Professional Documents
Culture Documents
Market Review
September 29, 2014
Regulators,
insurers see
incentives for
closer regional
cooperation.
Analytical Contact
Moungmo Lee
+852 2827 3402
Moungmo.Lee@ambest.com
Editorial Management
David Pilla
As the ASEAN market looks to be a production base for world markets, the ability to
provide insurance capacity is vital for industry across the region. To this end, the seven
member nations of Brunei, Cambodia, Indonesia, Malaysia, the Philippines, Singapore and
Vietnam plan to further open their non-life and reinsurance markets by 2015, according to
the AEC blueprint.
Insurance companies within ASEAN have limited capacity to write big commercial risks,
impeding their competitiveness in light of market liberalization. To enhance the industrys
competitiveness, regulators have adopted initiatives to scale up measures such as capital
requirements as a way to align industry standards with intra- and inter-regional norms.
With increasing global connectivity in the supply chain for goods and services, insurance
regulations across ASEAN markets are becoming more compatible and standardized in support
Copyright 2014 by A.M. Best Company, Inc. ALL RIGHTS RESERVED. No part of this report or document may be distributed
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Special Report
of such changes. The Thailand floods of 2011, which created a confluence of disruptive
influences on local and international insurance markets, pointed to the connectivity and
ubiquity of commercial risks in both developed and developing markets.
Amid regulatory reforms and continuous economic growth, reinsurers benefit from the
regions growing primary insurance markets as most domestic players still rely on reinsurance
for risk management, particularly on large-scale property and natural catastrophe risks. Longestablished international reinsurers, emerging Asian companies and specialist writers have
expanded their business in ASEAN, with Singapore as their regional hub.
Scaling Up Regulation
Exhibit 1
ASEAN Non-Life & Life Regulatory Matrixes
Country
Regulatory Body
Brunei
Solvency
Margin
Year
Requirement Implemented
Solvency
Margin
NA
Indonesia
RBC (Risk
Based
Capital)
Laos
Ministry of Finance,
www.mof.gov.la
NA
Malaysia
RBC
Myanmar
2006
2009
RBC
2006
RBC
2004
Thailand
2011
Vietnam
Ministry of Finance,
www.mof.gov.vn
2007
Solvency
Margin
2005
Sources: AON Benfield Asia Pacific Solvency Regulation 2013; Norton Rose
Fulbright; Insurance Regulators
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Exhibit 2
ASEAN Non-Life & Life Number of
Registered Companies in Big 6 Countries
Country
Indonesia
Life
Non-life
Total
Malaysia
Life
Non-life
Composite
Total
Philippines
Life
Non-life
Composite
Total
Singapore
Life
Non-life
Total
Thailand
Life
Non-life
Total
Vietnam
Life
Non-life
Total
2009
2010
2011
2012
2013
46
89
135
46
87
133
45
85
130
41
81
122
NA
NA
NA
10
25
7
42
9
24
6
39
9
22
6
37
9
20
6
35
9
19
5
33
32
84
3
119
30
84
4
118
30
81
4
115
29
76
4
109
25
69
4
98
17
49
66
17
51
68
17
51
68
19
55
74
20
56
76
24
71
95
24
69
93
24
68
92
24
65
89
24
64
88
11
27
38
12
28
40
14
29
43
15
29
44
16
29
45
In 2013, Bank Negara Malaysia implemented the Financial Services Act 2013 and Islamic
Financial Services Act 2013 to govern the financial sector under a single legislative framework
for the conventional and Islamic financial sectors. The new acts consolidate rules governing
the conduct and supervision of financial institutions, as it is important for the regulatory
systems to adequately and effectively respond to new and emerging risks.
In Myanmar, 12 private domestic companies were granted conditional licenses to offer
insurance services, including life, non-life and composite insurers, in September 2012.
Myanmars Finance Ministry is considering plans to establish a stand-alone, state-owned
reinsurance unit providing capacity to all of the 12 new license holders.
Cambodias Senate passed the draft law on insurance proposed by the Mininstry of
Economy and Finance in July 2014. The draft law is an amendment of the insurance
regulation passed in 2000, with guidelines covering life, non-life and micro-insurance.
Takaful, or Shariah-complaint insurance regulations also have been reformed to
enhance that growing market. Bank Negara Malaysia released final guidelines on riskbased capital for takaful operators, with implementation planned for 2014. Indonesia
is looking to implement a different set of requirements for takaful and to transform
current window operations of takaful units into full-fledged companies.
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Exhibit 3
ASEAN Non-Life & Life Minimum Capital
Requirements
Country
Brunei
Cambodia
Indonesia
Laos
Malaysia
Myanmar
Philippines
Singapore
Thailand
Vietnam
Exhibit 4a
ASEAN Countries Economic Indicators
Country
Brunei
Land
2013
Area Population
(sq. km.) (Millions)
2012
Inflation Rate
(%)
2011
2012
2013
2011
2012
2013
5,765
0.4
16,693
16,952
16,214
3.4
0.9
-1.2
0.1
0.1
0.4
12,362.3
13,182.2
11,288.7
2,460.0
3,674.1
3,566.4
Cambodia
181,035
15.4
7,079
7,292
7,015
7.1
7.3
7.0
5.5
2.9
3.0
6,710.6
7,434.9
N.A.
6,133.6
11,228.8
N.A.
Indonesia
1,904,569
6.5
6.3
5.8
5.3
4.0
Laos
236,800
10,002
8.0
7.9
8.2
7.6
4.3
6.4
Malaysia
329,000
5.1
5.6
4.7
3.2
1.7
Myanmar
676,578
64.9
56,408
5.9
7.3
7.5
2.8
2.8
5.8
8,119.2
9,314.9
N.A.
6,805.9
9,188.4
N.A.
Philippines
299,764
3.6
6.8
7.1
4.7
3.2
2.9
48,042.2
51,995.2
56,698.0
63,709.4
65,386.4
62,411.0
Singapore
6.8
8,162
56,170
9,169
55,759
1,746.5
2,655.2
N.A.
2,209.4
3,503.5
N.A.
710
6.0
1.9
4.1
5.2
4.6
Thailand
513,120
0.1
6.5
2.8
3.8
3.0
N.A.
Vietnam
331,210
6.2
5.2
5.4 18.7
9.1
6.6
N.A.
95,365.6 114,510.7
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Exhibit 4b
ASEAN Foreign Direct Investment Net Inflows
(USD Millions)**
2011
2012
Country
IntraASEAN
ExtraASEAN
Total
IntraASEAN
ExtraASEAN
Total
Brunei
Cambodia
Indonesia
Laos
Malaysia
Myanmar
Philippines
Singapore
Thailand
Vietnam
67.5
223.8
8,334.5
54.0
2,664.3
210.7
-74.1
4,311.8
564.9
1,517.3
1,140.8
667.9
10,907.2
246.8
9,336.6
1,846.3
1890.0
50,973.4
8,434.6
6,001.7
1,208.3
891.7
19,241.6
300.7
12,000.9
2,057.0
1,815.9
55,285.2
8,999.4
7,519.0
N.A.
523.0
8,027.0
73.6
2,813.9
118.0
145.2
7,286.6
-89.7
1,262.5
N.A.
1,034.1
11,826.4
220.7
6,586.1
1,034.3
2,651.8
48,885.4
10,786.7
7,105.5
N.A.
1,557.1
19,853.4
294.4
9,400.0
1,152.3
2,797.0
56,172.0
10,697.0
8,368.0
** Foreign direct investment net inflow data not available for 2013.
Source: International Monetary Fund, World Economic Outlook Database;
In ASEAN, the nature of insurance companies varies from state-owned or captive insurers
of government corporations in Vietnam, to family-controlled companies in Thailand,
conglomerates in Indonesia and banking groups in Singapore and Malaysia. Multinationals tend
to have a more diverse presence across the region in life, non-life and reinsurance businesses.
International groups with established operations across different markets will benefit more
from existing resources, networks and regional connections. Relatively, domestic players may
find it more difficult to take advantage of closer economic integration.
5
Special Report
Exhibit 5
ASEAN Life Premiums for 'Big 6' Countries
16,000
Indonesia
Malaysia
Philippines
Singapore
Thailand
Vietnam
USD Millions
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
2008
2009
2010
2011
2012
2013
Exhibit 6
ASEAN Non-Life Premiums for 'Big 6' Countries
7,000
Indonesia
Malaysia
Philippines
Singapore*
Thailand
Vietnam
USD Millions
6,000
Special Report
but a large part of the citys economy remains uninsured. The protection gap between the
economic and insured losses could amount to USD 10 billion if a major flood or earthquake
hits Jakarta. The gap may triple to USD 28 billion by 2023 unless the city improves its disaster
preparedness, according to a survey by Swiss Re.
In many ASEAN countries, the capital size of insurers, particularly in nations with similar
concentrations of medium to small, local non-life players, is still not enough to retain largescale risks such as natural catastrophe, commercial property and industry. This is also
a factor driving demand for reinsurance as capital replacement or risk management for
primary insurers. Most ASEAN non-life companies maintain low retention rates, particularly
for higher risk exposures. For instance, Thailands worst class of flood-hit non-life business
industrial all risks ceded more than 90% of its risk to reinsurers, which absorbed
significant flood losses in international markets. The high use of reinsurance in most
ASEAN countries has contributed to most non-life insurers stable underwriting results. On
average, non-life insurers ceded about half of gross premium to reinsurance, particularly for
commercial risks, divided among local and international markets and regional reinsurers.
Rising primary insurance premiums and direct insurers increasing appetite for alternative
capital and risk management all amid regulatory changes, natural catastrophe threats and
the growing complexity of risks present substantial prospects for reinsurance business
in ASEAN. This is demonstrated by the influx of reinsurance capacity from international
markets and the emergence of Asian reinsurers in the past few years. ASEAN economies
growing connectivity and vigorous economic activity have attracted new reinsurance
establishments in line with their global diversification strategies.
Market Prospects
The AEC blueprint states that the process of liberalization should occur with due respect
for national policy objectives and the levels of economic and financial development of
individual members. It also identifies member countries with respect to specified progress in
liberalizing financial services, including insurance sectors, by 2015. However, it is doubted
that some members will be ready for liberalization by next year. A.M. Best believes it is
premature to predict insurance integration, as market liberalization within ASEAN is in an
7
Special Report
Exhibit 7
ASEAN Life & Non-Life Insurance Penetration for Big 6 Countries
Premiums as % of gross domestic product
Country
Indonesia
Malaysia
Philippines
Singapore
Thailand
Vietnam
Life
0.92
2.80
0.89
5.56
2.06
0.70
2008
2009
2010
2011
2012
NonLife
0.43
1.52
0.51
1.56
1.56
0.74
NonLife
0.48
1.63
0.43
1.62
1.64
0.74
NonLife
0.54
1.60
0.43
1.57
1.66
0.86
NonLife
0.55
1.70
0.47
1.60
1.79
0.81
NonLife
0.53
1.74
0.50
1.62
2.07
0.79
Total
1.34
4.32
1.41
7.13
3.62
1.44
Life
0.85
3.21
0.69
4.62
2.43
0.64
Total
1.33
4.84
1.12
6.23
4.07
1.38
Life
1.10
3.04
0.75
4.57
2.51
0.70
Total
1.64
4.64
1.18
6.14
4.17
1.56
Life
1.23
3.02
0.84
4.46
2.67
0.63
Total
1.78
4.72
1.31
6.06
4.45
1.44
Life
1.42
3.11
1.08
4.48
2.95
0.63
2013
Total
1.94
4.85
1.58
6.10
5.01
1.42
Life
1.60
3.20
1.50
4.40
3.80
0.60
early stage. In reality, it is difficult for some ASEAN members to liberalize within a definite
time frame as early as 2015, as the insurance sector plays a vital role in the economies of
developing nations.
In the long run, A.M. Best expects liberalization to generate greater efficiency and supply of
insurance capacity. This will subsequently benefit policyholders, as affordability is an issue in
some ASEAN markets. The attraction of new entrants driven by liberalization will encourage
efficient and alternative distribution to enhance market penetration and product development.
ASEAN countries continue to be attractive for insurance and reinsurance businesses, supported
by buoyant industry growth, expanding urbanization and consumer markets, and dynamic risk
management needs. There is a wide range of opportunities for insurers with scale, as well as
niches for consumer, commercial and specialist businesses.
Newer insurance markets in the Indochina region such as Vietnam are attractive, with
higher potential for growth and good profitability in the long term. Relatively, markets
with longer histories, such as the Philippines and Indonesia, need to undergo structural
changes to improve profitability for further potential growth. Key factors for success
include efficient distribution and claims management, along with substantial economies of
scale for cost-effective operations. Singapore stands out as a hub for regional and specialist
business, drawing an increasing number of reinsurers and underwriters to write risks for
the region.
Foreign capital continues to flow into the region as part of ASEAN markets diversification and
overseas expansion strategies. They also will be able to offer competitive pricing, because
the risks will be spread globally. In recent years, multinationals have created a more diverse
presence across the region for life, non-life and reinsurance businesses.
Recent merger and acquisition activities highlight substantial interest from Japanese groups
targeting big, high-potential markets such as Indonesia. Nippon Life, Sumitomo Life, Dai-ichi
Life, Mitsui Sumitomo Insurance and Nipponkoa all entered or expanded in Indonesia in the
past few years, with aggregate deal values of nearly USD 2 billion.
Against impressive growth, ASEAN markets are facing issues of both capital and qualified
human resources. The relative size of insurance companies in some ASEAN markets is small,
making it difficult for them to achieve economies of scale. Expense ratios in some ASEAN
countries are much higher than those in East Asia, meaning ASEAN companies may face higher
costs for expansion within ASEAN due to insufficient scale. A lack of compatible and stable
human resources for multiple markets is also an issue for intra-regional expansion, particularly
8
NonLife
0.50
1.70
0.50
1.60
1.70
0.70
Total
2.10
4.80
1.90
5.90
5.50
1.40
Special Report
with the diverse nature of ASEAN nations. Currently, not many ASEAN companies actively
venture out of their local markets.
With the AEC accession in mind, A.M. Best expects the region may see the emergence
of strong players buoyed by increasing connectivity and strengthening standards.
Interconnectivity of insurance business is likely greater with the relatively closer ties among
companies in Malaysia and Singapore. In the future, there may be increasing connectivity
among companies within the Mekong region countries of Vietnam, Cambodia, Laos and
Myanmar, given their similarity in pace of development.
Exhibit 8
ASEAN A.M. Best Rated Companies
Ratings as of Aug. 29, 2014.
Company
AMB #
Bests
Financial
Strength
Rating (FSR)
078591
091075
090060
090756
091269
093387
086913
089132
078303
93253
093446
077617
086771
093230
091421
078461
088853
091957
093151
089433
093162
091577
088684
091559
085224
091708
086781
085568
086195
092245
091542
091541
091397
091508
B++
AAAA
AAAAAAB++
B++
A
A
AAAA++
A
A
A
A
AAA
A+
B
AB+
B++
B+
AB++
Source:
Bests Issuer
Credit Rating
(ICR)
Country
AMB Rating
Effective
Date
bbb+
aaaa
aaaaaabbb+
bbb
a
a
aaaaa+
a
a
a
a+
aaa
aabb
abbbbbb
bbbabbb
Stable
Stable
Stable
Stable
Stable
Stable
Stable
Stable
Positive
Stable
Stable
Stable
Stable
Stable
Stable/Positive
Stable
Positive
Stable
Stable/Positive
Stable
Stable
Stable
Stable
Stable
Stable
Stable
Stable
Positive
Stable
Stable
Stable
Positive
Stable
Stable
Indonesia
Indonesia
Malaysia
Malaysia
Malaysia
Malaysia
Malaysia
Malaysia
Malaysia
Malaysia
Malaysia
Philippines
Philippines
Philippines
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Thailand
Thailand
Vietnam
Vietnam
Vietnam
Vietnam
Vietnam
3/21/14
1/16/14
12/20/13
12/20/13
3/28/14
2/14/14
12/12/13
10/10/13
12/11/13
11/7/13
5/30/14
3/28/14
4/4/14
10/18/13
2/20/14
12/20/13
5/30/14
2/12/14
3/20/14
9/26/13
11/22/13
11/14/13
10/10/13
1/16/14
11/7/13
10/18/13
4/29/14
2/26/14
5/30/14
8/29/14
4/17/14
4/17/14
2/20/14
11/1/13
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CHAIRMAN & PRESIDENT Arthur Snyder III
EXECUTIVE VICE PRESIDENT Larry G. Mayewski
EXECUTIVE VICE PRESIDENT Paul C. Tinnirello
SENIOR VICE PRESIDENTS Douglas A. Collett, Karen B. Heine,
Matthew C. Mosher, Rita L. Tedesco
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