Fitch Ratings expects Thailand's life-insurance sector to see steady premium growth in 2013, supported by increasing affluence of the population and heightened awareness after recent catastrophes, according to its report, "2013 Outlook: Thai Life Insuranc
The rating outlook for life insurers is stable for the next 12-24 months as the sector is supported by steady premium growth, robust capitalisation with zero leverage and conservative investment mix.
Their profitability was also unscathed by last year’s floods thanks to a low number of casualties, which resulted in negligible flood-related life-insurance claims, and low insurance penetration at about 25 per cent of the population.
The life-insurance industry grew 17.52 per cent year on year in premiums in the first seven months of 2012, with premiums amounting to Bt212.4 billion. Life-insurance penetration in Thailand, at 2.7 per cent of gross domestic product, is still lower than that in other Asean countries such as Malaysia (3.3 per cent) and Singapore (4.3 per cent), leaving scope for strong growth.
The industry’s use of multiple distribution channels should also underpin a sustainable source of premium income, Fitch said.
As consumers seek insurance to meet their changing needs, unit-linked products have shown steady growth in the life-insurance market since they were introduced in 2009. But limited investment vehicles in Thailand and the small portion of tax-deductible premiums remain key constraints on growth of these products.
“Insurers’ rising focus on unit-linked products is based on the growing potential 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, analyst in Fitch’s insurance team.
After the growth in guaranteed products in the life-insurance market, insurers are facing increasing asset-to-liability mismatch given lower-than-guaranteed bond yields and a lack of long-maturity financial instruments in the investment market. While the expected increased issuance of long-duration bonds to fund the government’s higher fiscal spending in 2012-13 could help to ease this mismatch to some extent, Fitch emphasises the importance of life insurers closely managing their guaranteed rates and investment strategies.
Paving the way for better management of future disasters are such government initiatives as improved flood management and the setting up of a Bt50-billion disaster fund. The fund will provide reinsurance at competitive rates to non-life insurers struggling to renew policies in the event of a natural disaster.
While these initiatives mostly benefit non-life insurers affected by the floods, they highlight the government’s support towards the insurance industry as a whole. Fitch believes a similar level of support is likely to be forthcoming for the life sector should the need arise.
Aside from current initiatives, the agency believes that there is room for further risk-mitigation measures such as enhanced catastrophe risk management among insurers.
The stable outlook takes into consideration the benign economic conditions, sustainable demand for insurance policies and prudent capital management. The outlook on the life-insurance sector may be revised to negative if there is a major shift towards higher-risk investments from their current conservative investment strategy, leading to erosion in capitalisation and volatile earnings.