Page 54 - Digital Edition SIRC Supplement

MARKET REPORT - THAILAND

A role in helping neighbouring
countries

Mr Vinod Krishnan, CEO – Asia at Aon Benfield, gives an update on the Thai
market, and the role of Thailand in helping to develop neighbouring countries’
insurance sectors in view of ASEAN Economic Community, which would be most
helpful when cross-border projects are taking place.

Following the 2011 Floods, Thailand has seen Key challenges in managing the risks in the market
significant changes within insurance and reinsurance. The current political situation and its implications is still the
Numerous measures were introduced to improve the main concern in Thailand. Adding to this was the bomb blast
quality of underwriting and this has resulted in a high growth that shook Bangkok on 17 August.
rate of premiums within the P&C industry, coupled with The economy is under recession. This has affected the
underwriting profits. However, the market has experienced a insurance industry, which means there is almost no growth.
general slowdown in 2014 and 2015, and premiums have not The direct market competition is also very fierce.
grown as expected. This is linked to various factors including Reinsurance capacity is still in abundance with US$565
the lack of investor confidence in the military government, billion traditional and alternative capital available in the
low GDP growth, and delays with infrastructure projects. market. Insurance companies are taking advantage of the
A few insurance companies have experienced growth and prevailing competitive environment to access a cost effective
this is mainly from personal lines business which includes form of capital.
products such as personal accident, travel accident and motor. • Catastrophe Risk: In the past, flood has been the main
The property class is seeing a fierce competition for market loss driver but 2015 has seen the worst drought in decades
share. The property premium rates have dropped to a pre-2011 to affect Thailand. Also, following the moderate earthquake
flood level. Earthquake and windstorm is offered on full sum in Chiang Rai province in May 2014, there was heightened
insured basis. Flood is still sub limited but at the higher amount. awareness on the possible effect of earthquake risk in Thailand.
The table below shows the gross written premium (GWP), This still poses a risk to insurance companies but is mainly
loss ratio and profitability in Thailand since 2011. limited to the north-north western part of the country.

• Underwriting risk: Direct premium rates have dropped
almost to the same level as pre-flood 2011. As
a result the loss ratio is expected to increase
million THB while the premium may not be sufficient.

Year 2011 2012 2013 2014 1H2014 1H2015 • Strategic Risk: Due to market
GWP 138,760 179,459 203,077 205,247 competition, commercial and industrial
Loss Ratio 160.16% 101,734 103,016 risk rates are very low so most insurance
Net Profit -129,191 51.80% 42.70% 46.91% companies have shifted focus to personal lines
U/Wtg Profit -134,569 13,921 23,100 21,676 49.89% 50.51% or individual lines. However, motor vehicle
20,810 16,221
5,470 11,374 9,370

7,378 5,756

sales have dropped and the motor insurance
book has not grown as targeted.
• Operational Risk: Companies
Gross Written Permium Loss Ratio need to place more focus on how their
Loss Ratio employees and IT systems can embed and
250,000 GWP 200.00% manage their strategic growth plans
200,000 150.00%
150,000
• Investment Risk: Whilst some
100,000 100.00%

50,000 50.00% companies are very conservative, others have
- said that a drop in the Thailand stock market

0.00% will probably cause unrealised loss in their
2011 2012 2013 2014 1H20141H2015 books.

• Regulatory R isk: This may
have an adverse effect on smaller companies
due to the increased capital requirement of THB500 million
(US$14.09 million) by 2017. RBC phase II may also include
Key drivers of growth catastrophe risk charges being applied.
• Classes of business that are growing:
• Agriculture – Rice Scheme
• Livestock Role of reinsurers in the market in the face of
• PA regulatory changes and RBC
• Motor The regulatory RBC framework, which was first implemented
• A tech-savvy population is guiding insurers to invest in by The Office of Insurance Commission (OIC) in 2011, is set
data analytics, modelling capabilities and other digital for an update to RBC Phase 2 and to become more aligned
solutions with global standards.
• Increased catastrophe regulations would result in
increased catastrophe limit purchase Some of the key changes include (i) higher risk charges on
• M&A activity high risk assets, (ii) the inclusion of risk charges on operational
risk, (iii) surrender risk (life), and (iv) catastrophe risk (non-
life). The confidence level used to calibrate risk factors is also

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