Insurers urged to set up disaster funds

Fitch also reported at the Thailand Insurance Conference 2011 yesterday that the outlook for the life-insurance industry next year was stable, as strong premium growth was expected and solvency positioning was prudent, with the impact of the flood crisis expected to be short-term.
Jeffrey Liew, senior director and head of insurance for Asia-Pacific at Fitch Ratings Hong Kong, said yesterday that Thai insurance companies should set up their own reserve funds to ensure business runs smoothly during unexpected circumstances in the future.

He advised each insurer to allocate at least 1 per cent of its annual total premium income to set up a reserve so that the company would have stronger financial status and ability to absorb unexpected events.
Thailand is still at risk of facing natural disasters. Insurers should have their own funds to avoid impacts from unexpected situations. However, the flood problem is manageable, Liew said.
He also reported that the outlook for the insurance business in Asia was for stable growth, emphasising the China, Malaysia, Indonesia and Japan markets. The outlook for both the life and non-life insurance sectors of those countries is stable, with the expectation of steady market growth, modest operating profitability, benign domestic economic conditions and modest capitalisation to support new business growth.

However, Liew pointed out that there were some challenges to be faced, ranging from risks associated with pricing reform, increased frequency of natural catastrophes, and more stringent regulations. For instance, there have been various measures initiated by China’s Insurance Regulatory Commission, Malaysia has implemented risk-based capitalisation, and rising foreign-ownership limits continue to accelerate mergers and acquisitions.
Indonesia’s insurance market looks to be a strong growth engine next year given its still-low insurance-penetration rate and benign economic growth.

Asked about the financial crunch in the euro zone, Liew said this would have only limited impact on the global financial sector. Asia will not be affected, thanks to the stable outlook in the insurance market in the region.
Narumon Charnchanavivat, director for Thai banks and insurance at Fitch Ratings, said the firm maintained a stable outlook on the Kingdom’s life-insurance sector, as the impact on claims from that segment arising from the floods had been limited. However, growth in premiums for the final quarter of this year was lower than expected, as the fourth quarter is usually a high season for the Thai life-insurance industry.

In 2012, the company expects strong premium growth as Thailand still has a low penetration rate, while the economy is expected to rebound. In the medium and long runs, bancassurance, product innovation and tax incentives will continue to support the industry’s growth, it says.