest compound annual growth rate in the last five years compared to
its key competitors. The company was able to fuel its growth by leveraging on the existing
branch network of its bancassurance partner. This underscores the need for all members of
the top 4, including AIC, to similarly try to augment their existing network by establishing
their own bancassurance partnerships. Given the huge disparity between AIC's existing
branch network and that of BPI/MS, AIC should set this as one of its top priorities if it wants
to remain competitive. If AIC fails to expand in time then it will likely be left behind by the
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other top players of the industry. On top of this, the smaller share of insurance expenditure
also underscores the need for insurance companies to compensate by trying to reach more
insurance buyers. Another strategic issue hounding the industry involves trying to remain
profitable in the face of strong rivalry that is putting downward pressure on premium rates.
This is coupled with the rising cost of losses due to claims brought about by the more
frequent occurrence of covariant risk events such as calamities. This type of risk affects
multiple product lines of non-life insurance companies and costs billions in damages. In fact,
Malayan, the market leader whose performance is currently faltering, is grappling with this
problem in trying to improve its profitability. One of the reasons its growth trend has declined
in the past 5 years is because it is trying to improve profitability by sacrificing gross premium
growth and getting rid of unprofitable accounts. It is trying to accomplish this amidst its rising
losses due to claims. AIC and its key competitors will need to find ways to address these
strategic issues that stem from external factors for growth to continue.
6. COMPANY ANALYSIS
6.1 Vision and Mission of the Company
Company Vision Statement
To be a model Filipino enterprise
Vision Statement Evaluation Table
Parameter Yes Why

/ No
Does it clearly answer No The statement is vague and does not specify what type of
the question: What do business it wants to become or what line of business it wants to
we want to become? pursue. It also does not indicate what constitutes a model
Filipino enterprise.
Is it concise enough yet No It is concise but it is not really inspirational. It does not seem
inspirational? motivating or does not elicit a strong desire to try and achieve the
objective. One possible reason for this is that the statement
does not specify what constitutes a model Filipino enterprise.
Is it aspirational? No Due to the lack of detail it becomes difficult to accurately

ascertain whether or not the organization has already achieved
its vision or still aspiring to achieve it.
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Does it give clear No There is no time-frame mentioned in the statement.
indication as to when it
should be attained?
Company Mission Statement
Were in the business of affording

our clients peace of mind
by providing them
with financial options to secure
what matters to them.
Mission Statement Evaluation Table
Parameter Yes / If yes, which part of the statement

No
1. Customers Yes It was mentioned in affording our clients peace of mind.

Considering that non-life insurance is offered to the
general public the statement seems specific enough.
2. Products & services No The statement mentions financial options to secure what
matters to them but does not specify what type of
options. The phrase financial options may be too
ambiguous and may lead to confusion as to what the
company can and cannot venture into later on in terms of
products and services.
3. Markets No There is no mention of markets.
4. Technology No There is no mention of technology.
5. Concern for survival, No There is no mention of what the company will do to

growth, profitability ensure survival, growth, and profitability.
6. Philosophy No There is no mention of the companys values, beliefs,

and aspirations.
7. Self-concept No There is no mention of the companys major competitive

advantage or distinctive competence.
8. Concern for employees No There is no mention of the companys concern for its
employees.
9. Concern for nation building No There is no mention of the companys concern for nation
building.
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6.2 Internal Audit
Management
AIC utilizes strategic management concepts by engaging in strategic formulation,
implementation, and evaluation. The company has a strategic management process in
place that is internally referred to as Strategic & Action Planning (SAP). This process
includes the formulation and implementation of strategic objectives as well as the evaluation
of its performance based on a balanced scorecard. It involves all levels of the organization
and is conducted annually. The plans cover a 3 year time period but is adjusted and
updated annually. The process usually begins around August of each year and ends in
January of the following year. The company is able to clearly identify and communicate
objectives and goals through the SAP process which involves all levels of the organization.
It also has processes in place that help it measure its performance and progress towards
achieving its objectives and goals. The process also involves utilizing tools such as SWOT
matrices, balance scorecards, worksheets, action plans, and performance plans. Individual
employees are even partly evaluated in the performance appraisal process by comparing
their actual performance versus the individual performance plans they created and submitted
during the SAP process.
There seems to be a clear line of authority and chain of command and managers are
able to delegate both authority and responsibility to their subordinates. Since individual
employees are held responsible for achieving the objectives and goals stated in their
individual performance plans, the company empowers individuals with the authority
necessary to accomplish their tasks and achieve their objectives and goals.
In terms of structure, the company has an organizational structure that utilizes a
combination of the vertical functional approach and divisional approach. This seems to
support the companys strategy by negating the weaknesses of the divisional structure such
as higher cost implications as well as leveraging on the advantages of a vertical functional
structure for its shared services such as economies of scale and efficient resource use. The
company has a vertical functional organizational structure with divisions that focus on each
70
product line integrated into the structure. It also has a shared services group that is
comprised of divisions such as Organizational Development, Marketing, Business Support
Services, Office & Administration, and Legal. The company is able to practice efficient use of
resources with its Shared Services Group while empowering the product line divisions to
adapt and respond to the changing needs of their respective lines. The structure allows the
company to leverage on the strengths of the divisional structure without the attendant costs
of redundant functions found in more typical divisions.
Human Resources
Looking at human resource management indicates some positive aspects as well as
some potential issues of the company. For instance, the company maintains job
descriptions and job specifications but not all can be considered clear. During the course of
conducting several interviews with company personnel the following issues pertaining to job
descriptions were mentioned:
Some functions were transferred to an organizational unit but management did not
specify whether it was temporary or permanent
Additional responsibilities were assigned to personnel that go beyond the scope of
their job descriptions
Some personnel do not possess a copy of their job description
It should be mentioned that these issues seemed uncommon. On the positive side,
employer turnover at the company is lower than the average of the industry. According to
the Human Resources Administration Department, employee turnover at the company is at
9% while the average industry turnover is 12%. In addition, the company seems able to
effectively utilize reward and control mechanisms. Employees are motivated to vie for
awards such as the MVP, WOW, and Loyalty awards.
Some examples of control mechanisms are:
Turnaround time monitoring for operational activities of the different lines
After Action Review evaluation of performance such as what could have been done
better
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Yearend Report to the President and CEO by the branch, line, and department heads
Results of performance appraisals are used as one of the determinants of the
amount of profit share an employee should receive
These control mechanisms seem to be effective considering the current performance of the
company. AICs ranking improved from 5th in the industry in 2009 to 4th in 2010. Moreover,
the company received four awards including Best Insurer in the Philippines and Best
Insurer in Asia in 2010.
Marketing
The company segments markets based on the type of insurance they need such as fire, hull,
cargo, motor, engineering, aviation, and general accident. The company then identifies key
entities based on the roles they play in the insurance buying process to be able establish
links with potential customers. These entities include the following subgroups:
Primary entities - composed of brokers
Secondary entities - composed of agents, direct clients, and contractors
Decision makers - composed of brokers, agents, and direct clients
Insurance companies such as AIC offer seemingly homogenous products. There are many
points-of-parity and few points-of-difference. Riders which refer to additional coverage
options are mostly what differentiate one insurance product from the next. AIC currently
employs what may be considered a type of personnel differentiation strategy. The
companys strategy entails relying on deep and well established relationships with brokers,
agents, and direct clients to differentiate against competitors. The company internally refers
to this thrust as Wowing Your World or WYW.
Considering that the companys market share improved from 6.74% in 2006 to 7.37% in
2010, AICs marketing and sales team seem to be effective. The company has account
management personnel who contribute to premium revenue growth. As shown in the table
below, the companys Gross Premium Revenue has been constantly increasing for the past
5 years. Even the growth rate seems to be trending upwards.
72
TABLE 6.2-A
Year Gross Premiums % Increase

2006 1,902,921,338
2007 1,968,258,148 3.43%
2008 2,057,802,651 4.55%
2009 2,299,824,733 11.76%
2010 2,720,185,713 18.28%
The company also seems to excel in terms of product quality and customer service.
This is evidenced by the four awards that the company received from XYZ Magazine
Insurance Survey 2010. XYZ Magazine is a reputable organization and a leading journal for
international financial markets. The XYZ Magazine Insurance Survey is an annual client-
based ranking of the best providers of insurance services and products. Respondents are
asked to identify their top three insurance companies in order of quality63. The company
received the following four awards:
Best Insurer in Asia
Best Insurer in the Philippines
Best Insurer General Property & Casualty Asia
Best Insurer Employer Liability Asia
In terms of pricing, the company adheres to previously agreed upon minimum premium
rates. It complies with the Insurance Commissions Circular Letter 21-2010 and was even
party to the Declaration of Mutual Covenant and Undertaking by the top 25 companies in
the industry which promises adherence to the minimum premium rates stipulated by the
Insurance Commission64. The company is also a member of the Philippine Insurers and
Reinsurers Association and abides by the previously agreed upon premium rates stipulated
by the members.
To sell its products, the company promotes and advertises and even releases special
targeted print ads for areas affected by calamities such as typhoon and flooding. On top of
63
64
Insurance Commission (www.insurance.gov.ph)
73
this, the company also has an Agents Development & Servicing Department that establishes
and maintains communication links with those that assume the role of decision maker in the
insurance buying process. The company also tries to entice renewal of policies by offering
incentives and promos such as discounted premium rates upon renewal.
Finance
The financial ratio analysis indicates that the company is weak with respect to its Activity
ratios such as Fixed Assets and Total Assets Turnover. It is also weak in terms of
Profitability as evidenced by its low Operating Profit Margin and Net Operating Margin. The
analysis also shows that the company is strong with respect to the growth rates of its Sales
and Net Income. In addition, the company has a healthy level of liquidity as indicated by its
current and quick ratios.
The following ratios indicate financial weaknesses of the company since they show ratios
that are both below the average of key competitors and the industry average:
TABLE 6.2-B
Ratio
Fixed Assets Turnover 1.99
Total Assets Turnover 0.24
Operating Profit Margin 6.29%
Net Operating Margin 5.42%
The following ratios indicate financial strengths of the company since they show ratios that
are both better than the average of key competitors and the industry average:
TABLE 6.2-C
Ratio
Current Ratio 1.76
Quick Ratio 1.76
Sales Growth 18.28%
Net Income Growth 362.06%
74
In terms of debt, the company seems capable of raising short term capital. It can utilize its
high level of Fixed Assets as collateral in obtaining a short term loan from financial
institutions. However, this may no longer be necessary considering its high level of liquidity.
The company already maintains a high level of liquidity as evidenced by its current ratio of
1.76. However, if the need to raise short term capital arises it is also capable of securing a
short term loan. This is evidenced by the company securing short term loans of 320 million
in 2009 and 135 million in 2010 recorded under notes payable. Moreover, the company has
an exceptionally large Fixed Asset base which can be used to secure loans. The company
has Fixed Assets amounting to Php 1,367,528,132 as of 2010. Looking at working capital,
the company maintained a high level of working capital in 2009 and 2010 as shown in the
table below.
TABLE 6.2-D
2010 2009
Current Assets 8,848,826,980 8,014,234,295
Current Liabilities 5,038,536,503 4,183,536,906
Working Capital 3,810,290,477 3,830,697,389
The company seems to have the capacity to handle its existing risk exposure as well as take
on additional risk. According to the Insurance Commissions ranking based on networth for
2010, AIC has a networth of Php 6,354,111,077. AIC is ranked by the Insurance
Commission as no.1, Malayan as no.2, BPI/MS as no. 3, and Prudential as no. 13. Thus,
the company seems to have more than enough assets to cover its liabilities.
Operations
AICs offices, facilities, and equipment are in good condition and well maintained. Aside
from this fact being evident through a cursory ocular inspection, the financial information also
75
seems to support it. The companys property and equipment are valued at Php
1,367,528,132 and the depreciation on buildings, property and equipment was only Php
21,799,531 in 2010 and only Php 19,181,199 in 2009.
The company has 34 offices and branches spread throughout the country. There are
offices in Luzon, Visayas, and Mindanao and a head office strategically situated in Makati
which is the main central business district of the country. It also has an office building in
Cebu which is the center of business and commerce in Visayas. However, it should be
mentioned that it has significantly fewer branches and offices compared to some of its key
competitors such as Malayan and BPI/MS. This is primarily because Malayan and BPI/MS
augment their own branches with bancassurance partner branches to significantly extend
their distribution network.
The company also has quality control policies and procedures in place. For instance,
the quality of underwriting determines the amount of potential losses due to claims that an
insurance company incurs. In this light, the company has been able to maintain a low loss
or claims ratio indicating a relatively high quality of underwriting activity. The company was
able to decrease its claims or loss ratio from 53.19% in 2009 to just 41.86% in 2010. In
addition, the lower loss ratio it posted in 2010 was better than the average loss ratio of its
key competitors which was 44%. Malayan, the current market leader, even posted a loss
ratio of 55%.
6.3 Mckinseys 7S Framework
6.3.1 Strategy
Differentiation
In 2006, the company commissioned a market study to gauge its positioning relative to its
competitors. Based on the results of that study, the company decided to embark on a new
differentiation strategy. From 2006 onwards the company endeavored to implement a
differentiation strategy of building relationships with its customers based on its corporate
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values. The company views this as being in line with its vision of becoming a model Filipino
enterprise. The company internally refers to this differentiation strategy as Wowing your
world (WYW). Wowing is defined by the company as demonstrating and providing a set
of tangible and intangible benefits beyond the functional features, a combination of which
provides value beyond what the customer had expected to receive. This is operationalized
through a Balanced Scorecard that is cascaded throughout all levels of the organization and
integrated into the Strategic & Action Planning process of the company. It also factors into
the determination of the financial, customer, learning & growth, and process objectives of the
company.
Conclusion Effective
Considering that the companys market share has increased from 6.74% in 2006 to 7.37% in
2010, the companys differentiation strategy seems to be effective since there was growth in
market share. It should also be noted that in the same period, only one of its key
competitors also gained market share. Malayans market share decreased from 18.96% in
2006 to 14.49% in 2010 while Prudentials market share decreased from 10.19% in 2006 to
9.89% in 2010. On the other hand, BPI/MS increased its market share from 7.57% in 2006
to 9.59% in 2010. Although it performed better than those ranked no. 1 and 2, AIC should
still try to improve its efforts to differentiate and better position itself against its competitors
so it can effectively compete, gain more market share, and catch up with those ranked
above it. Currently the company is more focused on building the AIC brand rather than
engaging in branding any specific product or set of packaged products. On the other hand,
BPI/MS which gained the highest market share in the past 5 years compared to the other
members of the top 4, has started to do more branding of specific products. In this light, AIC
may explore employing a similar product specific branding strategy to further differentiate
itself from its key competitors. Considering that insurance products are quite homogenous in
nature, this might be an effective means to improve its differentiation strategy.
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Market Penetration
AIC currently has 34 branches and offices spread throughout the country. Its most recent
significant addition to its existing network of branches was an entire office building in Cebu.
The company is also trying to further improve market penetration by targeting specific
segments within its existing target market. For instance, it recently completed accreditation
to provide coverage for Republic Act 10022 or the Compulsory Insurance Coverage for
Agency-Hired Migrant Workers Act.
Based on the fact that the companys Gross Premium Revenue has been steadily increasing
for the past five years and that the company increased its market share from 7.08% in 2009
to 7.37% in 2010, the market penetration strategy seems to be effective. The company
should continue with this strategy.
TABLE 6.3.1-A
Year Gross Premiums % Increase

2006 1,902,921,338
2007 1,968,258,148 3.43%
2008 2,057,802,651 4.55%
2009 2,299,824,733 11.76%
2010 2,720,185,713 18.28%
Cost Management
The company is implementing a cost management strategy that aims to increase its
profitability through better management of claims costs, rationalizing expenses, and
improving cost efficiency. However, it should be mentioned that the strategy is really geared
towards improving profitability and not intended for attaining the lowest premium rates or
prices.
Conclusion Not Effective
As shown in the table below, the company was only able to slightly reduce its General
Expenses from 30.5% of its Revenues in 2009 to 28.9% in 2010. In addition, the companys
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general expenses as a percentage of revenues in 2010 was higher than all of its key
competitors (refer to Comparative General Expenses Table). The company should strive to
improve its cost management strategy. The company should also ascertain if it can further
reduce the cost impact of the items under general expenses that posted a significant
increase when compared to the previous year (refer to General Expenses Partial Breakdown
Table).
TABLE 6.3.1-B
Comparative AIC Malyan Prudential BPI/MS

General Expenses 2010 2009 2010 2009 2010 2009 2010 2009
Revenue 1,363,288,030 1,216,512,050 3,294,791,044 3,341,379,042 2,271,169,278 2,011,851,588 1,507,527,575 1,280,406,692
General Expenses 393,951,735 370,993,051 744,058,412 728,226,487 641,456,431 569,555,328 351,827,000 309,589,000
% 28.90% 30.50% 22.58% 21.79% 28.24% 28.31% 23.34% 24.18%
TABLE 6.3.1-C
% increase
from previous
General Expenses Partial Breakdown 2010 2009 year
Communication, light and water 35,614,765 29,748,436 20%
Office supplies, printing and stationery 14,429,336 12,447,655 16%
Entertainment, amusement and recreation 13,632,183 10,869,009 25%
Transportation and travel 7,030,355 5,381,491 31%
6.3.2 Structure
AICs organizational structure is tall and has a relatively narrow span of control at each
hierarchical level. Its organizational structure is a combination of vertical functional and
divisional. It has a Shared Services Group composed of divisions and departments
responsible for functions such as organizational development, information technology, and
office administration. In addition, the company also has product line divisions such as its
Marine & Aviation Division and Motor & Special Lines Division. This structure provides for
efficient use of resources for shared services while also empowering product line divisions to
have more control over how they serve their respective market segments.
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A typical divisional structure usually necessitates replicating certain functions within each
division which may lead to higher costs. However, AIC was able to avoid that problem by
creating a Shared Services Group and leaving only critical line specific functions such as
underwriting, policy issuance, and claims processing in each product line division. This
allows the company to manage its costs while still being able to leverage on the strengths of
a divisional structure by delegating more authority to each product line division. Each
product line division is thus empowered to adapt and respond to the changing needs of the
market segment it serves. In this light, the companys organizational structure helps support
its differentiation and market penetration strategies without becoming a hindrance to its cost
management strategy. The companys general expenses have remained stable and even
slightly decreased as a percentage of revenue from 30.5% in 2009 to 28.9% in 2010. At the
same time, the companys market share increased from 7.08% in 2009 to 7.37% in 2010.
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6.3.3 Systems
The 3 major business processes of AIC are the following:
Underwriting & Policy Issuance
The process begins with a request for proposal coursed through a broker or agent or simply
direct from the client. During the proposal stage, information is gathered about the insured
entity and coverage is negotiated. For some lines, conducting actual risk inspection may be
necessary. The policy is issued once the proposal is approved by the client. Product line
divisions are responsible for underwriting and policy issuance for their respective products.
It is within the underwriting and issuance process where risks are selected, evaluated, and
accepted. It is also within this process where terms and conditions are determined including
those pertaining to amount of retention.
The companys underwriting and policy issuance process was able to support its strategy of
increasing market penetration as shown by the increase in Gross Earned Premiums from
Php 2,299,824,733 in 2009 to Php 2,720,185,713 in 2010 coupled with an increase in
market share from 7.08% in 2009 to 7.37% in 2010. This was accomplished while also
decreasing the companys claims or loss ratio from 53.19% in 2009 to 41.86% in 2010. This
illustrates that the underwriting and issuance process was able to support the companys
growth efforts without sacrificing underwriting discipline and quality.
TABLE 6.3.3-A
2010 2009
Net Premiums Earned 948,514,745 852,905,278
Claims Cost 397,066,744 453,674,148
% 41.86% 53.19%
Collection
Once a policy has been issued, an invoice is generated and this is given to the client. This
serves as a reference for premium payment. Payments may be paid directly by the client or
coursed through agents and collectors. If paid directly, an Official Receipt is issued,
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otherwise a provisional receipt is given. No claim will be processed unless the policy has
been paid.
The companys impaired or uncollected insurance receivables as a percentage of total
insurance receivables decreased from 0.68% in 2009 to 0.52% in 2010. Thus, the collection
process seems to be effective.
TABLE 6.3.3-B
2010 2009
Total Insurance Receivables 759,598,054 529,218,537
Impaired / Uncollected 3,924,805 3,616,379
% 0.52% 0.68%
Claims
The claims process begins with the receipt of a notice of loss from the assured, 3rd party
claimant, agent, or service partner. Verification then follows to check if the cause of loss is
covered by the policy, if it is not an exclusion, and if there was any violation. At this stage,
the assured also provides documents supporting the claim. The claim will then be reviewed
and a report will be submitted to the approving officers or the Claims Committee. If
approved, settlement may be in the form of a Letter of Authority for accredited shops or
check payment.
Conclusion Needs Improvement
The performance of the companys claims process declined in terms of the amount of total
claims it was able to process in 2010. As the table below indicates, only 79.88% of claims
incurred in 2010 were processed while as much as 105.37% of the claims incurred in 2009
were processed. This shows that in 2009 the companys claims process was able to
process more claims than it incurred during the year. In contrast, the company fell short of
processing all claims incurred in 2010.
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TABLE 6.3.3-C
2010 2009
Claims incurred during the year 394,932,068 451,681,643
Claims paid during the year 315,459,805 475,949,782
% 79.88% 105.37%
The company should direct its Process Review and Documentation Department to determine
the problematic step or steps within the Claims Process and have the Organizational
Development Division propose a process improvement. Initial investigation through reports
submitted by personnel involved in the claims process seem to indicate that ongoing digital
data migration, manual monitoring of turn-around-time, and lack of manpower are potentially
contributing to some of the delays in the processing of claims.
Information Technology
Some of the companys most utilized information systems are the following:
Non-life Insurance Information System (NIIS)
Human Resource Information System (HRIS)
Performance Planning & Appraisal System
Departmental Data Management Systems
Intranet Portal
Internal Instant Messaging System
Lotus Notes
In addition, desktops and laptops are all running Microsofts Windows platform. The
company also has a strong policy against using open source freeware software on client
systems. To secure and protect the internal network, the company also setup firewalls that
filter all incoming and outgoing network traffic.
Conclusion Helpful
These different information systems help automate some of the tedious day-to-day tasks and
help increase the productivity of the companys personnel. The information systems also
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provide access to numerous functionalities that provide tools for secure information storage
and dissemination, internal communications, and help facilitate some operational processes.
Some helpful features of the systems are the following:
NIIS
order of payment (reimburse, liquidate, request for check), OR issuance, connection
to branches
HRIS
view, file, approve leaves, tardiness, undertime, overtime, view HR policies &
procedures
Performance Planning & Appraisal (PPA) System
View PPA guide, upload Performance Appraisal
Departmental Data Management Systems
archiving, indexing of department data
Intranet Portal
Post announcements, news, employee information, view map of floors and where
peoples offices are exactly located, view latest industry related developments
IP Instant Messaging
inter office communications
Lotus Notes
for workflow, document management, and communications
6.3.4 Style
AIC employs a democratic participative leadership style. One of the means this is
operationalized is through the companys Strategic Action & Planning process or SAP. The
SAP process involves all levels of the organization and provides employees and managers
of all levels the opportunity to contribute their input. The process even reaches the level of
the individual employee through the crafting and execution of Individual Performance Plans
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that need to be aligned with the overall department, division, and corporate action plans.
Employees are also encouraged to voice out any concern, idea, or suggestion they may
have that will help the company achieve its goals.
The democratic participative style of leadership in AIC encourages individual employee
participation. It also provides divisional and departmental managers more control over how
their respective organizational units can respond and adapt to the changing needs of the
environment. For instance, to be able to position itself better relative to its competitors, the
Marine & Aviation Division has to address a totally different set of needs compared to the
Motor & Special Lines Division. A style of leadership that encourages input from all levels
allows the company to more effectively manage the different product lines of its broad
product array. Considering that the companys industry ranking improved from 5th in 2009
to 4th in 2010, the companys style of management seems to be effective.
6.3.5 Staff
AIC employs 388 regular personnel and also taps the services of 584 licensed agents and
59 brokers to sell its broad product array. The companys employee turnover is low
considering it has a turnover rate of 9% and the industry average is around 12%.
Reward and Control Mechanisms
AIC has effective reward and control mechanisms. Employees are motivated to vie for
awards such as the MVP Award, WOW Award, and the Loyalty Award.
Examples of some control mechanisms are:
Turnaround time for operational activities of the different lines
After Action Review evaluation of performance such as what could have been done
better
Yearend Report to the President and CEO by branch, line, and department heads
Results of performance appraisals are used as one of the determinants of the
amount of profit share an employee should receive
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Conclusion - Effective
These control mechanisms can be considered effective because of the following reasons:
The companys industry ranking improved from 5 in 2009 to 4 in 2010
XYZ Magazine bestowed awards deeming the company Best Insurer in Asia and
Best Insurer in the Philippines for 2010
Gross Premium Revenue has been steadily increasing for the past 5 years
Management Trainee Program
The company has a Management Trainee Program that helps develop future managers and
leaders of the company. It is a 2 year program that includes being rotated and assigned to
the different product lines for the purpose of gaining the relevant exposure and experience.
The program also includes evaluation points that allow trainees to be promoted to the next
higher level if they pass. The program ends with the trainee getting promoted to the rank of
assistant manager.
Conclusion Needs Improvement
Most participants in the Management Trainee Program do not complete the 2 year program.
Participants are either pirated by other companies or are pulled out from the program by one
of the product line groups they are temporarily assigned to because of an immediate staffing
requirement. The company should strive to ensure that there is a steady flow of competent
managers being developed if it wants its current growth to be sustainable. To be able to
continue to execute its strategies it will need competent managers at the helm. The
company can instruct its Human Resources Administration Department and Process Review
& Documentation Department to find a means to improve the existing Management Trainee
Program in order to ensure a steady flow of program graduates that will have the necessary
skills to lead the company in the future.
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Workforce Development
The company sets aside and allocates budget for the training of each employee. Employees
are also encouraged to take trainings and seminars to further hone their skills. Strengths
and skills that can be further developed by the individual employee are discussed with the
direct superior during private consultations and performance evaluation.
Considering the low turnover rate and the companys improving performance based on its
ranking in the non-life industry, workforce development in AIC seems to be effective.
6.3.6 Skills
AICs core competencies include functional skills in underwriting, policy issuance, and
claims management. The job specifications of product line personnel specify these skills as
basis for qualifying for the different positions in the profit centers of the company. The
company tries to ensure that its personnel maintain a high level of skill in these functional
areas by providing the relevant in-house and outsourced training programs. For instance,
some training that cover Basic Non-life Insurance and Business Interruption are outsourced
to the Insurance Institute of Asia and the Pacific. All employees of the company are also
given the opportunity to learn about the different products and types of policies that AIC
offers through in-house training sessions.
The performance of the different profit centers such as the product line divisions in terms of
generating revenue and managing losses due to claims can be indicative of the level of skill
that the personnel have achieved. In terms of generating revenue, AIC posted a growth in
sales of 18.28% in 2010 which is higher than the industry average and higher than the
average of its key competitors. In terms of managing losses due to claims, AIC was able to
successfully decrease its claims/loss ratio from 53.19% in 2009 to just 41.86% in 2010.
Thus, AIC should continue with its efforts in improving the skill set of its personnel since this
seems to support its strategies of market penetration and cost management.
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6.3.7 Shared Values / Superordinate Goals
AICs long term vision is to become a model Filipino enterprise. Its shared values are
integrity, humanity, and excellence. It tries to operationalize these shared values through
the following value propositions:
We offer depth of relationship founded on our values.
We are committed to understanding our customers needs.
What matters to them, matters to us.
Their problems are our problems too.
The peace of mind we offer comes as a result of being genuine.
We exert effort towards realizing the potential of the Filipino.
We excel in our industry and find ways to help the Filipino excel.
We attract colleagues, clients and stakeholders of the same soul.
Conclusion Helpful
Since insurance companies sell intangible products the success of a sale is highly
dependent on the relationship and level of trust between the insurance buyer and the
insurance company. AICs shared values allow the company to establish stronger working
relationships with brokers, agents, and direct clients. In this light, the shared values support
its strategies of market penetration and differentiation.
6.4 Key Financial Ratio Analysis
6.4.1 Liquidity Ratios
TABLE 6.4.1-A
RATIOS TYPE AIC

Pioneer Malayan Prudential BPI/MS KEY INDUSTRY
2008 2009 2010 2010 2010 2010 COMPETITORS' AVE.
AVE.
Liquidity Current Ratio 2.22 1.92 1.76 1.71 1.08 1.49 1.42 1.70
Quick Ratio 2.22 1.92 1.76 1.71 1.08 1.49 1.42 1.70
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AIC has been highly liquid in the past 3 years. However, its current ratio has been
decreasing. AIC is 23% more liquid than the key competitors' average and has a ratio
slightly above the industry average. Current Ratios are the same as the Quick Ratios since
Insurance Companies do not have inventories.
Possible Strategy or Action: AIC should maintain its current level of liquidity to remain at par
with the industry average. This will ensure that it has enough liquidity to cover sudden
increases in claims cost such as what had occurred in 2009. This will allow the company to
avoid having to borrow heavily just to cover losses due to claims.
6.4.2 Leverage Ratios
TABLE 6.4.2-A
RATIOS TYPE Pioneer

AIC Malayan Prudential BPI/MS KEY INDUSTRY
2008 2009 2010 2010 2010 2010 COMPETITORS' AVE.
AVE.
Leverage Debt to total assets ratio 0.36 0.42 0.45 0.56 0.88 0.65 0.70 0.59
Debt to equity ratio 0.56 0.72 0.82 1.28 7.57 1.84 3.56 1.42
Long term debt to equity ratio 0.032 0.055 0.022 0 0.303 0 0.101 0.044
Times-interest earned 17.86 2.49 11.54 69.97 3.66 134.40 69.34
(or coverage)
AIC's debt to asset ratio has been steadily increasing for the past 3 years. However, its
current ratio is still lower than the average of its key competitors and the average of the
industry. This indicates that an increasing amount of its growing asset base is being financed
through debt. AIC has been increasing its financial leverage in the past 3 years but it is still
less financially leveraged compared to the average of its key competitors and the industry
average. This indicates that an increasing amount of the company's growth is financed
through debt rather than equity. AIC's current long-term debt to equity ratio has decreased
by 31% compared to 2008. The ratio temporarily increased in 2009 when it borrowed to
cover its losses due to claims for the year that typhoons Ondoy & Pepeng hit the country. Its
current long term debt to equity ratio is below the average of its key competitors and below
the industry average. Nonetheless, it should be noted that Malayan and BPI/MS have
already cleared their long-term debts. AIC's interest coverage significantly decreased from
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2008 to 2009 because of heavier borrowing and losses due to claims in 2009. The company
started to recover in 2010 but was still less than the average of its key competitors by as
much as 600%.
Possible Strategy or Action: AIC should take advantage of lower forecasted interest rates
without over leveraging and going above the industry average. It is more prudent for AIC to
try and fund most of its growth by increasing net income. This can be partly achieved by
increasing its net earned premiums or retention ratio and decreasing general expenses
rather than heavily relying on debt to finance growth.
6.4.3 Activity Ratios
TABLE 6.4.3-A
RATIOS TYPE Pioneer

2008 2009 2010 2010 2010 2010 COMPETITORS' AVE.
AVE.
Activity Inventory turnover N/A N/A N/A N/A N/A N/A N/A N/A
Fixed Assets turnover 1.68 1.77 1.99 25.70 18.08 32.67 25.48
Total Assets turnover 0.226 0.230 0.244 0.296 0.531 0.593 0.473 0.339
Since insurance companies do not have inventory the inventory turnover ratio was not
computed. AIC's fixed assets turnover ratio has been increasing for the past 3 years but is
still the lowest compared to its key competitors. It should also be noted that AIC has the
largest fixed asset amount compared to its key competitors. Its total fixed assets is 657%
more than Malayan's which has the second highest fixed asset amount. AIC's total assets
turnover ratio has increased in the past 3 years but is still lower than the industry average
and significantly less than the average of its key competitors. This is mainly due to its very
large asset base. It has the second largest asset base in the industry. Malayan, the market
leader, also has a ratio below the industry average since it has the largest asset base.
Possible Strategy or Action: Because of its exceptionally large fixed asset amount, AIC will
have to achieve sales that is several times greater than the sales of its key competitors just
to improve its fixed assets turnover ratio relative to its competitors. Another option is to
liquidate some of its fixed assets and use the proceeds to augment its investment portfolio
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by converting it to available-for-sale financial assets. Apropos its total assets turnover ratio,
AIC should strive to be at par with the industry average by further increasing its Gross
Premium Revenues. It should at least be at par with Malayan in terms of Total Asset
turnover since Malayan has a similarly large asset base but it was still able to achieve a
higher total assets turnover ratio.
6.4.4 Profitability Ratios
TABLE 6.4.4-A
RATIOS TYPE Pioneer

2008 2009 2010 2010 2010 2010 COMPETITORS' AVE.
AVE.
Profitability Gross profit margin 42.26% 33.99% 41.58% 37.81% 32.94% 46.68% 39.14% 31.14%
Operating profit margin 9.07% 1.81% 6.29% 7.27% 2.21% 12.99% 7.49% 7.50%
Net operating margin 8.58% 1.39% 5.42% 7.73% 1.06% 10.11% 6.30% 6.39%
Return on total assets 1.94% 0.32% 1.32% 2.29% 0.56% 5.99% 2.95% 2.17%
Return on stockholders' equity 3.03% 0.55% 2.41% 5.21% 4.84% 17.01% 9.02% 4.84%
Earning per share 58.82 10.63 49.11 48.87 15.50 102.21 55.53
AIC's Gross Profit Margin, operating profit margin, and net operating margin ratios
significantly decreased in 2009 mainly due to higher claims costs brought about by Ondoy
and Pepeng. However, the company was able to recover in 2010 and post a ratio almost at
par with its ratio prior to the calamities. Its Gross Profit Margin ratio in 2010 is higher than
the average of its key competitors and the industry average. It should also be noted that
BPI/MS posted the highest Gross Profit Margin ratio. AIC's operating profit margin has
declined since 2008 and is lower than the average of its key competitors and the industry
average. It has the second lowest operating profit margin compared to its key competitors.
AIC's net operating margin has shrunk by 36.8% since 2008. Its margin is lower than the
average of its key competitors and the industry average. AIC's return on total assets ratio
has decreased in the past 3 years. Its ratio is lower than the average of its key competitors
but higher than the industry average. It has the second lowest ratio compared to its key
competitors. This is partly due to its exceptionally large asset base. AICs return on
stockholders' equity has decreased and is significantly lower than the average of its key
competitors and the industry average. Another possible concern is the fact that companys
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earnings per share used to be higher than the average of its key competitors but has since
decreased and is now lower.
Possible Strategy or Action: Even though it has a gross profit margin ratio that is higher than
the average of its key competitors and the industry average, AIC should still strive to improve
its ratio and become at par with BPI/MS. It can accomplish this by trying to manage risks
and claims costs. Maintaining underwriting discipline as the company grows in terms of
gross premiums will allow the company to sustain its current Gross Profit Margin ratio or
even potentially improve on it. In addition, AIC should strive to achieve operating profit and
net operating margins that are higher than its key competitors so it can increase its ranking
by having more funds available to finance its growth. This will also help the company cover
its interest expenses and taxes. This can be achieved by decreasing the amount of
premiums it cedes to reinsurance, managing the risk of losses due to claims, and decreasing
general expenses. This will also positively affect its ROE and EPS. AIC should also more
effectively leverage on its large asset base to generate income. This can be achieved by
increasing its investment income from its financial assets as well as utilizing its large fixed
asset base to improve its pre and post sales activities.
6.4.5 Growth Ratios
TABLE 6.4.5-A
RATIOS TYPE Pioneer

2008 2009 2010 2010 2010 2010 COMPETITORS' AVE.
AVE.
Growth Sales 4.55% 11.76% 18.28% -15.26% 21.29% 31.58% 12.54% 13.52%
Net income 81.84% -81.93% 362.06% 87.55% 852.58% 26.69% 322.27% 119.25%
Earning per share -81.93% 362.06%
AIC's sales has steadily increased in the past 3 years. Its growth rate is higher than the
industry average and the average of its key competitors. It should also be noted that the
sales of Malayan, the market leader, has significantly contracted. AIC's net income has also
increased significantly since 2009 and its growth rate is above the average of its key
competitors. It should be mentioned that the exceptionally high growth rate in 2010 was
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mainly due to the extremely low net income figures for 2009 brought about by huge losses
due to claims during that year. The fact that the company was able to improve its claims/loss
ratio from 53.19% in 2009 to 41.86% in 2010 and also slightly decrease its general expenses
as a percentage of revenues from 30.50% in 2009 to 28.9% in 2010 helped increase its Net
Income. The growth of EPS is the same as net income for 2009 and 2010 since the number
of shares of common stock outstanding remained constant.
Possible Strategy or Action: AIC should maintain a higher growth rate than the average rate
of its key competitors so it may catch up and increase its ranking. This can be achieved by
increasing gross premium revenue, increasing the retention ratio, decreasing general
expenses, and managing its risk exposure. The contraction in sales of the market leader
underscores the opportunity to catch up.
6.4.6 Insurance Related Ratio
TABLE 6.4.6-A
RATIOS TYPE Pioneer

2008 2009 2010 2010 2010 2010 COMPETITORS' AVE.
AVE.
Insurance Retention 39.59% 37.09% 34.87% 45.39% 58.35% 41.35% 48.37% 63.13%
AIC's net earned premiums has been decreasing for the past 3 years and is significantly
lower than both the average of its key competitors and the average of the industry. This is
mainly due to its decreasing retention ratio. It has been ceding a larger portion of its gross
premium revenue to reinsurance.
Possible Strategy or Action: Even though AICs decreasing net earned premiums and
retention ratio decreases its direct risk exposure, it also increases its risk to third party
default from reinsurance which it has less control over. AIC should strive to maintain a level
of net earned premiums that is at par with at least its key competitors if not with the industry
average. This will also address its problem of sliding down to the no. 6 position from no. 4
when ranking is based on net earned premiums rather than gross earned premiums. This
can be achieved by reducing the amount of premiums it cedes to reinsurance.
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6.5 Internal Factor Evaluation (IFE) Matrix
6.5.1 Strength Ratings and Importance Weight
S1. A high quality of underwriting that helps manage risk and reduce the claims ratio from
53.19% in 2009 to 41.86% in 2010. The company's claims ratio is better than the industry
average of 44.49%.
RATING 3: This is a minor strength of the company since it has a claims/loss ratio of
41.86% which is better than the average of its key competitors of 44%. The company was
also able to reduce its claims ratio from 53.19% in 2009 to just 41.86% in 2010 while it was
increasing its gross premium revenue by 18.28%. It is only a minor strength since BPI/MS,
one of its key competitors, was able to achieve a better claims ratio of 38.25% in 2010. This
was given the highest weight of 20% since losses due to claims comprise a large portion of
the total expenses of insurance companies and thus affects its profitability.
S2. Account management personnel who contribute to a premium revenue growth rate that
has been increasing in the past 5 years. The company posted a growth rate of 3.43% in
2007, 4.55% in 2008, 11.76% in 2009, and 18.28% in 2010 as well as the 2nd highest
CAGR of 7.41% compared to key competitors from 2006 to 2010.
RATING 3: This is a minor strength of the company since its Gross Premium Revenue has
been increasing for the past 5 years and its rate of growth is also increasing. In addition, its
Gross Premium Growth rate for 2010 was higher than the average of its key competitors and
the industry average. It is only a minor strength because BPI/MS posted a higher growth
rate of 31.58% in 2010. This was given the moderate weight of 15% since premium revenue
is the primary source of revenue of insurance companies and it comprises a significant
portion of total underwriting income.
S3. A high quality of products and services as confirmed in a survey conducted by XYZ
Magazine in 2010 with direct insurance buyers as respondents. Respondents were asked to
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nominate insurance companies in order of quality. The company received 4 awards
including "Best Insurer in the Philippines" and "Best Insurer in Asia"65.
RATING 4: This is a major strength of the company since the high quality of its products
and services will help increase its premium revenue as well as ensure the sustainability of its
growth. In addition, being recognized by a well-known and reputable organization such as
XYZ Magazine helps publicize and underscore this strength. AIC was ranked no.1 in Asia
and the Philippines in the 2010 XYZ Magazine Insurance Survey which asked insurance
buyers to rank insurance companies in order of quality. This was given the moderate weight
of 15% since the quality of the products and services directly affects how the company is
perceived and also whether the companys current growth will be sustainable.
S4. Strong financial position with a high capacity for risk as measured by a networth of Php
6.35 billion in 2010 which is ranked no. 1 in terms of networth by the Insurance
Commission66.
RATING 4: This is a major strength since the Insurance Commissions ranking based on
networth for 2010 places AIC as no. 1 in the industry. According to the Insurance
Commission, AIC has a networth of Php 6.35 billion in 2010. The Insurance Commission
ranks Malayan as no.2, BPI/MS as no. 3, and Prudential as no. 13. This was given the
lowest weight of 5% even though it can indicate an insurance companys capacity to handle
its existing risk exposure since the other factors have the potential of having greater impact
on the company.
S5. Good investment management that supplements premium revenue by generating an
investment income ratio of 22.78% in 2010 which is the second highest compared to its key
competitors.
65
66
95
RATING 3: This is a minor strength because investment income supplements premium
revenue and contributes to the profitability of an insurance company by helping cover
expenses and claims costs. In addition, AIC's investment income ratio of 22.78% is the
second highest compared to its key competitors. Malayan has an investment income ratio of
26.91%, BPI/MS has 17.77%, and Prudential has 4.18%. This was given the lowest weight
of 5% since investment income is important but it should only supplement premium revenue
which is the primary source of revenue of insurance companies. Investment income helps
insurance companies cover expenses and claims costs.
6.5.2 Weakness Ratings and Importance Weight
W1. Product line reinsurance operations that have inadvertently resulted in a decreasing
premium retention rate for the past 3 years which is counter to the company's standing
policy to protect and maintain its retention rate. The company has the lowest retention rate
compared to key competitors and its retention rate is lower than the industry average.
RATING 1: This is a major weakness since the company has a Retention Rate that is
lower than all of its key competitors and lower than the industry average. In addition,
premium revenue is the primary source of revenue for insurance companies. This highlights
the importance of trying to protect and maintain the companys retention rate. The
companys Retention Rate has been decreasing for the past 3 years. It was 39.59% in
2008, 37.09% in 2009, and 34.87% in 2010. Even though the amount of net earned
premiums retained by an insurance company comprises a significant portion of its total
revenue, this was given a lower weight of 5% since a low retention rate can more easily be
remedied or corrected compared to the other factors.
W2. Significantly fewer branches and offices spread throughout the country compared to
some of its key competitors such as Malayan and BPI/MS.
RATING 2: This is a weakness since branches and offices are important for driving and
sustaining growth. Some of its key competitors like Malayan and BPI/MS have already
96
increased their reach by expanding their network of branches and offices through
bancassurance partnerships. It is a minor weakness only since AIC at least has the same
number of branches and offices as Prudential. AIC and Prudential both have 34 branches,
Malayan has 398, and BPI/MS has 683. This was given a high weight of 15% since
branches and offices help support sales efforts as well as provide customer touch points for
claims processing.
W3. Ongoing digital data migration, manual turn-around-time monitoring, and lack of
manpower are contributing to a decline of more than 25 percentage points of the
performance of the company's claims process in terms of total amount of claims processed
compared to claims incurred during the year.
RATING 2: This is a weakness since only 79.88% of claims incurred in 2010 were
processed while as much as 105.37% of the claims incurred in 2009 were processed. This is
a minor weakness only since it was still able to process almost 80% while BPI/MS was only
able to process 75.49%. This was given a high weight of 15% since the claims process is
one of the core processes of an insurance company and the quality of its performance helps
shape the customers perception of the company. Prompt settlement of claims is also a key
consideration for existing clients in their decision to stay on or switch to another insurance
company.
W4. An ineffective cost management strategy that results in general expenses as a
percentage of revenue of 28.9% which is higher than all of its key competitors.
RATING 2: This is a weakness since AICs general expenses as a percentage of revenue
is higher compared to all of its key competitors. Managing the cost impact of general
expenses is important considering that claims costs can suddenly spike and cause total
expenses to rise. This is a minor weakness only since the company was able to slightly
reduce general expenses as a percentage of revenue from 30.5% in 2009 to 28.9% in 2010.
This was given a lower weight of 5% since general expenses only comprises a portion of an
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insurance companys total expenses and will have less impact on the companys overall
profitability compared to the other factors.
6.5.3 IFE Matrix Table
AIC received a total weighted score of 2.75 which is higher than the average of 2.5. Even
though this indicates that the company has an internal position strength that is above
average, there is still room for improvement. First, the company should strive to be at least
at par with the average of its key competitors and the industry in terms of its Retention rate.
This can be accomplished by decreasing the amount of risk that the company cedes to
reinsurance. The company should also closely monitor and track the resulting retention
rates of reinsurance operations for both facultative and treaty agreements. Second, AIC
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should look at trying to expand its network of branches and offices. This can be done by
establishing a bancassurance partnership with one of the larger banks in the country.
Another possible course of action is to sell a portion of its available-for-sale financial assets
which make up 38.3% of its total assets and use the proceeds to expand its existing network
of branches with the aim of increasing top line sales and improving claims settlement. Third,
the company should try to rectify the negative effect of its digital data migration, manual turn-
around-time monitoring, and manpower shortage so it can reverse the decline in the quality
of the performance of its claims process and restore the level of productivity back to the
2009 level or better. The company can use its Process Review & Documentation
Department to evaluate the process and come up with recommended improvements.
Fourth, the company should try to improve its cost management strategy so it can at least be
at par with its key competitors in terms of general expenses. This can be done by instructing
its internal audit department to thoroughly examine the accounts that comprise general
expenses. The company can begin by looking at accounts that posted a significant increase
compared to the previous year.
6.6 Strategic Issues Based on Internal Factors

There are several strategic issues that AIC needs to address. One strategic issue that AIC
faces is a challenge common to all non-life insurance companies operating in the
Philippines. The strong rivalry in the industry has been pushing premium rates down and
making it even more critical for insurance companies to keep both claims cost and general
expenses in check. AIC can attack this problem from two sides, namely, the premium
revenue side and the cost management side. The company can try to increase its gross
premium revenue by expanding its network of branches and offices and reaching out to
more insurance buyers. This can be accomplished by establishing a bancassurance
partnership with one of the larger banks that already has an existing relatively extensive
network of branches. The company should also try to protect and maintain its retention ratio
so it can keep most of the gross premiums it generates in the form of net earned premiums.
99
AIC can then use the higher premium revenue to cover its general expenses and claims
costs. On the cost side, the company should continue endeavoring to decrease its claims
ratio and general expenses. Claims costs can be kept in check by maintaining underwriting
discipline in the face of its increasing rate of growth. The company can do this by continuing
to avoid unprofitable accounts and spreading its risk exposure geographically as well as
among different types. General expenses can be managed by closely monitoring increasing
trends and filtering out unnecessary expenses. However, AIC should be careful not to
inadvertently stifle growth by cutting back on costs that may be vital to its operations. For
instance, if the claims process needs manpower augmentation then the company should
move to allocate the necessary funds. Prompt settlement of claims is critical to the
companys continued growth and success.
7. STRATEGY FORMULATION
7.1 Strengths, Weaknesses, Opportunities, Threats (SWOT) Matrix
7.1.1 Strength Opportunity Strategies
STRENGTHS OPPORTUNITIES
S1. A high quality of underwriting that helps manage risk O1. Enactment of RA 10022 has led to the Compulsory
and reduce the claims ratio from 53.19% in 2009 to Insurance Coverage for Agency-Hired Migrant Workers
41.86% in 2010. The company's claims ratio is better
than the industry average of 44.49%. O2. The Global Insurance Center projects the continued growth
in popularity and acceptance of the bancassurance model. In
S2. Account management personnel who contribute to a 2010, BSP reviewed 23 bancassurance applications and
premium revenue growth rate that has been increasing in approved 22. Bancassurance extends the distribution network of
the past 5 years. The company posted a growth rate of insurance companies by allowing them to sell insurance products
3.43% in 2007, 4.55% in 2008, 11.76% in 2009, and in bank branches of bancassurance partners.
18.28% in 2010 as well as the 2nd highest CAGR of
7.41% compared to key competitors from 2006 to 2010. O3. 91.4% or 710,822 of the total 780,437 business enterprises
operating in the Philippines are micro enterprises. According to
S3. A high quality of products and services as confirmed PIRA estimates, the local microinsurance market is potentially
in a survey conducted by XYZ Magazine in 2010 with worth Php 2 billion with around Php 1.8 billion still untapped.
direct insurance buyers as respondents. Respondents
were asked to nominate insurance companies in order of O4. Real GDP is forecasted to grow at a rate of 5.0% in 2011,
quality. The company received 4 awards including "Best 4.8% in 2012, and 4.7% in 2013. Growth in GDP indicates
Insurer in the Philippines" and "Best Insurer in Asia". growth in overall production of final goods and services within the
country and this can translate into more goods and services that
S4. Strong financial position with a high capacity for risk will require insurance coverage.
as measured by a networth of Php 6.35 billion in 2010
which is ranked no. 1 in terms of networth by the O5. The number of motor vehicles in the country is forecasted to
Insurance Commission. grow to around 7.5 million in 2011, 8.5 million in 2012, and 9.5
million in 2013.
S5. Good investment management that supplements
premium revenue by generating an investment income
ratio of 22.78% in 2010 which is the second highest
compared to its key competitors.
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S.O. STRATEGIES
SO1: Offer new packaged non-life insurance products specifically tailored to address the
needs of agency-hired migrant workers. AIC can package together a set of its existing
products that will address the requirements of agency-hired migrant workers as well as
comply with Insurance Commissions regulations related to R.A. 10022. It can then brand
this new product and market it to insurance buyers as specifically customized for the needs
of agency-hired migrant workers. (S2, O1)
SO2: Establish partnerships with umbrella organizations and associations of overseas
recruitment agencies such as the Philippine Association of Service Exporters, Inc. (PASEI)
to create sales and marketing opportunities coursed through them or their activities. The
company can try to connect and establish links with overseas recruitment agencies through
umbrella organizations and associations. Partnering with these organizations will provide
AIC with the opportunity to reach a large number of member agencies. The company needs
to focus on establishing links with these recruitment agencies since these entities will be the
ones actually paying the premiums for the insurance coverage of the overseas Filipino
workers that will be sent abroad. (S2, S3, O1)
SO3: Advertise and promote awards garnered to new and existing insurance buyers.
Considering the nature of the insurance business where risk is the primary concern and the
product is intangible, building a strong reputation based on the high quality of its products
can be a boon to increasing the companys market share. To be branded Best Insurer in
the Philippines and Best Insurer in Asia by a reputable company helps improve AICs
competitive position from the perspective of the insurance buying public. The company
should ensure that these awards are included in most of its marketing communications and
prominently displayed in all of its customer touch points. (S3,O4,O5)
SO4: Establish a bancassurance partnership with a large bank that has an extensive
network of existing branches. AIC can help augment its existing distribution network by
partnering with a large bank for purposes of cross-selling its array of non-life insurance
products. This will allow partner bancassurance bank branches to serve as AICs additional
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sales outlets or marketing channels. This will entail stationing non-life insurance agents at
the different bank branches or providing bank personnel with the appropriate training. (S3,
S4, O2, O4)
SO5: Establish more partnerships with 3rd party entities such as auto shops and dealers for
cross-selling of motor insurance products. In consideration of the growing number of
registered motor vehicles in the country, the company can try to establish more partnerships
with auto shops and auto dealers. AIC can leverage on the awards it recently received to
help in establishing these partnerships. The company can also provide these potential new
partners with marketing materials that showcase the awards it received. These 3rd party
entities can then help contribute to the sales and marketing efforts of the companys
products and services. (S3,O5)
7.1.2 Strength Threat Strategies
STRENGTHS THREATS
S1. A high quality of underwriting that helps manage risk and T1. Motor vehicle related traffic accidents are on the rise.
reduce the claims ratio from 53.19% in 2009 to 41.86% in Vehicles involved in traffic accidents has increased from
2010. The company's claims ratio is better than the industry 7,267 in 2007 to 15,750 in 2009 and road accident related
average of 44.49%. deaths is currently growing at 4.2% per annum.
S2. Account management personnel who contribute to a T2. Graft, corruption, and other irregularities at the Land
premium revenue growth rate that has been increasing in the Transportation Office are starting to endanger systems vital
past 5 years. The company posted a growth rate of 3.43% in to insurers.
2007, 4.55% in 2008, 11.76% in 2009, and 18.28% in 2010
as well as the 2nd highest CAGR of 7.41% compared to key T3. There is strong rivalry among competitors in the non-life
competitors from 2006 to 2010. insurance industry
S3. A high quality of products and services as confirmed in a T4. Based on the Family Income and Expenditure Survey of
survey conducted by XYZ Magazine in 2010 with direct 2009, insurance expenditure as a percentage of total family
insurance buyers as respondents. Respondents were asked expenditure is decreasing. Insurance expenditure which was
to nominate insurance companies in order of quality. The at 1.88% in 2006 decreased to a smaller share of only 1.69%
company received 4 awards including "Best Insurer in the in 2009 that translated to around Php 6.4 billion less premium
Philippines" and "Best Insurer in Asia". revenue for the insurance industry.
S4. Strong financial position with a high capacity for risk as

measured by a networth of Php 6.35 billion in 2010 which is
ranked no. 1 in terms of networth by the Insurance
Commission.
S5. Good investment management that supplements

premium revenue by generating an investment income ratio
of 22.78% in 2010 which is the second highest compared to
its key competitors.
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S.T. STRATEGIES
ST1: Sell a portion of the available for sale financial assets to fund the incorporation of a
new joint venture company with a large bank that will then venture into bancassurance.
This joint venture should be between AIC and one of the larger banks in the country that
already has an extensive branch network. This new joint venture company can then venture
into bancassurance to sell AICs non-life insurance products utilizing the banks branch
network. The Bangko Sentral ng Pilipinas requires that a bank own 5% of the resulting entity
so that it may sell its products and services using the banks network of branches.
Establishing a bancassurance partnership will help AIC catch up with BPI/MS and Malayan
and also allow the company to reach a greater number of potential insurance buyers. (S4,
S5, T3, T4)
ST2: Spread risk exposure by generating premium revenue from different geographical
areas. The company can leverage on its account management personnel and underwriters
to try to spread its risk exposure. Certain cities, municipalities, and areas such as Quezon
City and Makati historically record more motor vehicle accidents. The company can try to
ensure that its risk exposure does not cluster in these high risk areas by spreading its risk
exposure geographically. (S1, S2, T1)
ST3: Decrease premium rates without exceeding minimum set by Insurance Commission
and agreed upon by PIRA members. The company can try to decrease premium rates
further without violating minimums set by the Insurance Commission and any of its
agreements with other PIRA members. However, it should be mentioned that considering
the strong rivalry in the industry, this may only result in lower premium revenues once other
players match the lower rates. Strategies such as this are partly the reason why the
Insurance Commission was forced to impose minimum rates to ensure solvency and
financial stability of insurance companies. (S1, S4, T3, T4)
ST4: Expand network of brokers and agents to increase reach and connect with more
insurance buyers in order to compensate for the smaller premium revenue per insurance
buyer. AIC has a network of 34 branches and offices strategically spread throughout the
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country. The company can utilize these branches and offices as well as its account
management personnel in the head office to establish links with more brokers and agents.
This will also have a multiplier effect since each broker and agent can bring in more than one
direct client. The company should also ensure that branches and offices have the necessary
authority and resources to implement this strategy. (S2, S3, T3, T4)
7.1.3 Weakness Opportunity Strategies
WEAKNESSES OPPORTUNITIES
W1. Product line reinsurance operations that have O1. Enactment of RA 10022 has led to the Compulsory
inadvertently resulted in a decreasing retention rate for the Insurance Coverage for Agency-Hired Migrant Workers
past 3 years which is counter to the company's standing
policy to protect and maintain its retention rate. The company O2. The Global Insurance Center projects the continued
has the lowest retention rate compared to key competitors growth in popularity and acceptance of the bancassurance
and its retention rate is lower than the industry average. model. In 2010, BSP reviewed 23 bancassurance
applications and approved 22. Bancassurance extends the
W2. Significantly fewer branches and offices spread distribution network of insurance companies by allowing them
throughout the country compared to some of its key to sell insurance products in bank branches of
competitors such as Malayan and BPI/MS. bancassurance partners.
W3. Ongoing digital data migration, manual turn-around-time O3. 91.4% or 710,822 of the total 780,437 business
monitoring, and lack of manpower are contributing to a enterprises operating in the Philippines are micro enterprises.
decline of more than 25 percentage points of the According to PIRA estimates, the local microinsurance
performance of the company's claims process in terms of market is potentially worth Php 2 billion with around Php 1.8
total amount of claims processed compared to claims billion still untapped.
incurred during the year.
O4. Real GDP is forecasted to grow at a rate of 5.0% in
W4. An ineffective cost management strategy that results in 2011, 4.8% in 2012, and 4.7% in 2013. Growth in GDP
general expenses as a percentage of revenue of 28.9% indicates growth in overall production of final goods and
which is higher than all of its key competitors. services within the country and this can translate into more
goods and services that will require insurance coverage.
O5. The number of motor vehicles in the country is

forecasted to grow to around 7.5 million in 2011, 8.5 million in
2012, and 9.5 million in 2013.
W.O. STRATEGIES
WO1: Adhere to policy with higher premium retention rate to fund maintaining more
manpower dedicated to claims processing and be in a position to handle the commensurate
increase in claims that will stem from growth in gross premiums and number of insurance
buyers. AIC has a retention rate that is lower than the average of its key competitors and
the industry. It should try to increase its retention rate to increase its premium revenue. The
additional premium revenue can then be used to augment the manpower allocated to claims
processing in proportion to the growth of the company in gross premium revenues. This will
help the company avoid stifling growth because of delays in the settlement of claims. This
104
will also allow the company to increase its claims processing capacity in response to the
growing number of insurance buyers that the company will be serving as it continues to
expand its distribution network and extend its reach to even more insurance buyers. (W1,
W3, O4, 05)
WO2: Sell a portion of the available-for-sale financial assets to fund the expansion of the
existing network of branches and offices and be in a position to take advantage of the
growing number of properties requiring insurance coverage. AIC has the second largest
asset base in the industry. It has more than Php 11 billion in managed assets Php
4,266,208,612 of which is in the form of available-for-sale financial assets. The company
can sell a portion of its AFS and use the proceeds to expand its existing network of branches
and offices. This will increase the companys existing presence in the geographic areas
where there are currently only few branches and offices and allow the company to reach
more potential insurance buyers. (W2, O4, O5)
WO3: Adhere to policy with premium higher retention rate to fund venturing into non-life
microinsurance. AIC can offer its existing product array to the lower income market and
micro to small enterprises. The company can use the additional premium revenue from its
higher retention rate to fund its foray into this new market segment that it currently does not
yet serve. This will allow AIC to generate more total premium revenue and improve its
competitive position relative to its key competitors. (W1,O3)
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7.1.4 Weakness Threat Strategies
WEAKNESSES THREATS
W1. Product line reinsurance operations that have T1. Motor vehicle related traffic accidents are on the rise.
inadvertently resulted in a decreasing retention rate for the Vehicles involved in traffic accidents has increased from
past 3 years which is counter to the company's standing 7,267 in 2007 to 15,750 in 2009 and road accident related
policy to protect and maintain its retention rate. The company deaths is currently growing at 4.2% per annum.
has the lowest retention rate compared to key competitors
and its retention rate is lower than the industry average. T2. Graft, corruption, and other irregularities at the Land
Transportation Office are starting to endanger systems vital
W2. Significantly fewer branches and offices spread to insurers.
throughout the country compared to some of its key
competitors such as Malayan and BPI/MS. T3. There is strong rivalry among competitors in the non-life
insurance industry
W3. Ongoing digital data migration, manual turn-around-time
monitoring, and lack of manpower are contributing to a T4. Based on the Family Income and Expenditure Survey of
decline of more than 25 percentage points of the 2009, insurance expenditure as a percentage of total family
performance of the company's claims process in terms of expenditure is decreasing. Insurance expenditure which was
total amount of claims processed compared to claims at 1.88% in 2006 decreased to a smaller share of only 1.69%
incurred during the year. in 2009 that translated to around Php 6.4 billion less premium
revenue for the insurance industry.
W4. An ineffective cost management strategy that results in
general expenses as a percentage of revenue of 28.9%
which is higher than all of its key competitors.
W.T. STRATEGIES
WT1: Adhere to policy with higher premium retention rate to help cover the potential
increase in claims costs for the motor line. AIC has a premium retention rate that is lower
than the average of its key competitors and the industry. It should try to increase its
retention rate to increase its premium revenue. This will allow the company to catch up with
its key competitors in terms of net earned premiums and also help cover any increase in
losses due to claims. (W1, T1)
WT2: Sell a portion of the available-for-sale financial assets to fund expansion of existing
network of branches and offices and reach more insurance buyers. AIC has the second
largest asset base in the industry. It has more than Php 11 billion in managed assets Php
4,266,208,612 of which is in the form of available-for-sale financial assets. The company
can sell a portion of its AFS and use the proceeds to expand its existing network of branches
and offices. This will increase the companys existing presence in the geographic areas
where there are currently only few branches and offices and allow the company to reach
more potential insurance buyers. (W2, T3, T4)
106
WT3: Sell a portion of the available-for-sale financial assets to acquire some of the smaller
players in the industry such as Empire Insurance Co. which has already expressed that it is
looking for a buyer. AIC can sell a portion of its large asset base to fund the acquisition of
some of the smaller non-life insurance companies. This will help increase its capacity in
terms of underwriting, policy issuance, and claims processing. Empire Insurance Co. has
already expressed to the Insurance Commission that it is willing to cease operations if it is
unable to find a potential buyer for the company. AIC can perform due diligence and look
into acquiring controlling interest in Empire Insurance Co. or other companies in a similar
predicament.67 (W2, T3)
7.1.5 Grouping of SWOT Strategies
1 Market Penetration Strategies
S2,S3,T3,T4 - Expand network of brokers and agents to increase reach and connect with
more insurance buyers in order to compensate for the smaller premium revenue per
insurance buyer. AIC has a network of 34 branches and offices strategically spread
throughout the country. The company can utilize these branches and offices as well as its
account management personnel in the head office to establish links with more brokers and
agents. This will also have a multiplier effect since each broker and agent can bring in more
than one direct client. The company should also ensure that branches and offices have the
necessary authority and resources to implement this strategy.
S3,O4,O5 - Advertise and promote awards garnered to new and existing insurance buyers.
Considering the nature of the insurance business where risk is the primary concern and the
product is intangible, building a strong reputation based on the high quality of its products
can be a boon to increasing the companys market share. To be branded Best Insurer in
the Philippines and Best Insurer in Asia by a reputable company helps improve AICs
competitive position from the perspective of the insurance buying public. The company
67
Philippine Star / Insurers struggle to meet new capital requirement May 24, 2011
107
should ensure that these awards are included in most of its marketing communications and
prominently displayed in all of its customer touch points.
S3,S4,O2,O4 - Establish a bancassurance partnership with a large bank that has an
extensive network of existing branches. AIC can help augment its existing distribution
network by partnering with a large bank for purposes of cross-selling its array of non-life
insurance products. This will allow partner bancassurance bank branches to serve as AICs
additional sales outlets or marketing channels. This will entail stationing non-life insurance
agents at the different bank branches or providing bank personnel with the appropriate
training.
S3,O5 - Establish more partnerships with 3rd party entities such as auto shops and dealers
for cross-selling of motor insurance products. In consideration of the growing number of
registered motor vehicles in the country, the company can try to establish more partnerships
with auto shops and auto dealers. AIC can leverage on the awards it recently received to
help in establishing these partnerships. The company can also provide these potential new
partners with marketing materials that showcase the awards it received. These 3rd party
entities can then help contribute to the sales and marketing efforts of the companys
products and services.
S1,S2,T1 - Spread risk exposure by generating premium revenue from different
geographical areas. The company can leverage on its account management personnel and
underwriters to try to spread its risk exposure. Certain cities, municipalities, and areas such
as Quezon City and Makati historically record more motor vehicle accidents. The company
can try to ensure that its risk exposure does not cluster in these high risk areas by spreading
its risk exposure geographically.
W1,W3,O4,05 - Adhere to policy with higher premium retention rate to fund maintaining
more manpower dedicated to claims processing and be in a position to handle the
commensurate increase in claims that will stem from growth in gross premiums and number
of insurance buyers. AIC has a retention rate that is lower than the average of its key
competitors and the industry. It should try to increase its retention rate to increase its
108
premium revenue. The additional premium revenue can then be used to augment the
manpower allocated to claims processing in proportion to the growth of the company in
gross premium revenues. This will help the company avoid stifling growth because of delays
in the settlement of claims. This will also allow the company to increase its claims
processing capacity in response to the growing number of insurance buyers that the
company will be serving as it continues to expand its distribution network and extend its
reach to even more insurance buyers.
W2,T3,T4 / W2,O4,O5 - Sell a portion of the available-for-sale financial assets to fund
expansion of existing network of branches and offices and reach more insurance buyers.
AIC has the second largest asset base in the industry. It has more than Php 11 billion in
managed assets Php 4,266,208,612 of which is in the form of available-for-sale financial
assets. The company can sell a portion of its AFS and use the proceeds to expand its
existing network of branches and offices. This will increase the companys existing presence
in the geographic areas where there are currently only few branches and offices and allow
the company to reach more potential insurance buyers.
2 Market Development Strategies
S2,S3,O1 - Establish partnerships with umbrella organizations and associations of overseas
recruitment agencies such as the Philippine Association of Service Exporters, Inc. (PASEI)
to create sales and marketing opportunities coursed through them or their activities. The
company can try to connect and establish links with overseas recruitment agencies through
umbrella organizations and associations. Partnering with these organizations will provide
AIC with the opportunity to reach a large number of member agencies. The company needs
to focus on establishing links with these recruitment agencies since these entities will be the
ones actually paying the premiums for the insurance coverage of the overseas Filipino
workers that will be sent abroad.
W1,O3 - Adhere to policy with premium higher retention rate to fund venturing into non-life
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competitive position relative to its key competitors.
3 Product Development Strategies
S2,O1 - Offer new packaged non-life insurance products specifically tailored to address the
needs of agency-hired migrant workers. AIC can package together a set of its existing
products that will address the requirements of agency-hired migrant workers as well as
comply with Insurance Commissions regulations related to R.A. 10022. It can then brand
this new product and market it to insurance buyers as specifically customized for the needs
of agency-hired migrant workers.
4 Horizontal Integration Strategies
W2,T3 - Sell a portion of the available-for-sale financial assets to acquire some of the
smaller players in the industry such as Empire Insurance Co. which has already expressed
that it is looking for a buyer. AIC can sell a portion of its large asset base to fund the
acquisition of some of the smaller non-life insurance companies. This will help increase its
capacity in terms of underwriting, policy issuance, and claims processing. Empire Insurance
Co. has already expressed to the Insurance Commission that it is willing to cease operations
if it is unable to find a potential buyer for the company. AIC can perform due diligence and
look into acquiring controlling interest in Empire Insurance Co. or other companies in a
similar predicament.
5 Cost Leadership Strategies
S1,S4,T3,T4 - Decrease premium rates without exceeding minimum set by Insurance
Commission and agreed upon by PIRA members. The company can try to decrease
premium rates further without violating minimums set by the Insurance Commission and any
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of its agreements with other PIRA members. However, it should be mentioned that
considering the strong rivalry in the industry, this may only result in lower premium revenues
once other players match the lower rates. Strategies such as this are partly the reason why
the Insurance Commission was forced to impose minimum rates to ensure solvency and
financial stability of insurance companies.
6 Forward Integration Strategies
S4,S5,T3,T4 - Sell a portion of the available for sale financial assets to fund the
incorporation of a new joint venture company with a large bank that will then venture into
bancassurance. This joint venture should be between AIC and one of the larger banks in
the country that already has an extensive branch network. This new joint venture company
can then venture into bancassurance to sell AICs non-life insurance products utilizing the
banks branch network. The Bangko Sentral ng Pilipinas requires that a bank own 5% of the
resulting entity so that it may sell its products and services using the banks network of
branches. Establishing a bancassurance partnership will help AIC catch up with BPI/MS and
Malayan and also allow the company to reach a greater number of potential insurance
buyers.
7 Financial Strategies
W1,W3,O4,05 - Adhere to policy with higher premium retention rate to fund maintaining
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W1,O3 - Adhere to policy with higher premium retention rate to fund venturing into non-life
competitive position relative to its key competitors.
W1,T1 - Adhere to policy with higher premium retention rate to help cover the potential
increase in claims costs for the motor line. AIC has a premium retention rate that is lower
than the average of its key competitors and the industry. It should try to increase its
retention rate to increase its premium revenue. This will allow the company to catch up with
its key competitors in terms of net earned premiums and also help cover any increase in
losses due to claims.
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7.2 Strategic Position and Action Evaluation (SPACE) Matrix
FS
Conservative 9 Aggressive
8
7
6 X: 1.00
5 Y: 2.67
4
3
2
1
CA IS
-7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7
-1
-2
-3
-4
-5
-6
-7
-8
Defensive -9 Competitive
ES
For FS use: +1 (w orst) to +6 (best) in rating each variable For ES use: -1 (best) to -6 (w orst) in rating each variable
FINANCIAL STRENGTH (FS) RATINGS ENVIRONM ENTAL STABILITY (ES)
Strong financial position w ith a high capacity for risk Real GDP is forecasted to grow at a rate of 5.0% in
as measured by a netw orth of Php 6.35 billion in 2011, 4.8% in 2012, and 4.7% in 2013. -2
2010 w hich is ranked no. 1 in terms of netw orth by The number of motor vehicles in the country is
the Insurance Commission. 6 forecasted to grow to around 7.5 million in 2011, 8.5
A Gross Premium grow th rate of 18.28% in 2010 million in 2012, and 9.5 million in 2013. -1
Enactment of RA 10022 has led to the Compulsory
that is higher than the average of its key
Insurance Coverage for Agency-Hired Migrant
competitors w hich is 12.54% and higher than the
Workers -1
industry grow th rate of 13.52%. Pioneer
AIC posted the
2nd highest CAGR of 7.41% from 2006 to 2010. 5 Total -4
Average -1.33
A Retention Rate of 34.87% in 2010 that is below
COM PETITIVE ADVANTAGE (CA)
the average of its key competitors w hich is 48.37%
Good risk management w ith a claims ratio of
and below the industry average of 63.13% 1
41.86% w hich is better than the average of key
Total 12 competitors and the industry average of 44% -2
Average 4.00 A high quality of products and services as
INDUSTRY STRENGTH (IS) XYZ Mag
confirmed in a survey conducted by Euromoney in
There is strong rivalry among competitors in the non- 2010 w ith insurance buyers as respondents.
life insurance industry 5 Respondents w ere asked to rank insurance
Large minimum capital requirement imposed by the companies in order of quality. The company
Insurance Commission of Php 125 million w hich w ill received 4 aw ards including "Best Insurer in the
be increased to Php 175 million by 2011 and up to Philippines" and "Best Insurer in Asia". -1
Php 500 million by 2015 in order to ensure the Significantly few er branches and offices spread
financial stability of insurance companies 6 throughout the country compared to some of its key
The Global Insurance Center projects the continued competitors such as Malayan and BPI/MS. -4
grow th in popularity and acceptance of the Ongoing digital data migration, manual turn-around-
bancassurance model. In 2010, BSP review ed 23 time monitoring, and lack of manpow er are
bancassurance applications and approved 22. contributing to a decline of more than 25 percentage
Bancassurance extends the distribution netw ork of points of the performance of the company's claims
process in terms of total amount of claims
insurance companies by allow ing them to sell
processed compared to claims incurred during the
insurance products in bank branches of
year. -5
bancassurance partners. 1
Total -12
Total 12
Average -3.00
Average 4.00
X - Axis (CA average + IS average) 1.00
Y- Axis (ES average + FS average) 2.67
Based on the analysis, AIC falls within the Aggressive quadrant. This means that AIC is in
an excellent position to use its internal strengths to take advantage of external opportunities,
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overcome internal weaknesses, and avoid external threats. The recommended strategies
for the aggressive profile are market penetration, market development, product
development, backward integration, forward integration, horizontal integration, and
diversification.
7.3 Internal-External Matrix
TOTAL IFE RATING

2.75
IFE = 2.75 Strong Average Weak

EFE= 2.70 3.0 to 4.0 2.0 to 2.99 1.0 to 1.99
High
3.0 to 4.0
I II III
TOTAL EFE
RATING Medium
2.70 2.0 to 2.99
IV V VI
Low
1.0 to 1.99
VII VIII IX
According to the IE Matrix, AIC falls within the average to medium cell specifically
designated as V. This indicates that it can be best managed with hold and maintain
strategies such as market penetration and product development.
7.4 Grand Strategy Matrix

Future Market Growth (Rapid or Slow) RAPID
Future Market Growth: Faster than GDP
GDP for 2011 is forecasted to grow by 5.0% by the Institute for Development and
Econometric Analysis while it is forecasted to grow by 4.9% by Swiss Re Economic
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Research & Consulting. This indicates that GDP growth will most likely fall within the 4.9%
to 5.0% range. On the other hand, the size of the non-life insurance market is forecasted to
grow by 8.6% in 2011 in terms of real premiums according to Swiss Re68. In addition, the
non-life insurance industry posted a compound annual growth rate of 5.9% from 2001 to
2010. In this light, the non-life insurance industry will most likely grow faster than GDP in
2011.
Examining the growth rate of the non-life insurance industry and the GDP growth rate
from 2001 to 2010 indicates an industry with rapid growth. Generally, for the past 10 years
whenever gross premium revenues register positively GDP also registers positively. It can
also be surmised that a negative to 3% growth rate such as those recorded for 2003, 2004,
2006, and 2007 can be considered slow growth for the industry. In addition, the growth rates
for the industry during these years were also lower than the growth rate of GDP. On the
other hand, a 7% to 19% growth rate can be considered rapid growth for the industry.
Considering the mean average growth rate for the industry from 2001 to 2010 is around
7.6%, the non-life insurance industry seems to be a rapid growth industry.
It is also worth noting that insurance penetration in the Philippines (insurance as a
percentage of GDP) was only 1.04% in 2010 according to the Key Insurance Indicators
document published by the Insurance Commission69. As shown in the table below taken
from the economic research of Allianz, the 1.04% insurance penetration in the Philippines is
relatively low compared to other countries. This means there is still a lot of room for growth
for the local insurance industry.
68
Swiss Re Economic Research & Consulting January 2011
69
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CHART 7.4-A
Source: Allianz Economic Research
Competitive Position of Your Firm (Strong or Weak) WEAK
AIC is currently in a weak competitive position with only 7.37% market share compared to
the market leader, Malayan, which has 14.49%. Prudential, ranked second, has 9.89%
while BPI/MS, ranked third, has 9.59%. AIC lags behind all three of its key competitors. In
addition, the companys EFE score of 2.70 and IFE score of 2.75 are just slightly above
average. Looking at the CPM, AIC seems to lag behind the market leader in terms of
investment portfolio management, network of offices and branches, prompt settlement of
claims, and premium revenue generation.
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RAPID MARKET GROWTH
Quadrant II Quadrant I
1. Market development 1. Market development
2. Market penetration 2. Market penetration
3. Product development 3. Product development
4. Horizontal integration 4. Forward integration
5. Divestiture 5. Backward integration
6. Liquidation 6. Horizontal integration
7. Concentric diversification
AIC
WEAK STRONG
COMPETITIVE COMPETITIVE
POSITION POSITION
Quadrant III Quadrant IV
1. Retrenchment 1. Concentric diversification
2. Concentric diversification 2. Horizontal diversification
3. Horizontal diversification 3. Conglomerate diversification
4. Conglomerate diversification 4. Joint ventures
5. Divestiture
6. Liquidation
SLOW MARKET GROWTH
AIC falls within QUADRANT II because of the rapid market growth and weak competitive
position of the firm. The recommended strategies are market development, market
penetration, product development, horizontal integration, divestiture, and liquidation.
7.5 Boston Consulting Group (BCG) Matrix

TABLE 7.5-A
Brand Leader Relative Brand Sales Brand % Market

Market Market Market Value (000's) Profit Growth
Product Category Share Share Share Php Share Rate
Fire 0.11 0.31 0.35 1,157,280 13% 3%
Marine 0.27 0.27 1.00 1,112,349 63% 10%
Casualty 0.04 0.09 0.44 348,763 20% 20%
Motor 0.04 0.07 0.57 481,000 3% 17%
Others 1%
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Question Marks (Fire, Casualty)
Based on the BCG Matrix, the Fire and Casualty lines of AIC have relatively low market
shares in high-growth markets. The recommended strategies are intensive strategies such
as market penetration, market development, and product development or sell. It should be
mentioned that in the insurance industry having the capacity to spread risk exposure to
different product categories provides stability and long term profitability. Spreading risk
exposure to many product categories helps the company manage potential losses due to
claims. In this light, it may not be prudent to decide to sell simply based on relative market
share and market growth rate.
Stars (Marine, Motor)
According to the BCG Matrix, the Marine and Motor lines have relatively large market shares
in high-growth markets. AIC is the market leader for the Marine market. The company is
particularly strong in the Marine Hull line under the Marine Category where it is no. 1 and its
closest rival, Malayan, only generates 1/6 the amount of gross premium revenues that it
does. The motor line currently generates the most amount of premium revenue for the
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industry. Thus, similar to the other major players in the industry, AIC tries to grab as much
market share from this line as it can. The recommended strategies for stars are backward
integration, forward integration, horizontal integration, market penetration, market
development, and product development.
7.6 Summary of Strategies
SUMMARY OF STRATEGIES
Strategies SWOT BCG SPACE IE GRAND TOTAL
Market penetration 1 1 1 1 1 5
Market development 1 1 1 1 4
Product development 1 1 1 1 1 5
Backward integration 1 1 2
Forward integration 1 1 1 3
Horizontal integration 1 1 1 1 4
Diversification 1 1
Divestiture 1 1 2
Liquidation 1 1
Retrenchment 0
Financial 1 1
The summary of strategies suggests that the most attractive strategies for AIC to pursue are
market penetration, product development, market development, and horizontal integration.
7.7 Quantitative Strategic Planning Matrix (QSPM)

Market Product Market Horizontal
KEY FACTORS Penetration Development Development Integration
WEIGHT AS TAS AS TAS AS TAS AS TAS
Opportunities
O1. Enactment of RA 10022 has led to the

Compulsory Insurance Coverage for Agency-
Hired Migrant Workers 10% 2 0.2 4 0.4 3 0.3 1 0.1
O2. The Global Insurance Center projects the
continued growth in popularity and acceptance
of the bancassurance model. In 2010, BSP
reviewed 23 bancassurance applications and
approved 22. Bancassurance extends the
distribution network of insurance companies by
allowing them to sell insurance products in bank
branches of bancassurance partners. 15% 4 0.6 1 0.15 3 0.45 2 0.3
O3. 91.4% or 710,822 of the total 780,437
business enterprises operating in the
Philippines are micro enterprises. According to
PIRA estimates, the local microinsurance
market is potentially worth Php 2 billion with
around Php 1.8 billion still untapped. 10% 2 0.2 4 0.4 3 0.3 1 0.1
O4. Real GDP is forecasted to grow at a rate of
5.0% in 2011, 4.8% in 2012, and 4.7% in 2013.
Growth in GDP indicates growth in overall
production of final goods and services within
the country and this can translate into more
goods and services that will require insurance
coverage. 15% 4 0.6 2 0.3 3 0.45 1 0.15
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O5. The number of motor vehicles in the
country is forecasted to grow to around 7.5
million in 2011, 8.5 million in 2012, and 9.5
million in 2013. 10% 4 0.4 3 0.3 2 0.2 1 0.1
Threats
T1. Motor vehicle related traffic accidents are
on the rise. Vehicles involved in traffic
accidents has increased from 7,267 in 2007 to
15,750 in 2009 and road accident related
deaths is currently growing at 4.2% per annum. 10% 3 0.3 2 0.2 4 0.4 1 0.1
T2. Graft, corruption, and other irregularities at
the Land Transportation Office are starting to
endanger systems vital to insurers. 5% 2 0.1 4 0.2 3 0.15 1 0.05
T3. There is strong rivalry among competitors in

the non-life insurance industry 15% 4 0.6 1 0.15 2 0.3 3 0.45
T4. Based on the Family Income and
Expenditure Survey of 2009, insurance
expenditure as a percentage of total family
expenditure is decreasing. Insurance
expenditure which was at 1.88% in 2006
decreased to a smaller share of only 1.69% in
2009 that translated to around Php 6.4 billion
less premium revenue for the insurance
industry. 10% 4 0.4 2 0.2 3 0.3 1 0.1
100%
Strengths
S1. A high quality of underwriting that helps
manage risk and reduce the claims ratio from
53.19% in 2009 to 41.86% in 2010. The
company's claims ratio is better than the
industry average of 44.49%. 20% 4 0.8 2 0.4 3 0.6 1 0.2
S2. Account management personnel who
contribute to a premium revenue growth rate
that has been increasing in the past 5 years.
The company posted a growth rate of 3.43% in
2007, 4.55% in 2008, 11.76% in 2009, and
18.28% in 2010 as well as the 2nd highest
CAGR of 7.41% compared to key competitors
from 2006 to 2010. 15% 4 0.6 2 0.3 3 0.45 1 0.15
S3. A high quality of products and services as
confirmed in a survey conducted by XYZ
Magazine in 2010 with direct insurance buyers
as respondents. Respondents were asked to
nominate insurance companies in order of
quality. The company received 4 awards
including "Best Insurer in the Philippines" and
"Best Insurer in Asia". 15% 4 0.6 2 0.3 3 0.45 1 0.15
S4. Strong financial position with a high
capacity for risk as measured by a networth of
Php 6.35 billion in 2010 which is ranked no. 1 in
terms of networth by the Insurance
Commission. 5% 4 0.2 2 0.1 3 0.15 1 0.05
S5. Good investment management that
supplements premium revenue by generating
an investment income ratio of 22.78% in 2010
which is the second highest compared to its key
competitors. 5% - - - - - - - -
Weaknesses
W1. Product line reinsurance operations that
have inadvertently resulted in a decreasing
premium retention rate for the past 3 years
which is counter to the company's standing
policy to protect and maintain its retention rate.
The company has the lowest retention rate
compared to key competitors and its retention
rate is lower than the industry average. 5% 4 0.2 2 0.1 3 0.15 1 0.05
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W2. Significantly fewer branches and offices
spread throughout the country compared to
some of its key competitors such as Malayan
and BPI/MS. 15% 3 0.45 2 0.3 1 0.15 4 0.6
W3. Ongoing digital data migration, manual
turn-around-time monitoring, and lack of
manpower are contributing to a decline of more
than 25 percentage points of the performance
of the company's claims process in terms of
total amount of claims processed compared to
claims incurred during the year. 15% 4 0.6 2 0.3 1 0.15 3 0.45
W4. An ineffective cost management strategy
that results in general expenses as a
percentage of revenue of 28.9% which is higher
than all of its key competitors. 5% 4 0.2 2 0.1 3 0.15 1 0.05
Total Weight 100%
Sum Total Attractiveness Score 7.05 4.2 5.1 3.15
Based on the QSP Matrix, market penetration is the most attractive strategy for AIC to
pursue with a sum total attractiveness score of 7.05. On the other hand, product
development received a total score of 4.2, market development received 5.1, and horizontal
integration received 3.15.
8. STRATEGIC OBJECTIVES AND RECOMMENDED STRATEGIES
8.1 Recommended Revised Vision and Mission
Recommended Vision Statement
To be ranked in the top 3 of the non-life insurance industry in the country by 2020
Recommended Vision Statement Evaluation
Parameter Yes / Why

No
Does it clearly answer the Yes It clearly states the objective of becoming an organization
question: What do we that is ranked in the top 3 of the non-life insurance industry.
want to become?
Is it concise enough yet Yes It can motivate employees to strive to achieve the objective
inspirational? of becoming one of the top 3 in the industry. Employees will
want to be a part of an organization that is one of the top 3.
Is it aspirational? Yes The company is currently only ranked no. 4 in the industry
and still has a lot of catching up to do to become one of the
top 3.
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Does it give clear Yes The objective should be attained by the year 2020.
indication as to when it
should be attained?
Recommended Mission Statement
Were in the business of affording our clients peace of mind by providing insurance
protection to individuals and corporations not only in the Philippines but in Asia
as well. As a Filipino enterprise, we bring value to our people, clients,
stakeholders, and to our nation. We utilize tools, technology, and other means
that:
enhance individual and organizational capability, competence and
productivity
optimize resources and increase efficiencies
drive quality, consistency and professionalism, and propagate best
practices
Synergy is our strength. Service is our soul.
Recommended Mission Statement Evaluation
Parameter Yes / If yes, which part of the statement

No
1. Customers Yes It was mentioned in affording our clients peace of

mind by providing insurance protection to individuals and
corporations not only in the Philippines but in Asia as
well and in we bring value to our people, customers,
stakeholders and to our nation. Considering that
insurance is offered to the general public, the statement
seems to be specific enough. It mentions the type of
entities and their country of origin.
2. Products & services Yes It was mentioned in affording our clients peace of mind
by providing insurance protection . The statement
specifies insurance protection and also provides the
company with some flexibility in terms of what type and
how it will be provided.
3. Markets Yes It was mentioned in individuals and corporations not

only in the Philippines but in Asia as well. The company
currently only operates in the Philippines and Chinas
Special Administrative Region of Hong Kong. However,
it may opt to expand international operations in the future
in consideration of the agreement for the ASEAN Free
Trade Area that will take effect in 2015.
4. Technology Yes It was mentioned in We utilize tools, technology, and

other means . This statement is specific enough
considering the fast pace of change in the technology
industry. The company tries to keep abreast with new
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developments by adopting different new technologies
such as the internet, data storage management systems,
and workflow systems.
5. Concern for survival, Yes It was mentioned in enhance individual and

growth, profitability organizational capability, competence and productivity,
optimize resources and increase efficiencies, and drive
quality, consistency and professionalism, and propagate
best practices. All of these contribute to ensuring
survival, growth, and profitability of the company.
6. Philosophy Yes It was mentioned in consistency and professionalism,

and propagate best practices. This indicates the
companys values and aspirations.
7. Self-concept Yes It was mentioned in Synergy is our strength. Service is

our soul. This becomes the foundation upon which the
company intends to build relationships with brokers,
agents, and direct clients.
8. Concern for employees Yes It was mentioned in we bring value to our people and
enhance individual and organizational capability,
competence and productivity. This underscores how the
company values its people and how it will help them
grow.
9. Concern for nation building Yes It was mentioned in we bring value to our people, clients,
stakeholders, and to our nation. This shows that the
company intends to contribute and provide value to the
community and the nation.
8.2 Recommended Strategic Objectives
Based on the analysis of external and internal factors, the strategic issues that AIC faces
include the low level of insurance penetration in the country, high dependency on the broker
and agent distribution channel, decreasing premium revenue per insurance buyer, and large
disparity between the size of its distribution network and the growing network of key
competitors such as Malayan and BPI/MS. The company also has to contend with
protecting its profitability in the face of rising costs and low premium rates. Its decreasing
premium retention rate and the decreasing performance of its claims process can also have
long-term implications if not rectified at the soonest possible opportunity.
The following three main objectives will help AIC address the issues identified above:
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Increase Gross Earned Premiums to Php 4.47 billion, increase Net Earned Premiums
to at least Php 2.16 billion, and increase Net Income to 315 million by the end of
2014. (Financial)
Increasing premium revenue will allow the company to fund further growth and also help
ensure its capacity to cover any sudden increases in losses due to claims. Increasing
gross premium revenue also allows the company to increase in rank since it is the
primary basis for industry ranking by the Insurance Commission. This objective will
address several strategic issues. In striving to increase the gross premium revenue the
company will spread its risk exposure geographically and among a greater number of
insurance buyers. Considering that premium revenue per insurance buyer seems to be
decreasing due to the strong rivalry that is pushing premium rates down and the smaller
share of insurance expenditure based on the FIES of 2009, this objective will help the
company compensate by increasing the number of insurance buyers it currently serves.
In addition, the increase in retained premium will help cover expenses and losses due to
claims. These financial objectives will help the company remain profitable in the face of
rising costs and decreasing premium revenue.
TABLE 8.2-A
Estimated Projected
2011 2012 2013 2014
Gross Earned Premiums 2,921,689,765 3,175,242,063 3,644,600,633 4,470,279,725
Growth Rate 7% 8.68% 14.78% 22.65%
Market Share 7.36% 7.43% 7.93% 9.04%
Increase market share to 9.04% by the end of 2014 by expanding the companys
network of brokers and agents and enabling partner organizations to cross-sell
products. (Marketing)
Increasing market share will bring more premium revenue that will support its current
strategies and also ensure stability of the company by allowing it to spread its risk
exposure over a greater number of insurance buyers. The insurance industrys low
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penetration indicates a significant amount of room for growth. The objective of
increasing market share allows AIC to grab its share of a growing industry. To remain
competitive and attain its objective of becoming one of the top 3 in the industry, AIC will
need to constantly strive to increase its market share to be at par with its key competitors
who will most likely be trying to do the same.
Expand distribution network by engaging in a bancassurance partnership with a large
bank and establishing 53 bancassurance branches by the end of 2014. (Operations)
Expanding its distribution network through bancassurance will help support its sales and
marketing efforts and help the company achieve its financial and marketing objectives.
By expanding its network, AIC will be able to decrease its dependency on the broker and
agent distribution channel. The company will also be able to reach more insurance
buyers which will in turn help it increase its premium revenues, better spread its risk
exposure, and secure its position as one of the market leaders. Some of AICs key
competitors such as Malayan and BPI/MS have already ventured into bancassurance
partnerships to extend their reach. The objective of expanding its distribution network
through bancassurance will allow AIC to more effectively compete and not be left behind
by its key competitors.
8.3 Recommended Business Strategies
Based on the QSP Matrix, the most attractive strategies for AIC fall under market
penetration. The top 2 suitable market penetration strategies based on the SWOT Analysis
are listed below. One financial strategy was also included to help support the 2 market
penetration strategies.
1. S3,S4,O2,O4 - Establish a bancassurance partnership with a large bank that has an
extensive network of existing branches. AIC can help augment its existing distribution
network by partnering with a large bank for purposes of cross-selling its array of non-life
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insurance products. This will allow partner bancassurance bank branches to serve as AICs
additional sales outlets or marketing channels. This will entail stationing non-life insurance
sales personnel at the different bank branches.
By partnering with a bank, the company will be able to leverage on the banks network of
branches to significantly step-up its marketing and sales efforts without the significant costs
associated with setting up a branch of its own. This will provide AIC access to the existing
network of clients of the bank. Products of the bank such as its loan product can be linked to
AICs insurance products. For instance, if a client of the bank decides to take out a loan to
purchase a motor vehicle then the client may be encouraged to insure the motor vehicle
through one of AICs motor line insurance products. This type of cross-selling of products
offers potential clients of the bank a more complete set of solutions and also helps both the
bank and AIC to augment its existing revenue generating capacity. With a bancassurance
partnership, the bank receives 30% of the premium revenue and AIC benefits by being able
to extend its reach on top of the additional premium revenue it will be able to generate. This
will also allow AIC to be less dependent on its other distribution channels which makes it a
more stable company.
2. S2,S3,T3,T4 - Expand network of brokers and agents to increase reach and connect with
more insurance buyers in order to compensate for the smaller premium revenue per
insurance buyer. AIC has a network of 34 branches and offices strategically spread
throughout the country. The company can utilize these branches and offices as well as its
account management personnel in the head office to establish links with more brokers and
agents. This will also have a multiplier effect since each broker and agent can bring in more
than one direct client. The company should also ensure that branches and offices have the
necessary authority and resources to implement this strategy.
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Brokers and agents have played and continue to play an important role in the insurance
buying process. As a non-life insurance company, AIC should ensure that this distribution
channel is not neglected. The company should continue its efforts in cementing its links with
brokers and agents and also try to look for opportunities to connect and establish links with
even more brokers and agents. AICs Agent Development and Servicing department as well
as its Product Line divisions should be constantly scanning for potential new brokers and
agents whose services can be tapped to sell and market the companys array of products.
One possible source of relevant information is the Insurance Commissions list of newly
accredited and licensed brokers and agents. Another potential lead can be the list of
insurance companies that have expressed their willingness to cease operations due to their
inability to comply with the increasing minimum capitalization requirements mandated by the
Insurance Commission. AIC can try to encourage and convince brokers and agents loyal to
these companies to switch over and sell AIC products instead. Expanding its existing
network of brokers and agents will also allow the company to grow and meet its targets while
the bancassurance partner branches are not yet operational.
3. W1,W3,O4,05 - Adhere to a policy with higher premium retention rate to fund maintaining
127
The prompt settlement of claims is a critical success factor in the non-life insurance industry.
The companys performance in processing claims will dictate how it will be perceived by its
existing client base and by any potential insurance buyer. This highlights the importance of
addressing the decreasing performance of its claims process. The additional premium
revenue from a higher retention rate can be used to address this problem. Moreover, a
higher retention rate will also make more premium revenue available for covering expenses
and losses due to claims.
8.4 Recommended Organizational Strategies
The recommended business strategies will necessitate the implementation of several
changes in AICs current organizational structure. To be able to venture into
bancassurance, the Bangko Sentral ng Pilipinas requires that the partner bank own 5% of
the insurance company. In this light, AIC will have to sell 5% of its 93.73% share of CBA
Assurance Corporation to the partner bank70. CAC is a subsidiary of ABC Insurance
Corporation that focuses on the Special Lines set of packaged insurance products. CAC is
currently under the Motor and Special Lines Division of AIC. CAC will have to be transferred
to the Branches Division of AIC and become the organizational unit responsible for handling
bancassurance operations. This will allow the head of the Branches Division to ensure
synergy between AICs own branches and the new bancassurance branches which will be
under the operation and control of CAC. Selling 5% of the shares of CAC to the bank will
still leave AIC with 88.73% or an overwhelming majority of the shares of stock. In addition,
using CAC as the joint venture entity between AIC and the bank allows the company to
avoid pouring the required minimum capital of more than Php 175 million into a totally new
entity and having that new establishment accredited and authorized by the Insurance
Commission to transact insurance business in the country. The approval process for a
totally new insurance company may entail a more significant amount of time to accomplish.
70
Securities and Exchange Commission (www.sec.gov.ph)
128
The sooner AIC is able to ramp up its bancassurance operations the less time there will be
for its competitors to increase the disparity in the size of the distribution network between
AIC and its rivals.
CAC will incur the costs of operating the bancassurance branches but these costs will be
offset by the companys 10% share of the premium revenue that will be generated. AIC will
receive 60% share of the premium revenue from the bancassurance branches, CAC will
receive 10%, and the partner bank will receive 30%. As shown in the table below, CAC will
actually profit from becoming AICs vehicle for bancassurance.
TABLE 8.4-A
Estimated CAC Estimated CAC

Total Expenses Total Revenue Estimated CAC Profit /
(Bancassurance) (Bancassurance) Loss (Bancassurance)
2012 2,100,000 2,228,074 128,074
2013 12,030,000 34,721,816 22,691,816
2014 21,390,000 87,677,796 66,287,796
TABLE 8.4-B
Partner Bank's Total Gross Premiums

AIC's Share Share CAC's Share (Bancassurance)
2012 13,368,442 6,684,221 2,228,074 22,280,736
2013 208,330,896 104,165,448 34,721,816 347,218,160
2014 526,066,777 263,033,389 87,677,796 876,777,962
Other organizational units within AIC will also have to contribute to ensure the success of
the strategies. The Organizational Development and People Management Division will have
to facilitate the transfer of CAC from the Motor and Special Lines Division to the Branches
Division. The Human Resources Administration and Agents Development and Servicing
departments will have to provide qualified personnel to staff the new bancassurance
branches. The Branches Division will have to ensure that all processes and structures are in
place to support the new bancassurance branches. The Marketing Services and
Communications Department will have to plan and execute activities that will drum up the
launching of the new bancassurance branches. Proper equipment and supplies should also
be provided to the new bancassurance branches by the Office Administration Department.
129
The different organizational units within AIC will have to align their individual unit goals with
the new strategies, objectives, and vision and mission of the company to ensure the success
of the recommended strategies.
8.5 Financial Projections
8.5.1 Basis and Assumptions
General Assumptions
Recommended business strategy #1 which entails setting up a bancassurance
partnership will result in the establishment of 5 bancassurance branches by the end
of 2012, 29 bancassurance branches by the end of 2013, and 53 bancassurance
branches by the end of 2014.
The premiums generated by each bancassurance branch will be divided amongst
three entities, namely, ABC Insurance Corporation, CBA Assurance Corporation, and
the partner bank. AIC will get 60%, CAC 10%, and the partner bank will get 30%.
AICs growth from 2012 to 2014 will be in accordance with its compound annual
growth rate from 2007 to 2011 of 8.22%.
Each established bancassurance branch will contribute around Php 10,694,753.24
per annum by 2012 and this amount will grow in proportion to the companys growth
as measured by its compound annual growth rate of 8.22% from 2007 to 2011. The
gross premium contribution per branch was estimated by determining the arithmetic
mean of the gross premium contribution of AICs existing own branches and then
getting 60% of that amount.
Since only 3 quarters of the current fiscal year has transpired, 2011 figures were
obtained using internal estimates provided by the company.
Recommended business strategy #2 will allow the company to sustain its current
compound annual growth rate of 8.22% from 2012 to 2014.
Recommended business strategy #3 will increase the companys current premium
retention rate of 34.87% to 48.37%. This will put the company at par with the
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average premium retention rate of its key competitors and result in a significant
increase of net earned premiums.
Income Statement
Established bancassurance branches will increase the companys gross earned
premiums on top of the projected growth rate of 8.22% and result in an even faster
pace of growth.
Net Earned Premiums will grow in proportion to gross earned premiums
Commission Income will grow in proportion to reinsurers share of gross earned
premiums
Investment Income will remain constant from 2012 to 2014
Benefits and Claims and Commission Expense will grow in proportion to net earned
premiums
General Expenses will grow at the rate of the forecasted inflation rate of 4.5%71
Income Tax will grow in proportion to gross earned premiums. However, it should be
mentioned that it is assumed that AIC will continue to benefit from lower income tax
due to its Philippine Economic Zone Authority (PEZA) registration that grants the
company the option of paying a special lower rate of tax on gross income.
Balance Sheet
Short-term Investments, Financial Assets, Deferred Acquisition Costs, and Insurance
Contract Liabilities will grow in proportion to gross earned premiums
Insurance Receivables will grow based on maintaining days receivable in proportion
to gross earned premium
Reinsurance Assets will grow in proportion to reinsurers share of gross earned
premiums
Investment Properties will grow in proportion to net earned premiums
71
International Monetary Fund World Economic Database / Forecasted Inflation Rates 2011
131
Based on data for previous accounting periods, the depreciation of the Property and
Equipment account is offset by the acquisition of new equipment. However, Property
and Equipment increases due to the increasing value of the land asset. In
accordance with this principle, Property and Equipment will be forecasted to grow at
the rate of increase of the value of real estate prices in the Makati central business
district area. Real estate prices are forecasted to grow at a rate of 5.4%72.
There will be no additional investments in a subsidiary
Net pension asset will grow in proportion to salaries, wages, and benefits
Insurance Payables will grow in proportion to benefits and claims
Trade & Other Payables will grow in proportion to General Expenses
Other Liabilities will serve as the balancing figure
Common Stock & Other Equity will remain constant
8.5.2 Projected Income Statement for 2012 to 2014
ESTIMATED PROJECTED
2011 2012 2013 2014
REVENUES
Gross earned premiums 2,921,689,765 3,175,242,063 3,644,600,633 4,470,279,725
Reinsurer's share of gross earned premiums 1,902,911,595 1,639,513,082 1,881,862,957 2,308,196,334
Net earned premiums 1,018,778,170 1,535,728,981 1,762,737,676 2,162,083,391
Commission Income 213,456,404 183,910,050 211,095,303 258,918,643
Investment Income 207,621,420 207,621,420 207,621,420 207,621,420
Subtotal revenues 1,439,855,994 1,927,260,451 2,181,454,399 2,628,623,454
BENEFITS, CLAIMS, AND EXPENSES
Benefits and claims 426,480,382 642,886,059 737,916,320 905,090,213
General expenses 423,134,621 442,175,679 462,073,585 482,866,896
Commission expense 428,939,322 646,592,720 742,170,893 910,308,653
Subtotal benefits, claims, and expenses 1,278,554,325 1,731,654,458 1,942,160,797 2,298,265,762
Income before income tax 161,301,668 195,605,993 239,293,602 330,357,692
Provision for (benefit from) income tax 9,725,917 10,569,959 12,132,392 14,880,968
NET INCOME 151,575,751 185,036,034 227,161,210 315,476,725
Sales Growth 8.68% 14.78% 22.65%
72
Global Property Guide / Philippines February 1, 2011
132
8.5.3 Projected Balance Sheet for 2012 to 2014
ESTIMATED PROJECTED
2011 2012 2013 2014
ASSETS
Cash & cash equivalents 219,909,591 758,695,544 764,956,684 955,544,894
Short-term investments 206,325,464 223,285,417 241,639,478 261,502,244
Insurance receivables 811,651,494 882,088,849 1,012,477,637 1,241,853,006
Financial assets 5,097,112,992 5,516,095,680 5,969,518,745 6,460,213,185
Reinsurance assets 2,753,165,730 2,372,076,161 2,722,712,193 3,339,538,770
Deferred acquisition costs 135,347,580 147,093,416 168,836,501 207,086,170
Investment properties 755,551,931 1,138,935,865 1,307,291,316 1,603,456,306
Property and equipment 1,441,374,651 1,519,208,882 1,601,246,162 1,687,713,455
Depreciation (44,912,654) (47,337,938) (49,894,186) (52,588,472)
Investments in a Subsidiary 151,079,781 151,079,781 151,079,781 151,079,781
Net Pension Asset 11,449,939 12,131,164 12,852,920 13,617,618
Total assets 11,538,056,498 12,673,352,823 13,902,717,230 15,869,016,955
LIABILITIES & EQUITY
Liabilities
Insurance contract liabilities 3,731,293,040 4,055,104,944 4,654,523,263 5,708,998,891
Insurance payables 888,675,199 1,339,608,855 1,537,627,426 1,885,974,733
Trade & other payables 254,937,302 266,409,480 278,397,907 290,925,813
Other liabilities 402,565,760 566,608,314 759,386,193 994,858,352
Total liabilities 5,277,471,301 6,227,731,592 7,229,934,789 8,880,757,789
Equity
Common stock & other equity 5,258,154,775 5,258,154,775 5,258,154,775 5,258,154,775
Retained earnings 1,002,430,422 1,187,466,456 1,414,627,666 1,730,104,391
Total equity 6,260,585,197 6,445,621,231 6,672,782,441 6,988,259,166
Total liabilities & equity 11,538,056,498 12,673,352,823 13,902,717,230 15,869,016,955
133
8.5.4 Projected Cash Flow Statement for 2012 to 2014
ESTIMATED PROJECTED
2011 2012 2013 2014
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax 161,301,668 195,605,993 239,293,602 330,357,692
Adjustment for depreciation 44,912,654 47,337,938 49,894,186 52,588,472
Changes in operating assets & liabilities
Decrease (increase) in:
Insurance receivables (55,978,245) (70,437,356) (130,388,787) (229,375,369)
Reinsurance assets (189,881,231) 381,089,569 (350,636,031) (616,826,577)
Deferred acquisition costs 9,334,696 11,745,836 21,743,084 38,249,669
Net pension asset (642,972) (681,226) (721,756) (764,698)
Increase in:
Insurance contract liabilities 257,341,034 323,811,904 599,418,319 1,054,475,629
Insurance payables 61,290,441 450,933,656 198,018,571 348,347,308
Trade & other payables 17,582,599 11,472,179 11,988,427 12,527,906
Net cash generated from (used in) operations 305,260,645 1,350,878,492 638,609,615 989,580,032
Interest paid
Income tax paid (9,055,137) (9,725,917) (10,569,959) (12,132,392)
Net cash provided by (used in) operating activities 296,205,508 1,341,152,575 628,039,655 977,447,640
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of / additions to:
Financial Assets (351,639,580) (418,982,688) (453,423,065) (490,694,441)
Investment Properties (52,109,152) (383,383,935) (168,355,451) (296,164,989)
Net cash used in investing activities (403,748,732) (802,366,623) (621,778,516) (786,859,430)
CASH FLOWS FROM FINANCING ACTIVITY
Increase (decrease) in notes payable (135,000,000)
NET INCREASE (DECREASE) IN CASH (242,543,224) 538,785,952 6,261,140 190,588,210
CASH AT BEGINNING OF YEAR 462,452,815 219,909,591 758,695,544 764,956,684
CASH AT END OF YEAR 219,909,591 758,695,544 764,956,684 955,544,894
The projected financial statements show growth in gross earned premiums amounting to
Php 1,548,589,961, growth in net earned premiums amounting to Php 1,143,305,221, and
growth in net income amounting to Php 163,900,974. The increase in gross earned
premiums is amplified by the increasing premium contribution of bancassurance branches
from 2012 to 2014. The projected financial statements also show the significant increase in
net earned premiums due to the higher premium retention rate that helps drive the increase
in net income. It should also be noted that the companys networth increased by as much
as Php 727,673,969 which can indicate a higher capacity to take on additional risk exposure.
The networth of an insurance company is often times used to gauge its financial strength.
134
8.6 Recommended Departmental Programs and Actions
Recommended Business Strategy #1: Establish a bancassurance partnership with a
large bank that has an extensive network of existing branches.
AIC will need to establish a partnership with one of the larger universal banks in the country
that already has an existing extensive network of branches. To perform initial cursory
assessment of potential banks, an interview was arranged and conducted with a branch
manager of Chinabank. Based on the discussions it seems that Chinabank is one potential
partner. It currently has over 400 branches nationwide and is targeting to have as many as
500 branches by the end of 2012. Chinabank currently does not have a bancassurance
partner for non-life insurance. It only has a bancassurance partnership with Manulife for life
insurance. During the course of the interview it was also determined that the typical revenue
split scheme involves 70% of the revenue going to the insurance company and 30% to the
bank. Another potential bank partner is Eastwest Bank which targets expanding its existing
117 branches to 300 within 3 years. The bank is keen on increasing its net income so
offering to engage in bancassurance as a vehicle to achieving that goal may help entice it to
form a partnership with AIC73.
AIC can offer to sell to the bank 5% of the shares of its subsidiary CBA Assurance Corp.
(CAC). This will allow the company to comply with the requirements for bancassurance of
the Bangko Sentral ng Pilipinas (BSP) and allow AIC to start selling its insurance products
through the banks branch network. Once the bancassurance partnership has been
finalized, AIC will then need to seek the approval of both the BSP and the Insurance
Commission. There should be no problems in seeking the approval considering that CAC is
already accredited and licensed by the Insurance Commission to transact insurance
business in the country. Once the bancassurance partnership has been approved by the
governing authorities, AIC can then begin to setup and launch bancassurance branches at a
rate of 1 per month. Assuming the partnership was finalized and approved within the 1st six
73
The Philippine Star / EastWest Bank Eyes 300 Branches in 3 years September 3, 2011
135
months of 2012, this leaves AIC with half of the year for selecting and setting up
bancassurance branches. One month is allotted to the selection of which bank branches to
target first. The remaining 5 months of the year will be dedicated to launching 1 bank
assurance branch per month for a total of 5 branches by the end of 2012. Considering that
branches situated in the Metro Manila area usually generate more revenue, AIC should try to
target opening the first 5 bancassurance branches in and around this area. At the rate of 1
branch a month for 2012 and 2 branches per month for 2013 to 2014, the company will be
able to setup and launch an additional 24 branches a year for 2013 and 2014 to reach a total
of 59 operational bancassurance branches by the end of 2014. The proposed phasing of
branches and timeline factor in a learning curve that enables establishing branches at a
faster pace for 2013 and 2014.
Proposed Timeline for 2012 Activities:
TABLE 8.6-A
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Form and Finalize
Bancassurance Partnership
Acquire Approval from IC and
BSP
Select and Prepare Target Bank
Branches
Setup and Launch
Bancassurance Branches *
* 1 branch per month for 2012
Phasing of Bancassurance Branches:
TABLE 8.6-B
No. of
No. of Branches Operational
Established Branches
2012 5 5
2013 24 29
2014 24 53
Total 53
Each bancassurance branch will be staffed by one bancassurance sales officer who will be
responsible for the following:
136
Cross-selling of AIC products to bank clients
Preparation of proposals and quotations
Evaluation of the insurance requirements of potential clients
Providing assistance to existing clients with claims
Providing assistance in the collection of premiums
Coordination and submission of regular reports to AIC and the partner bank
Moreover, to qualify for the position applicants should possess good communications skills
as well as sales and marketing skills.
The different facets of the company will need to work together to ensure that this business
strategy succeeds and is accomplished on schedule. The functional units under the
companys operations, marketing, and finance will all need to contribute. The proposed
actions and programs as well as the entities responsible and the target timeline are outlined
in the following table.
Operations
Action / Program Who When
Create, negotiate, and sign a joint venture agreement CEO January to

with one of the large universal banks in the country such First Vice President of March 2012
as Chinabank which already has an extensive existing Legal Department
network of branches.
Vice President for
Business Development
Have the bancassurance joint venture agreement First Vice President of April to June
approved by the Insurance Commission and Bangko Legal Department 2012
Sentral ng Pilipinas
Ensure organizational structures and processes are in First Vice President of Starting April
place to facilitate synergy between own branches and Branches Division for 2012
bancassurance branches. Bancassurance
Branches
Interview and hire qualified personnel for staffing Supervisor of Human Starting April
requirements of new bancassurance branches Resources Admin 2012
Dept.
137
Ensure sales personnel that will later be assigned to Senior Assistant for Starting May
bank branches have been trained and prepared for Training Administration 2012
licensing and accreditation. of Training Dept.
Accredit and assign new sales personnel assigned to Staff Assistant for Starting June
bank branches of partner bank. Agent Licensing of 2012
Agents Development &
Servicing Dept.
Ensure partner bank's personnel are familiar with new First Vice President of Starting July
procedures as well as AIC's products and services. Branches Division for 2012
Bancassurance
Branches
Support new sales personnel assigned to bank branches Senior Assistant of Starting
of partner bank. Agents Development & August 2012
Servicing Dept.
Ensure new bancassurance branches are established Assistant Manager of Starting

and prepared for operations in accordance with corporate Property August 2012
policies and regulations. The assistant manager will also Administration Dept.
be responsible for coordinating with other third party
entities.
Ensure new bancassurance branches are supplied with Senior Assistant for Starting
all necessary office equipment and furniture. Office Equipment of August 2012
Office Admin Dept.
Ensure new bancassurance branches are supplied with Staff Assistant for Starting
all necessary office supplies. Office Supplies of August 2012
Office Admin Dept.
Install, configure, and support information systems of Senior Assistant of Starting

new bancassurance branches. Information August 2012
Technology Dept.
Monitor and evaluate performance and progress of new Senior Vice President Starting
bancassurance branches. The Branches Division Head of Branches Division August 2012
will also be responsible for ensuring synergy between
bancassurance branches and the company's own
branches.
Establish, develop, and maintain links with bank Bancassurance Sales Starting
personnel and direct clients to build relationships that will Officer August 2012
generate premium revenue. Handle sales and marketing
of products and services within bancassurance branches
Marketing
Plan marketing activities for the launching of new Marketing Assistant of Starting April
branches and offices. Market Services & 2012
Communications Dept.
138
Provide marketing materials and support to new sales Marketing Assistant of Starting June
personnel assigned to bank branches. The marketing Marketing Services & 2012
assistant will also be responsible for the execution of Communications Dept.
marketing activities for the launching of new
bancassurance branches.
Finance
Record, monitor, and collect insurance receivables Staff Assistant for Starting
from partner bank. Collection Intermediaries August 2012
of Collection Department
Recommended Business Strategy #2: Expand network of brokers and agents to
increase reach and connect with more insurance buyers.
The broker and agent distribution channel is critical to the sustainability of AICs growth as a
non-life insurance company. Brokers and agents play an important role as intermediaries to
direct clients. In some cases, they even act as decision makers in the insurance buying
process. This highlights the need to ensure this channel is not neglected even while the
company begins to setup up an additional channel in the form of a bancassurance
partnership. The business strategy of expanding the existing network of brokers and agents
will help fuel the continued growth of the company in accordance with its compound annual
growth rate of 8.22% from 2007 to 2011. This growth can only be achieved by further
cultivating the companys links with brokers and agents. AIC needs to accomplish two main
goals to ensure the success of this business strategy, namely, retain the support of its
existing network of brokers and agents and add new entities to the existing network. Thus,
the company will have to strengthen its existing relationships as well as attract and
encourage new entities to join its network. To accomplish these goals, AIC can improve its
service to brokers and agents by decreasing the turn-around-time for commission payments
from the existing 4 to 5 days to just 2 days. The prompt settlement of commissions will
139
encourage brokers and agents to favor transacting with AIC rather than with its competitors.
This can be accomplished by having the Accounting Division work with the Process Review
& Documentation Department in instituting improvements in the commission payment
process. Aside from helping retain its existing network of brokers and agents, this will also
attract potential additions to the network once it becomes known that the company
processes commission payments quickly.
AIC should also design, develop, and implement a new web-based portal for brokers
and agents. The new portal will facilitate better communication and coordination between
the company and its network of brokers and agents. It will also help further strengthen the
relationship with brokers and agents because of the added service and differentiate AIC from
its key competitors. The new portal should provide information about commissions, pending
balances, latest news and announcements, top performing brokers and agents, new and
existing products and services, and latest industry related research. The portal should have
a facility for posting and receiving messages that will augment the existing communication
channels between the company and the brokers and agents. The portal should have a
secure access that prevents unauthorized entry and should also be accessible through
portable devices such as netbooks, laptops, and internet enabled mobile phones. This
means the portal will be accessible to all brokers and agents 24/7 regardless of the current
geographic location. The new portal can be designed, developed, and implemented from
January to June of 2012 by the companys IT Non-life Applications Development
Department. This will require the assignment of one project manager and 3 application
developers to accomplishing the task. Beta testing and end user training can be conducting
in the month of June 2012. The new portal can then be launched by July of 2012 through a
joint activity with all concerned parties including the network of brokers and agents. The
event could be timed so that the launch coincides with the activity for giving awards to top
performing brokers and agents.
140
Proposed Timeline for Application Design, Development, and Implementation:
TABLE 8.6-C
ACTIVITY Month 1 Month 2 Month 3 Month 4 Month 5 Month 6

Information Gathering
Systems Requirement Specification
Application Design & Devleopment
Unit & Dependencies Testing
Overall Systems Testing
User Acceptance Testing
End User Beta Testing & Training
Staffing Requirements:
TABLE 8.6-D
Position No.
Project Manager 1
Application Developer 3
Total Staff 4
The company needs to be more aggressive in terms of expanding its network of brokers
and agents. One way to accomplish this is to constantly and actively search for brokers and
agents that have been newly licensed and accredited by the Insurance Commission. The
companys liaison to the Insurance Commission can assist in this process. The company
can also try to gather competitive intelligence regarding smaller insurance companies that
will be closing down due to non-compliance with the increased minimum capitalization
requirement. It can then encourage and invite the brokers and agents loyal to these
companies to instead start offering and selling AICs products and services.
The proposed actions and programs as well as the entities responsible and the target
timeline are outlined below.
141
Operations
Establish, develop, and maintain links with brokers that have Vice President / Starting
been newly licensed by the Insurance Commission. Line Head January 2012
Manager / Assistant
Manager for
Account Servicing
of Line Dept.
Vice President of
Agents
Development &
Servicing Dept.
Manager for
Accounts Servicing
of AD&S
Monitor and track list of newly licensed brokers and agents Insurance Starting
and update Line Heads and Manager of Agents Commission Liaison January 2012
Development & Servicing Dept. of Agents
Development &
Servicing Dept.
Gather competitive intelligence regarding smaller insurance Vice President / Starting

companies that will be closing down due to non-compliance Line Head January 2012
to the increased minimum capitalization requirement. Vice President of
Entice, encourage, and invite brokers and agents loyal to Agents
those companies to shift to AIC. Development &
Servicing Dept.
Assist in investigating potential improvements in the Assistant Vice Starting

commission payment process for brokers and agents to President of January 2012
ensure faster turn-around-time. Process Review &
Documentation
Design, develop, and implement a new web-based portal for Manager for January to
brokers and agents to be hosted on the company's existing Applications Project June 2012
IT infrastructure. Management of IT
Non-life
Applications
Development Dept.
Assist the IT Non-life Applications Development Dept. in First Vice President January to
crafting the Requirements Specification document for the / Line Head June 2012
new web-based portal for brokers and agents. Facilitate Vice President of
initial end user beta testing. Agents
Development &
Servicing Dept.
Train Line, Accounting, and Agents Development & Manager for June 2012
Servicing Dept. personnel in using the Content Management Applications Project
System for the new web-based portal for brokers and Management of IT
agents. Non-life
Applications
Development Dept.
142
Maintain and administer new web-based portal for brokers Senior Assistant for Starting July
and agents IT Network/Systems 2012
Administration of IT
Operations Dept.
Inform and encourage use of new web-based portal for First Vice President Starting July
brokers and agents. / Line Head 2012
Vice President of
Agents
Development &
Servicing Dept.
Marketing
Launch new web-based portal for brokers and agents Marketing Assistant Starting July
through a joint activity with concerned parties. of Market Services 2012
& Communications
Dept.
Finance
Shorten turn-around-time of commission payment to 2 days Senior Vice Starting

from the current 4-5 working days. President of January 2012
Accounting Division
Regularly update and maintain accounting related Senior Assistant for Starting July
information using the back-end content management Commission of 2012
subsystem of the new web-based portal. Accounting Division
Recommended Business Strategy #3: Adhere to a policy of maintaining a higher
premium retention rate to support more manpower dedicated to claims processing
and be in a position to handle the commensurate increase in claims that will stem
from growth in gross premiums and number of insurance buyers.
143
AICs premium retention rate of 34.87% is lower than all of its key competitors and lower
than the industry average of 63.13%74. It is prudent for an insurance company to avoid too
much as well as too little of its risk exposure. Ceding too much will adversely affect its
profitability by decreasing its net earned premiums which is in turn used to cover claims
costs and other expenses. On the other hand, ceding too little can expose the company to
an unmanageable amount of risk and lead to large losses due to claims. This underscores
the importance of maintaining a premium retention policy and ensuring adherence to it by
reinsurance personnel. The proposed premium retention rate of 48.37% will allow AIC to be
at par with its key competitors since this is their average retention rate. With a higher
premium retention rate the companys net earned premiums will significantly increase. This
will in turn contribute to increasing its net income and improve the companys profitability. It
will also provide additional premium revenue that can then be allocated to augment its
existing claims processing personnel. As shown in the IFE Matrix, the performance of the
companys claims process has declined. One of the main reasons for the decline is the lack
of manpower dedicated to claims processing. This problem needs to be addressed to
ensure that the company will be able to successfully implement the other two mentioned
business strategies. Moreover, by addressing this problem the company will help ensure
that its growth is sustainable. The prompt settlement of claims is a critical success factor for
non-life insurance companies and it affects the companys relationship with existing clients
as well as potential new insurance buyers. With the additional premium revenue generated
from adhering to a higher premium retention rate, AIC should hire, train, and maintain
additional claims processing personnel. This will provide the company with the necessary
capacity to handle the commensurate increase in claims that will stem from growth in gross
premiums and number of insurance buyers.
To ensure adherence to the policy, product line heads, reinsurance operations
personnel, and accounting personnel will have to work together and monitor reinsurance
74
144
activities coursed through both treaty and facultative agreements. Monitoring should begin
at the start of 2012 but the process of hitting the target retention rate should be more gradual
and spread throughout several months but not exceeding the first four months of the year.
Slight variance from the target will be acceptable considering the nature of reinsurance
operations. The Internal Audit Department under the Accounting Division can assist in
ensuring compliance. The proposed actions and programs as well as the entities
responsible and the target timeline are outlined below.
Finance
Monitor and evaluate reinsurance business and corresponding Vice Starting

retention rate. Compare the companys current retention rate with President of January 2012
the retention rate of key competitors which was at 48.37% in 2010. Specialized
Accounting
Dept.
Ensure adherence to the retention rate policy and that company Vice Starting
policies and financial guidelines regarding risk management are President of January 2012
followed. Retention rate of the company should be at par with the Internal Audit
average of its key competitors. Dept.
Increase budget allocation for claims personnel of Line Divisions Senior Vice Starting
and Branches Division. President of January 2012
Accounting
Division
Operations
Ensure that treaty agreements help protect and maintain the Assistant Starting
company's premium retention rate. Vice January 2012
President of
Reinsurance
Dept.
145
Monitor and ensure product line reinsurance personnel adhere to Senior Vice Starting
retention rate policy. Submit reports to Internal Audit Dept. President January 2012
Marine &
Aviation
Division
Senior Vice
President
Non-Marine
Division
Senior Vice
President of
Motor and
Special Lines
Interview and hire additional personnel for claims processing of Supervisor of Starting
Lines and Branches Divisions. Human January 2012
Resources
Admin Dept.
146
9. STRATEGY EVALUATION, MONITORING, AND CONTROL
9.1 Strategy Map
Financial To achieve AICs vision, the company needs to accomplish its financial
objectives of increasing its gross earned premiums and net earned premiums. Increasing
gross earned premiums will help the company improve its ranking since the Insurance
Commission ranks non-life insurance companies based on this. On the other hand,
increasing net earned premiums by protecting its retention rate will allow the company to
generate more premium revenue that can be used to cover expenses and losses due to
claims. It will also help increase the companys resulting net income.
Customer To attain the companys financial objectives, AIC needs to ensure it addresses
the needs of its customers. This will help the company retain its current customers as well
as attract new ones.
147
Internal To ensure the companys profitability and sustains its growth trend, AIC needs to
settle claims promptly, effectively manage its risks, and strengthen its distribution network.
Promptly settling claims will help the company retain its existing customer base and also
attract new customers. Effectively managing its risk exposure protects the company from
huge losses due to claims. Extending its reach by expanding its distribution network will
allow the company to reach more insurance buyers and also spread its risk exposure
geographically.
Learning and Growth The growth of AIC as well as the sustainability of its growth greatly
depends on its human resources. This underscores the need to ensure employees are
satisfied and that they are provided with opportunities for growth. It is also a prudent course
of action to start developing future leaders of the company to ensure continuity and
sustained growth.
148
9.2 Balanced Scorecard
149
150
9.3 Contingency Planning
9.3.1 Downside Potential Events
Negotiation or approval of Explore possibility of setting up new branches owned

the bancassurance by AIC to ensure it does not get left behind by key
partnership takes longer competitors in terms of premium revenue generating
than expected capacity
Aggressively seek traditional partnerships with banks
Form additional partnerships with auto shops and
dealers
Explore possibility of buying smaller players that will
enable AIC to still increase its distribution network
Fall short of establishing Have the Process Review and Documentation

target number of department work with the Branches division to
bancassurance branches investigate, evaluate, and implement recommendations
or fall behind schedule that will make the process of establishing branches
more efficient and less time consuming
Allocate more personnel to processes that are critical
to establishing the bancassurance branches
Premium revenue Provide additional sales and marketing training to

generated per bancassurance personnel
bancassurance branch falls Try to establish more branches to compensate for
short of expectations revenue shortfall
Study the possibility of transferring bancassurance
operations of the underperforming branch or branches
to a new bank branch
A calamity occurs that Re-evaluate the companys capacity to fund the

causes losses due to recommended strategies in light of higher claims cost
claims to spike Defer implementation plans or adjust schedule of
targets if necessary
9.3.2 Upside Potential Events
Negotiation or approval of Adjust schedule of targets to begin establishing

the bancassurance bancassurance branches earlier
partnership is
accomplished ahead of
schedule
Actual capacity and pace of Increase target number of bancassurance branches
setting up bancassurance without exceeding the estimated optimum ratio of own
branches exceeds branches to bancassurance branches of around 8:1.
expectations and targets This ratio is based on Malayan which has been
successful in terms of maintaining prompt settlement of
claims with 42 own branches and 356 bancassurance
branches.
151
Premium revenue Re-assess selected set of bank branches to target and
generated per consider focusing more on areas where existing
bancassurance branch bancassurance branches are posting higher revenues.
exceeds expectations However, clustering of risks in one area should still be
avoided.
-- END OF PAPER --
152
X. REFERENCES
1. David, Fred R. Strategic Management: Concept and Cases. 13th Edition. 2010.
2. Securities and Exchange Commission for Audited Financial Statements of AIC Insurance
Corp., Malayan Insurance Co. Inc., Prudential Guarantee and Assurance Inc., and BPI/MS
3. Insurance Commission Annual Reports 2004 to 2009, Key Insurance Indicators 2004 to
2010, Non-life Ranking Based on Gross Premiums, Net Premiums, Networth, Paid-up
Capital, and Assets, Circulars 05-2011, 21-2010, 26-2010, 30-2010, and 35-2010,
Guidelines for RA 10022, List of Accredited Associations, Brokers, Agents, and Ranking of
Insurance Brokers Based on Premiums Produced
4. Philippines Insurers and Reinsurers Association for 2011 PIRA Fact Book, PIRA News 1st
and 2nd Editions.
5. Institute for Development and Econometric Analysis for Industry Analysis: Life, Non-life,
and Pre-need 2010, Economic Trends, Economic Briefings, and Economic Forecasts.
6. National Statistics Office. Family Income and Expenditure Survey. 2006 and 2009, Annual
Survey of Philippine Business and Industry 2008, 2011 Philippines in Figures
7. Bangko Sentral ng Pilipinas. Selected Economic Indicators. 2000 2011.
8. National Economic and Development Authority. 2011 Midyear Economic Briefing. August
8, 2011.
9. Department of Trade and Industry. MSME Statistics. 2011.
10. Philippine Overseas Employment Administration. Overseas Employment Statistics. 2011.
11. Land Transportation Office. Number of Motor Vehicles Registered. 2008 2010.
12. XYZ Magazine. XYZ Magazine Insurance Survey 2010.
13. Asian Development Bank. Regional Road Safety Program. 2010.
14. Presidential Task Force on Climate Change. Climate Change in the Philippines. 2011.
15. International Monetary Fund. Forecasted Inflation Rates. 2011.
16. International Association of Insurance Supervisors. A Primer on Non-life Insurance
Ratios. 2011.
17. Transportation Science Society of the Philippines. 17th Annual Conference. 2009.
153
18. A.M. Best. Special Report on the Philippine Life and Non-life Industry. April 18, 2011.
19. Swiss RE Economic Research and Consulting. Insurance industry led by double digit
growth in emerging Asia. January 2011.
20. Pulse Asia. Graft and Corruption in Government Agencies. March 2011.
21. Philippine Daily Inquirer News. Stradcom Earned P2 Billion Using LTO Data. October 7,
2011.
22. The Manila Times. Stradcom to begin layoffs in LTO units starting September. August
29, 2011.
23. Internet World Stats. Internet Usage. 2010.
24. www.malayan.com
25. www.AIC.com
26. www.bpims.com
27. www.prudentialguarantee.com
28. www.insurance.gov.ph
29. www.census.gov.ph
30. www.XYZMagazine.com
31. www.neda.gov.ph
32. pids.gov.ph
33. www.pirainc.org
34. www.sec.gov.ph
35. www.bsp.gov.ph
36. The Philippine Star. EastWest Bank Eyes 300 Branches in 3 Years. September 2011.
37. Global Property Guide. Philippines. February 1, 2011.
38. Manila Bulletin. BSP to fast-track bancassurance approval. January 18, 2011.
39. ABS-CBN News. LTO Chief Faces New Corruption Charge. June 16, 2011.
40. Asian Development Bank. Domestic Saving Rate. 2010.
41. Philippine Star. Insurers Struggle to Meet New Capital Requirements. May 24, 2011.
42. Allianz. Economic Research & Corporate Development Working Paper. 2010.
154
XI. APPENDIX
155
ABC Insurance Corporation
PIONEER INSURANCE & SURETY CORPORATION
STATEMENTS OF FINANCIAL POSITION
December 31
2010 2009
ASSETS
Cash and Cash Equivalents (Notes 4, 9, 31 and 32) P
=462,452,815 =516,085,344
P
Short-term Investments (Notes 5, 31 and 32 ) 192,091,485 194,218,119
Insurance Receivables - net (Notes 6, 29, 30, 31 and 32) 755,673,249 525,602,158
Financial Assets (Notes 7, 9, 29, 30, 31 and 32)
Financial assets at fair value through profit or loss 440,808,597 424,021,598
Available-for-sale financial assets 4,266,208,612 4,297,972,274
Loans and receivables 38,456,203 34,526,084
Accrued Income (Notes 8, 31 and 32) 3,838,636 1,907,815
Deferred Acquisition Costs (Notes 10 and 30) 126,012,884 139,879,884
Reinsurance Assets (Notes 11, 15, 30 and 31) 2,563,284,499 1,880,021,019
Investment Properties (Notes 12) 703,442,779 519,767,570
Property and Equipment - net (Notes 13 and 30) 1,367,528,132 1,297,883,976
Investments in a Subsidiary and an Associate
(Note 14) 151,079,781 101,079,781
Net Pension Asset (Note 19) 10,806,967 16,345,851
Other Assets 65,861,310 48,214,776
P
=11,147,545,949 =9,997,526,249
P
LIABILITIES AND EQUITY

Liabilities
Insurance contract liabilities (Notes 15, 31 and 32) P
=3,473,952,006 =2,690,484,023
P
Insurance payables (Notes 16, 29, 31 and 32) 827,384,758 634,895,340
Trade and other payables (Notes 17, 31, and 32) 237,354,703 230,926,678
Notes payable (Notes 18, 31 and 32) 135,000,000 320,000,000
Deferred reinsurance commissions (Note 10) 76,030,935 67,583,411
Deferred tax liabilities - net (Note 26) 288,814,101 239,647,454
5,038,536,503 4,183,536,906
(Forward)
*SGVMC114934*
-2-
December 31
2010 2009
Equity
Capital stock - P
=100 par value
Authorized, issued and outstanding - 3,000,000 shares P
=300,000,000 =300,000,000
P
Paid-in surplus 72,500,000 72,500,000
Revaluation surplus on property and equipment (Note 13) 697,029,095 580,353,944
Revaluation reserve on available-for-sale financial
assets (Note 7) 3,860,311,134 3,883,060,471
Revaluation reserve on available-for-sale financial
assets transferred to an affiliate (Notes 7) 248,822,539 200,229,307
Cumulative translation adjustments 79,492,007 65,990,408
Retained earnings
Appropriated for catastrophic losses 28,928,246 28,928,246
Unappropriated (Note 21) 821,926,425 682,926,967
6,109,009,446 5,813,989,343
P
=11,147,545,949 =9,997,526,249
P
See accompanying Notes to Financial Statements.
*SGVMC114934*
STATEMENTS OF INCOME
Years Ended December 31

2010 2009
REVENUES
Gross earned premiums P
=2,720,185,713 =2,299,824,733
P
Reinsurers share of gross earned premiums 1,771,670,968 1,446,919,455
Net earned premiums (Notes 15 and 21) 948,514,745 852,905,278
Commission income (Note 10) 198,734,673 180,792,665
Investment income (Note 22) 207,621,420 182,555,725
Foreign currency exchange gain - net 8,177,033
Other income - net 240,159 258,382
1,363,288,030 1,216,512,050
BENEFITS, CLAIMS AND EXPENSES

Gross insurance contract benefits and claims paid
(Notes 15 and 23) 1,660,727,583 1,197,398,582
Reinsurers share of gross insurance contract benefits
and claims paid (Notes 15 and 23) (1,345,267,778) (721,448,800)
Gross change in insurance contract liabilities 803,104,815 837,767,021
Reinsurers share of gross change in insurance
contract liabilities (721,497,876) (860,042,655)
Net benefits and claims 397,066,744 453,674,148
General expenses (Note 24) 393,951,735 370,993,051
Commission expense (Note 10) 399,356,095 349,351,023
Interest expense (Notes 16 and 18) 14,835,116 16,696,052
Provision for impairment losses (Notes 6 and 7) 1,706,983
Foreign currency exchange loss - net 887,911
1,206,916,673 1,191,602,185
INCOME BEFORE INCOME TAX 156,371,357 24,909,865
PROVISION FOR (BENEFIT FROM)

INCOME TAX (Note 26) 9,055,137 (6,972,700)
NET INCOME (Note 28) P

=147,316,220 =31,882,565
P
*SGVMC114934*
STATEMENTS OF COMPREHENSIVE INCOME

2010 2009
NET INCOME P
=147,316,220 =31,882,565
P
OTHER COMPREHENSIVE INCOME (LOSS)

Net change in fair value of available-for-sale
financial assets (Note 7) 25,843,895 (78,571,344)
Change in revaluation surplus on property
and equipment (Note 13) 117,358,389 46,496,506
Change in cumulative translation adjustments 13,501,599 (9,822,495)
156,703,883 (41,897,333)
TOTAL COMPREHENSIVE INCOME (LOSS) P

=304,020,103 (P
=10,014,768)
See accompanying Notes to Financial Statements
*SGVMC114934*
STATEMENTS OF CASH FLOWS

2010 2009
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax P
=156,371,357 =24,909,865
P
Adjustments for:
Depreciation and amortization (Notes 13 and 24) 42,625,386 40,605,463
Interest expense (Notes 16 and 18) 14,835,116 16,696,052
Dividend income (Note 22) (3,939,116) (1,892,030)
Gain on sale of available-for-sale financial assets
(Notes 7 and 22) (5,765,657) (1,913,087)
Fair value gains on financial assets at fair value through
profit or loss (Notes 7 and 22) (11,520,909) (32,986,478)
Interest income (Note 22) (20,218,125) (17,987,246)
Unrealized foreign currency exchange loss - net 24,801,970 (13,519,657)
Fair value gains on investment properties (Notes 12 and 22) (100,415,023) (65,997,600)
Operating income (loss) before changes in working capital 96,774,999 (52,084,718)
Changes in operating assets and liabilities:
Insurance receivables (230,071,091) (47,266,690)
Loans and receivables (3,930,119) (306,060)
Accrued income (2,201,139) 41,026
Deferred acquisition costs 13,867,000 9,484,116
Reinsurance assets (683,263,480) (770,477,082)
Net pension asset 5,538,884 (7,408,939)
Increase in:
Insurance contract liabilities 783,467,983 713,439,153
Insurance payables 192,489,418 21,773,469
Trade and other payables 6,428,025 33,193,762
Deferred reinsurance commissions 8,447,524 (9,411,268)
Net cash generated from (used in) operations 187,548,004 (109,023,231)
Interest paid (14,835,116) (16,696,052)
Income tax paid (6,488,743) (3,233,397)
Net cash provided by (used in) operating activities 166,224,145 (128,952,680)
(Forward)
*SGVMC114934*
-2-

2010 2009
CASH FLOWS FROM INVESTING ACTIVITIES
Interest received P
=20,699,677 =18,315,703
P
Dividends received 3,781,044 1,869,652
Acquisitions of/additions to:
Available-for-sale financial assets (8,000,000) (11,000,000)
Financial assets at fair value through profit or loss (125,180,433) (142,158,236)
Property and equipment (42,933,074) (45,415,358)
Investment properties (904,286)
Investment in a subsidiary and an associate (50,000,000) (7,995,000)
Proceeds from sale/maturities of:
Financial assets at fair value through profit or loss 110,272,798 117,138,467
Available-for-sale financial assets 71,320,052 137,916,078
Property and equipment 1,607,448 1,276,601
Short-term investments 2,126,634 (118,212,178)
Other assets (17,646,534) 2,849,765
Net cash used in investing activities (34,856,674) (45,414,506)
CASH FLOWS FROM A FINANCING ACTIVITY
Increase (decrease) in notes payable (185,000,000) 134,000,000
NET DECREASE IN CASH AND CASH EQUIVALENTS (53,632,529) (40,367,186)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 516,085,344 556,452,530
CASH AND CASH EQUIVALENTS
AT END OF YEAR (Note 4) P
=462,452,815 =516,085,344
P
*SGVMC114934*
Malayan Insurance Co. Inc.
Prudential Guarantee and
Assurance Inc.
Bank of the Philippine Islands &
Mitsui Sumitomo Insurance Corp.

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ATENEO DE MANILA UNIVERSITY

Graduate School of Business

A Strategic Management Paper

Prof. Edgar Juan Surtida III, MBA

Michael Reyes Garcia

EXECUTIVE SUMMARY ........................................................................................................... 4

2. RESEARCH DESIGN AND METHODOLOGY ....................................................................... 7

2.1 Research Design ............................................................................................................................ 7

2.2 Scope and Limitations ................................................................................................................... 9

3. MACRO ENVIRONMENTAL ANALYSIS ............................................................................... 9

3.1 Economic Forces ........................................................................................................................... 9

3.2 Political, Government, and Legal Forces..................................................................................... 13

3.3 Technological Forces ................................................................................................................... 15

3.4 Socio-Cultural Demographic Forces ............................................................................................ 17

3.5 Climate and Environmental Forces ............................................................................................. 18

4. INDUSTRY AND COMPETITOR ANALYSIS ........................................................................19

4.1 Value Chain Analysis and Waterfall Chart................................................................................... 19

4.2 Strategic Positioning Analysis and Recommendation ................................................................. 22

4.3 Porters 5 Forces of Competitive Analysis .................................................................................. 24

4.4 Competitive Profile Matrix (CPM) ............................................................................................... 28

5. MARKET ANALYSIS ............................................................................................................45

5.1 Market and Competitors Trends ................................................................................................ 45

5.2 Market Segments ........................................................................................................................ 47

5.3 External Factor Evaluation (EFE) Matrix ..................................................................................... 60

5.4 Strategic Issues Based on External Factors ................................................................................. 67

6. COMPANY ANALYSIS .........................................................................................................68

6.1 Vision and Mission of the Company ........................................................................................... 68

6.2 Internal Audit .............................................................................................................................. 70

6.3 Mckinseys 7S Framework........................................................................................................... 76

6.4 Key Financial Ratio Analysis ........................................................................................................ 88

6.5 Internal Factor Evaluation (IFE) Matrix ....................................................................................... 94

7. STRATEGY FORMULATION .............................................................................................100

7.1 Strengths, Weaknesses, Opportunities, Threats (SWOT) Matrix .............................................. 100

7.3 Internal-External Matrix ............................................................................................................ 114

7.4 Grand Strategy Matrix............................................................................................................... 114

7.5 Boston Consulting Group (BCG) Matrix .................................................................................... 117

7.6 Summary of Strategies .............................................................................................................. 119

7.7 Quantitative Strategic Planning Matrix (QSPM) ....................................................................... 119

8. STRATEGIC OBJECTIVES AND RECOMMENDED STRATEGIES ..................................121

8.1 Recommended Revised Vision and Mission ............................................................................. 121

8.2 Recommended Strategic Objectives ......................................................................................... 123

8.3 Recommended Business Strategies .......................................................................................... 125

8.4 Recommended Organizational Strategies ................................................................................ 128

8.5 Financial Projections ................................................................................................................. 130

8.6 Recommended Departmental Programs and Actions .............................................................. 135

9. STRATEGY EVALUATION, MONITORING, AND CONTROL............................................147

9.1 Strategy Map ............................................................................................................................. 147

9.2 Balanced Scorecard ................................................................................................................... 149

9.3 Contingency Planning................................................................................................................ 151

XI. APPENDIX ........................................................................................................................155

Accident, Marine Cargo, Marine Hull, and Motor Vehicles.

of minimum premium rates by the Insurance Commission. The industry resembles an

capacity, fewer branches and offices, and slower settlement of claims.

opportunities as indicated by a total weighted score of 2.70. Significant threats to AIC

neglected. These opportunities include expanding its distribution network through

companys weaknesses include a decreasing premium retention rate, significantly fewer

performance of its claims settlement process.

new insurance buyers.

premiums and help increase net income.

market leader, has a market share of 14.49%2.

office in Chinas Special Administrative Region of Hong Kong. It is headquartered at AIC

products and services to clients.

representative of Steamship Mutual and the International Network of Insurance.