Thailand Insurance Report Q2 2008

As was the case in Q108, the main focus of this report is BMI's proprietary Insurance Business Environment Rating (IBER). The rating brings together a number of pieces of relevant quantitative data, together with BMI's Country Risk Rating (CRR). The IBER makes it easier for the business environment's insurance sector in a particular country to be compared with the business environment for any other industry in that country that is surveyed by BMI. The IBER also allows an objective and meaningful comparison of the business environment for the insurance sector in one country with the business environment for insurance in another country.

Over the coming months, we will substantially change the format of the BMI insurance reports. In essence, we will focus to a much greater extent on the companies that are active in the non-life and life segments.

Thailand's IBER is 57.4. While this is a moderately attractive insurance sector, particularly in the life segment, relative to the country's Asia Pacific regional peers, the rating is supported by a satisfactory regulatory environment but eroded by an increased country risk - most notably from the uncertain political situation - and a slow-growing, under-developed non-life sector. Economic growth faces problems and the population is growing slowly.

Over the forecast period, we anticipate that non-life premiums will grow by 11% annually in local currency terms and by 14% in US dollar terms, albeit from a low base. Life premiums are expected to increase by 8% annually in local currency terms and by 12% in US dollar terms. The key drivers of growth in the non-life segment in 2007-2012 are the anticipated rise in nominal GDP from around US$239bn to US$340bn and an expected increase in non-life penetration from 1.3% of GDP to 1.8%. The key driver of growth in the life segment is the envisaged rise in life density from a miniscule US$84 per capita in 2007 to US$140 per capita in 2012.

The general economic conditions remain quite stable. Thailand's economy was supported by strong growth in exports and the gradual revival of private consumption and investment growth. We have revised our year-end GDP forecast to 4.3%, from 4.0% previously as a result. In 2008, the expansion rate will accelerate to 4.8%, but will nevertheless be constrained by weakening external factors. The political environment, on the other hand, remains unstable. The Election Commission (EC)'s April 11 ruling that the Chart Thai and Matchima parties are guilty of electoral fraud could lead to their eventual disbandment, thus weakening the ruling coalition. While the coalition would still have a majority in parliament, the bigger threat is that the EC could turn its sights to the dominant People Power Party (PPP), leading to renewed instability in Thailand.

There a few barriers to entry to cross-border firms to the Thai insurance sector, although there are relatively few international players. The market is dominated by AIA, a division of the AIG group.

Elsewhere the competitive landscape, in both the non-life and the life segment, is fragmented, although there are signs that this is beginning to be addressed. The non-life segment is particularly underdeveloped; however, some sub-segments of this, such as motor insurance, have proven unattractive to foreign companies.

Thailand is a relatively developed and open economy with a satisfactory regulatory regime for the insurance sector. The growth in the middle class over recent years has led to strong growth in the life segment in particular. However, the country faces grave political uncertainty that the December general election is yet to resolve. This, combined with a growing nationalist message from some quarters, threatens economic growth and business sentiment. A significant disparity in wealth between the urban centres and rural areas remains both a weakness and, if there is political will to address the gap, an opportunity for development.