Fitch Ratings says in a new report that it expects Thailand's life insurance sector to see steady premium growth in 2013, supported by increasing population affluence and heightened risk and protection awareness following recent catastrophes.
The Rating Outlook for Thailand's 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 the 2011 floods due to a low number of casualties which resulted in negligible flood-related insurance claims, and low insurance penetration at about 25% of the Thai population.
The life insurance industry grew 17.52% yoy in premiums in the first seven months of 2012 with premiums amounting to THB212.4 billion.
Thailand life insurance penetration, at 2.7% of GDP, is still lower than that in other ASEAN countries such as Malaysia and Singapore (3.3% and 4.3% respectively), leaving scope for strong growth.
The industry's reliance on multi-distribution channels should also underpin a sustainable source of premium income.
As consumers seek products to meet their changing needs, unit-linked products have shown steady growth in the Thai life insurance market since they were first 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," says Cheryl Evangeline, Analyst in Fitch's Insurance team.
Following the growth in guaranteed products in the Thailand 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 2012-2013 could help to ease this mismatch to some extent, Fitch emphasises the importance of life insurers closely managing their on-going guaranteed rates and investment strategies.
Paving the way for better management of future disasters are the Thai government's initiatives such as improved flood management and the setting up of THB50bn 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 Thai non-life insurers affected by the floods, they highlight the government's support towards the insurance industry as a whole.
Fitch believes 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 Thai 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.
A severe economic downturn in 2013 that impairs the national economy and adversely impacts the profitability and capitalisation of life insurers could also lead to the Outlook being revised to Negative.