Bangkok--28 Feb--Fitch Ratings
Fitch Ratings says the Outlook on the Thai life insurance industry is Stable based on the agency's expectation of continuous premium growth driven by bancassurance and tax incentives, and sustainable improvement in life insurers' profitability and capital position.
In a report published today, Fitch says that Thailand's life premium continued to grow 14% yoy to THB296bn in 2010, despite impact from the political unrest in Q210 that resulted in short-term business disruptions. The growth was mainly due to a rapidly expanding bancassurance market and increased tax benefits for life policyholders. Fitch expects Thailand's strong life premium growth to continue in 2011, further propelled by greater diversification in products and distribution, higher investment returns and tighter cost control. However, Fitch notes that if interest rates rise, life insurers could face increased competition from other investment products, although this is more likely to result in slower new business rather than a higher surrender rate of in-force policies.
Fitch also expects Thai insurers to maintain their strong financial performance over the medium-term as they benefit from higher investment yields supported by a new premium rate cycle. "While stock market volatility could be a risk, insurers' exposure to equity remains limited due to stringent regulation," says Narumol Charnchanavivat, Director in Fitch's Asia Pacific Insurance team. Over the long-term, the prospect of regulatory overhaul should help strengthen the financial position of Thai life insurers. The implementation of a risk-based-capital framework in 2011 should be positive for the industry as it is likely to help strengthen risk management, improve financial transparency and ensure better risk-returns. On the cost side, Thai life insurers have also shown improved underwriting and operating efficiency, and this is expected to be maintained given their more diversified distribution strategy.
Major risks to the Stable Outlook include weaker economic growth and higher-than-expected inflation. "Strong premium growth in the past three years could moderate if economic growth slows. Accelerating inflation is also a risk as a sharp rise could impact the economy and insurers' investment strategies," adds Ms Charnchanavivat.
The full special report, entitled "2011 Outlook: Thai Life Insurance" is available at www.fitchratings.com or by clicking on the link above.