Against the backdrop of an asset shortage at home, outbound investment has become increasingly common, with overseas financial industries such as insurance especially favored by capital. Notably, the course of outbound capital seems to have shifted: compared with the previously coveted markets of Europe and the United States, Southeast Asia's insurance industry is becoming a hot investment target for mainland capital.
A closer look at why Southeast Asia's insurance industry is so sought after reveals high growth and policy support as the likely main reasons. However, geopolitical risk and cultural clashes may become stumbling blocks for capital rushing in, and the high market concentration of some Southeast Asian countries' insurance industries also makes entry harder for foreign investors.
Capital Quietly Heads South as Southeast Asian Insurance Draws Interest
According to Hong Kong media reports, in late April this year, FWD Group—owned by Richard Li, son of Hong Kong tycoon Li Ka-shing—planned to expand its Thai life insurance business. Citing sources, foreign media reported that FWD was in talks to acquire the life insurance business of Siam Commercial Bank, Thailand's third-largest bank, and had entered exclusive negotiations, with the deal estimated to be worth as much as US$3 billion.
This is not Richard Li's first foray into Thailand's insurance industry. It is understood that in 2012 he spent US$2.14 billion to acquire ING Group's insurance businesses in Hong Kong, Macao and Thailand. FWD subsequently expanded into Indonesia, the Philippines and Vietnam. The group now has more than 11,000 insurance advisers and over 1.1 million customers across Asia.
It is worth noting that FWD Group is not the only company bullish on Thai life insurance. Sources said AIA, Manulife and Prudential had also previously expressed interest in bidding for Siam Commercial Bank's life insurance business.
Other foreign media reported that Ant Financial once sought to help Ascend Money build a Thai insurance business. Ascend Money is understood to be a subsidiary of Thailand's Charoen Pokphand Group, operating two licensed financial service platforms, TrueMoney and Ascend Nano. However, Ant Financial told Blue Whale Insurance that the company has no insurance business layout in Thailand.
In addition, the Chinese-funded Huanyu Insurance Company opened on the morning of May 3 this year in Pakse, in southern Laos. The company said Laos's economy is developing rapidly, and demand for insurance and room for industry growth are expanding. Huanyu Insurance said it intends to ride this momentum and is committed to building an outstanding insurance enterprise in Laos. On the product side, the company covers property, life and agricultural lines.
Other overseas capital has also made moves in Southeast Asian insurance. In March this year, it was reported that the Tata Group and AIA Group jointly established the online insurer Tata AIA Life Insurance, stating that the main goal was to help India's low-income population obtain better social security.
High Growth Attracts Capital; Policy Shifts Invite Foreign Investors In
Looking at the specific reasons for capital flowing into Southeast Asia's insurance industry: on the one hand, some Southeast Asian countries' insurance sectors are growing rapidly; on the other hand, policies between China and some Southeast Asian countries also seem to be encouraging two-way capital flows.
Specifically, Thailand's nationwide premiums in 2016 totaled THB 777.717 billion (about US$22.478 billion), up 4.76% year on year. Of that, life premiums were THB 567.974 billion (about US$16.42 billion), up 6.52%. Entering 2017, Suthipol, secretary-general of Thailand's Office of Insurance Commission (OIC), pointed out that full-year premiums are expected to break through THB 800 billion to reach THB 824.475 billion (about US$23.836 billion), up 6.01% year on year—of which life premiums would be THB 611.324 billion (about US$17.673 billion), up 7.63%, and non-life premiums THB 213.151 billion (about US$6.162 billion), up 1.63%.
Cambodia has likewise achieved rapid insurance growth. According to a report by the Insurance Association of Cambodia (IAC), in 2016 Cambodia's insurance industry recorded income of US$113.6 million, up 35.6% from US$83.7 million in 2015. General insurance grew 14%, while life insurance surged 95%.
The growth potential of Southeast Asian insurance had in fact caught the attention of insurance magnate Warren Buffett earlier, but restrictions on foreign ownership of insurers in some countries became an obstacle to his investment. Foreign media reported that Buffett said in 2011 that India's foreign ownership cap on industries such as insurance deterred his Berkshire Hathaway from investing there. At the time, India stipulated that foreign ownership in domestic insurers could not exceed 26%. Buffett noted that India would be more attractive if he could acquire more than 26% of an Indian company.
However, this restriction appears to be loosening. In March 2015, the Indian government raised the foreign ownership cap on insurers from 26% to 49%. News in 2012 also showed that India's federal cabinet approved proposals to further open the country's insurance industry to overseas investors and to allow overseas pension fund managers to enter the country.
From China's policy perspective, the advance of the Belt and Road and Maritime Silk Road strategies has brought more convenience for outbound capital. For one thing, the Silk Road Fund, established in 2014, mainly provides financing support for economic and trade cooperation and multilateral connectivity within the Belt and Road framework, with advantages of flexibility in equity investment, resource development, capacity cooperation and financial cooperation.
For another, the banking and insurance industries have likewise supported the Belt and Road strategy. Specifically, some banks said the Belt and Road faces no restrictions on foreign exchange usage, nor has foreign exchange management affected banks' overseas lending. The CIRC, for its part, issued a document requiring the insurance industry to proactively serve the various protection and financing needs arising in Belt and Road construction, striving to make insurance an important pillar of the initiative.
Gaps in Southeast Asian Insurance: Opportunities and Challenges Coexist
At present, the insurance industries of some Southeast Asian countries remain in a developing state, characterized by unbalanced product structures and incomplete lines of business.
In terms of life insurance product structure, owing to Asia's tradition of high savings rates, savings-type or investment-type products account for a large share in every market, but health insurance has a relatively low share in most markets. Some Southeast Asian countries' insurance development is still in its infancy, with demand for life and health insurance existing only among the gradually growing middle class, employees of multinational corporations and some NGO employees. On the non-life side, Southeast Asian insurance markets are dominated by motor and property insurance, whereas mature markets have a more balanced structure, with liability and other lines taking a meaningful share.
The immaturity of Southeast Asian insurance creates conditions for outside capital to grow, but challenges follow close behind.
On the one hand, in terms of market concentration, it is understood that except for Singapore and the Philippines, Southeast Asian markets are generally dominated by local companies, with concentration particularly high in Pakistan, Sri Lanka and Cambodia. Against this backdrop, foreign capital's path into some third-world countries may inevitably encounter bumps.
On the other hand, some third-world countries carry significant geopolitical risk, and cultural clashes will also be a major challenge for foreign insurers entering third-world markets.
Moreover, judging from the state of China's own insurance industry, some insurers may handle domestic Chinese risks with ease but have little experience dealing with overseas risks; their international vision urgently needs broadening.
Source: Blue Whale News, 2017-05-22