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Positives to drive steady growth of life insurance

Low penetration, ageing society, tax breaks: Fitch

The Thai life-insurance industry will continue to grow steadily, underpinned by low policy penetration, an ageing population and tax breaks, according to Fitch Ratings.

Bancassurance will likely continue to drive growth as insurers seek strategic relationships with banks, while insurers with strong agency networks will be able to support their profitability by focusing on higher-margin products.

Bancassurance has been the key contributor to insurance growth in Thailand in the past few years. Premiums through bancassurance last year were almost double those in 2010.

Insurers with an exclusive partnership with the top four major local banks are the main beneficiaries because of the banks' extensive branch networks, while other insurers are seeking strategic relationships with banks.

The industry's capitalisation is likely to remain solid, which will support growth in the medium term.

Agency distribution remains important. Most major insurers are likely to boost their agency force capacity and productivity, as policies sold through agents are generally traditional products with a wider margin, while bancassurance is associated more with investment products with thinner margins.

Agencies and bancassurance account for almost 95 per cent of premiums. Agencies remained the largest channel at 55 per cent last year. AIA and Thai Life Insurance dominate the agency market. They have no strategic relationship with major local banks, unlike their major local peers.

Insurers' capital is generally solid, particularly the major ones supported by sound profitability and high retained earnings, Fitch says. Strong capitalisation will support more business write-offs and also act as a buffer against downside risks.

The average regulatory solvency ratio of Thailand's six major life insurers was 373 per cent at the end of April, significantly above the minimum requirement of 140 per cent.

Insurers' foreign investment will gradually increase as they seek to diversify their portfolios, yield enhancement and asset duration, the rating agency said. That also follows a relaxation in regulations.

Insurers' investment portfolios are conservative and dominated by high-quality, fixed-income instruments - mainly government securities. Fixed income, cash and deposits made up more than 70 per cent of total invested assets last year.

The Insurance Commission provided some relaxation in its guidelines on offshore investment last year, although fixed incomes are limited to investment grade and foreign-currency exposure has to be fully hedged, Fitch said.

Chai Chaiyawan, president of Thai Life Insurance, said recently that the ageing society still provided growth opportunities for life insurers besides low penetration, so it was working with its strategic partner - Meiji Yasuda Life Insurance - to develop products and work-site marketing targeting that segment.


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