Thailand: Bancassurance fuels growth

Economic growth, sound regulation and high levels of capitalisation should benefit the Thai insurance sector in 2013. Growing public understanding of the importance of insurance and government support for the industry should also aid expansion, though rising risk may impact estimates in the near term.

At the end of January, Thai Life Insurance (TLI), the second-biggest life insurer, said it was targeting 25% first-year premium growth in 2013, following success in 2012 in both new business and total premiums.

Last year TLI signed first-year premiums worth Bt12.4bn ($414.55m), up 40% on the previous year, while total premiums rose 20% to Bt48.4bn ($1.62bn). Like other Thai insurers, TLI is seeing particular success through the moderately sized but fast-growing bancassurance segment, through which the insurer achieved new premiums of Bt3.16bn ($105.64m) in 2012 – up more than 200% on 2011.

TLI’s optimism reflects the upbeat mood of the sector as a whole. “I would say say the vast majority of life insurance companies here in Thailand are doing very well,” Donald Carden, CEO of Thai Samsung Life Insurance, told OBG. “Agents are the life blood of our industry because they create brand awareness not only for their own specific company but for the industry as a whole. The Thailand insurance sector has seen double-digit growth for the past 10 years or so, making this one of the fastest growing industries here.”

Carden said life insurance penetration rates outside Bangkok – at about 10%, compared to a national average of 25%, which itself is low by developed-nation standards – make provincial cities such as Chiang Mai, Chiang Rai, North East Isan and the southern area of Phuket particularly attractive for insurers.

Fitch Ratings said in a note at the end of 2012 that it expects steady premium growth from the Thai life insurance sector in 2013, further stating that rising incomes and higher risk and protection awareness following recent disasters – including devastating flooding in 2011 – would be key drivers of growth.

The ratings agency kept its outlook for Thai life insurers through 2012-13 at stable due to the expectation of premium growth, strong capitalisation with negligible levels of leverage and the conservative investment mix among firms in the industry. It added that the sector had ridden out the 2011 floods, due to the low number of casualties, as well as relatively low penetration.

In the first seven months of 2012, life insurance premiums grew 17.52% to Bt212.4bn ($7.1bn), taking penetration to 2.7% of GDP – still below the levels of some of Thailand’s ASEAN neighbours, such as Malaysia (3.3%) and Singapore (4.3%). While both these countries have higher per-capita incomes than Thailand, Fitch sees significant potential for penetration growth as Thais become more affluent.

The agency also pointed to the industry’s use of multi-distribution channels and diversified product offerings as positive signs for the outlook. “Insurers’ rising focus on unit-linked products is based on the growing potential of the middle-class market seeking to protect and nurture personal savings, and also younger customers looking for higher risk/higher returns in a downward deposit rates environment,” said Cheryl Evangeline, an insurance analyst at Fitch.

On the other hand, it sees a limited range of investment vehicles and the low level of tax-deductible premiums as constraints on expansion. There is a shortage of long-maturity financial instruments, while bond yields remain low – a symptom of Thailand’s economic success.

The agency also noted downside risks to the outlook. For example, as insurers expand premiums, they may increase risk by taking on less secure clients. The same may happen on the investment side if firms broaden their portfolios to take on higher-risk (and higher-earning) assets.

A downturn in the Thai economy would also likely hit both premium sales and investments. While a sharp drop in growth is seen as unlikely, Thailand, as an export-oriented country, would be affected by a worsening of the global economic climate.

The expected launch of long-maturity government bonds in 2013 may broaden the investment options available to insurers. Aside from bond issues, the primary aim of which is to increase public revenues, the government is taking a more active role in supporting the insurance sector. In response to the 2011 floods, in 2012 the government established the Bt50bn ($1.67bn) National Catastrophe Insurance Fund, which provides competitive reinsurance for general insurance firms hit by claims after natural disasters.

Meanwhile, foreign insurers, which already have a strong presence in Thailand, continue to acknowledge the increasing opportunities in the burgeoning sector. Carden says that Japanese firms have begun showing interest, while on February 21, Malaysia-based Tune Ins announced that it was looking into making an acquisition in Thailand within the next 24 months.

Despite the number of potential risks that could impact the sector in the near term, the Thai economy is still expected to grow by an impressive 6% in 2013, according to the IMF. However, if the economic climate remains benign, the sector should continue to flourish.

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