Page 25 - AEC Digital Edition

Capitalising on the Benefit and Opportunity
in an ASEAN Open Market
A.M. Best’s Chi-Yeung Lok encourages insurers in Southeast Asia to view the AEC as means towards
improving industry efficiency, resilience and standards.
The establishment of an ASEAN (Association of
Southeast Asian Nations) Economic Community (AEC)
at the end of 2015 has created substantial expectations
for economic growth and structural improvement. There is
some growing recognition about the benefit of building a
stronger regional bloc to attract new business and improve
resilience to potential external shocks.
A.M. Best’s market report titled “Market Prospects
Improve for Insurers Ahead of ASEAN Integration”,
published last year, examined the member nations’ relative
regulatory systems and economic fundamentals.
The readiness of the region to implement the AEC
depends on aligning stakeholder interests and development
stages of the participating countries. Given the gap that
remains between the participating countries’ development
stage, actual progress in implementing the AEC has been
slow and full implementation will unlikely be realised by
year end 2015.
However, A.M. Best believes that the opportunities and
challenges that would arise from economic integration
would encourage the regional insurance industry to adopt
progressive initiatives and changes that will bring benefits
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in the long run, such as helping to close the development
gap between participating countries.
Narrowing the gap
ASEAN is a geopolitical and economic organisation
comprising Brunei, Cambodia, Myanmar, the Philippines,
Laos, Indonesia, Malaysia, Singapore, Thailand and
Vietnam. It is a region of diversified economic, social and
political backgrounds. The economic gap is apparent
between more developed ASEAN 6 (Singapore, Malaysia,
Thailand, Indonesia, the Philippines and Brunei) and
frontier CLMV (Cambodia, Laos, Myanmar, and Vietnam).
One of AEC’s primary and more difficult goals is to
narrow the development gap among member nations.
Modernisation of the insurance regulatory environment
represents one AEC initiative that will force ASEAN
countries to undergo a regulatory transition toward stricter
requirements for both capital and risk management. There
has been increasing cooperation among ASEAN regulators
as member nations continue to upgrade and develop
their own frameworks. Moving towards
the International Association of Insurance
Supervisors’ core principles is a key area
of conformity among countries which will
appropriately match their own specific
circumstances. As the markets develop and
mature, the level of sophistication in the
insurance framework is expected to increase.
Regional alliances, like the AEC, will
create a stronger, interdependent and more
self-sufficient bloc to deal with external
headw inds. ASEA N’s combined gross
domestic product stood at US$2.4 trillion
in 2013 and it is projected to nearly double
by 2020.
To reduce the development gap, intra-
regional investment is promoted under
AEC, particularly for frontier markets. In
2013, ASEAN nations as a group became
the biggest investors in CLMV countries
at $3.6 billion, accounting for 27% of total
share. These intra-regional investments
have accelerated regional connectivity
and growth in less developed markets, and
subsequently, reduced the disparities. For
insurance investment, Thailand’s major non-
life insurer Viriyah Insurance announced
a plan to form a joint venture with a local
partner in Cambodia as part of the Thai
company’s expansion into other ASEAN
markets. Further, among the six active non-
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