Myanmar | Research Reports

Special Report

INSURANCE REPORT May 2019

Jostling for pole positions as market liberalises

Summary • Government finally makes keys decisions for future liberalisation • Key foreign life insurance companies ready for 100% owned operations • Joint-ventures in the making for the general (non-life) insurance segment • Myanmar offers significant growth opportunities in the short to long term • The real estate sector will benefit in different ways from the new insurance direction

THE NEW ERA FOR INSURANCE After a seven-year period of waiting, the process for the opening up of Myanmar’s insurance industry in Myanmar looks set to begin in earnest starting in 2019. Foreign insurers with hundreds of years’ worth of expertise along with eager local companies are poised to finally play a driving role in the sector’s development. Insurance in Myanmar is primed to move well beyond today’s low base into a modern, international enterprise that can bring enormous economic and social benefits to the country and its real estate sector. HISTORICAL CONTEXT During the colonial period and the first few years of independence Myanmar had a liberal insurance sector that saw more than 100 foreign insurers operating in Yangon. But as early as 1952 the post-independence government started to take a more active role and eventually all private insurance

activity was abolished in 1964 culminating in nationalisation. Although a law reopening up of the sector was passed in 1996 it was not until 2012 that 12 local private insurers were granted licenses; five of these commenced operations in 2013. Most have both life and general insurance licences with widely varying levels of activity. At present the sector remains highly restrictive with private insurers only allowed to offer specific policies with the same premiums and limited cover unless pooled with Myanma Insurance, which still dominates the insurance landscape. In preparation for the opening up of the insurance sector to foreign players, the regulatory body allowed representative offices to commence in 2012. Fourteen foreign insurers eventually set up but were not allowed to offer insurance policies apart from the limited exception of the Thilawa Special Economic Zone, where a number of

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Japanese insurers started operations. A number of foreign brokerage companies were also opened during this time, mostly acting as representative offices involved in research and planning. After an initial flurry of activity by the representative offices, a long waiting game ensued with no further momentum from the government beyond the usual positive words at conferences. A number of the offices eventually shut down operations in frustration. However, the issuing of operating licenses in 2019 will move the sector to the next stage of development, hopefully leading to a surge in the insurance sector over the coming decades. GENERAL INSURANCE General insurance is also known as non-life insurance and broadly covers losses made from particular events such as fire, theft or accident. In most countries in the region the sector, as compared to life insurance, is often dominated by local players. Normally in a frontier market like Myanmar general insurance initially takes the lion’s share of premiums compared to life insurance because businesses often require cover while personal insurance attracts car and property owners who could afford to pay premiums and who can easily understand the rationale behind such policies. Also regulations in various business sectors may specify insurance cover for certain risks. GROSS WRITTEN PREMIUM (GWP) AMOUNT FOR PRIVATE SECTOR GENERAL INSURANCE POLICIES IN MYANMAR

Source: New Asia Property Research / Myanma Insurance The growth in the sector has been significant although this is from a very low base. This is due to the infancy of private insurance and the severe restrictions on maximum coverage and premiums by the regulator. Motor and fire insurance are the

most rapidly developing product lines. Commercial insurance products will likely play a large part in the market in the initial growth stages to protect marine, aviation, fire and liability risks. Accelerating car and property ownership nationwide will act as a catalyst for further growth expansion in personal insurance. PROPORTION OF GENERAL INSURANCE POLICIES GWP BY PRIVATE COMPANY 2017

Source: New Asia Property Research / Myanma Insurance IKBZ, part of the KBZ Group of Companies, including KBZ Bank, collected over half of the total written premium amount for the private sector in Myanmar in 2017. The group’s bank branches can be used to promote and sell policies using a bancassurance model given the limited scope of direct selling though agents at this stage. A number of local license holders have hardly played any role; in all likelihood being a “me too” gesture when obtaining the initial licenses. The government will allow foreign general insurers to operate only as a joint-venture with a local insurer (through buying shares in the existing local entity) and can only have 35% share which complies with the new Companies Law. For insurers from Thailand and Japan their own domestic regulations prevent them from owning wholly-owned subsidiaries abroad, so JVs are the only method of entry. Japanese Tokio-Marine Holdings is forming a joint-venture with local insurer Grand Guardian Insurance. Sompo Japan Nipponkoa Insurance has entered into an agreement to set up a JV with AYA Insurance Company. IKBZ is to tie up with Mitsui Sumitomo Insurance.

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LIFE INSURANCE GROSS WRITTEN PREMIUM (GWP) AMOUNT FOR PRIVATE SECTOR LIFE INSURANCE POLICIES IN MYANMAR

Source: New Asia Property Research / Myanma Insurance Life insurance is in its very infancy with very little market penetration. In fact even after rapid growth in 2017, premiums still amounted to below USD 0.50 per person. Life insurance consists of collections of premiums over a long period of time often for endowment policies. The concept of long term savings in Myanmar has struggled take root given the history of demonetization of the currency and periodic banking crises, which have left most citizens distrusting of financial institutions. It should be said that Vietnam has had its fair share of similar woes and the life insurance sector has been booming for many years with its emphasis on savings products. PROPORTION OF LIFE INSURANCE POLICIES GWP BY PRIVATE COMPANY

Source: New Asia Property Research / Myanma Insurance At present there has been restrained activity in the life insurance market with local companies having limited involvement with the exception of Aung Myint Moh Min Insurance Company. Most premiums are underwritten by Myanma Insurance primarily for pensions and endowments for government staff and military personnel. In many countries in the region life insurance is dominated

by foreign companies that have the experience of actuarial methods underpinning underwriting of such policies, methods of widespread selling of policies, confidence based on reputation and investment know-how. In a frontier market it also takes time for life insurance to take root as people invest in such policies when they have greater discretionary spending, something that is currently limited in Myanmar. As the country grows economically more people will be classified as middle income earners and will spend on savings products such as life insurance, which usually grows substantially after passing an inflection point. Countries such as Thailand, Vietnam and Malaysia are now witnessing phenomenal growth in the sector with rapidly increasing incomes combined with a still immature insurance industry compared to mature insurance markets and stagnating growth in Europe and Japan. Life insurance can provide attractive savings products given the limited role of time deposits in the banking system and the risks associated with stock market investing as is the case of Vietnam. Globally, life insurance accounts for just over 50% of total premiums but in ASEAN the sector represents nearly 75% given the relative immaturity of the banking system regionally. Compared to general insurance the life insurance sector is set to be more open to foreign involvement with initially a maximum of three foreign insurers being allowed to have a 100% owned subsidiary. There is no limit on possible joint-ventures with locals companies at up to 35% foreign interest. For most of the international life insurance players full ownership is far more preferable and at present five companies have been awarded initial licences to operate fully owned subsidiaries by the Myanmar Ministry of Planning and Finance: Dai-Ichi Life, AIA, Chubb, Manulife and Prudential. Local player CB Insurance is looking to partner with Thai Life Insurance because under Thai regulations companies can only operate JVs abroad. Meanwhile, Capital Life looks set to form a JV with Japan’s Taiyo Insurance while Grand Guardian has agreed to partner Nippon Life from Japan; both as a result of operating requirements for Japanese companies working abroad.

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POSITIONED FOR GROWTH

GROSS WRITTEN PREMIUM AMOUNT FOR INSURANCE POLICIES 2017

Source: New Asia Property Research / Myanmar Insurance / Cambodia Insurance Institute Currently the insurance sector in Myanmar is in its early infancy, which is evident when compared to lesser populated countries in ASEAN. Even Laos, a relatively undeveloped country with a population of only seven million population, has similar premium levels to Myanmar. With the further opening up of the industry to the private sector and especially foreign insurers - all this is set to change dramatically, even in the first few years. A better comparison going forward is Vietnam, which opened up its insurance sector in the 2000’s, but now has a vigorous foreign life insurance contribution and total premiums of around 5.74 billion USD in 2018; nearly a hundred times that of Myanmar. Total penetration was around 0.08% of GDP in 2015 from figures released by Swiss RE compared to around 1.5% in Vietnam, which itself is still an emerging insurance market. The scope for substantial growth of insurance spanning more than one generation is very compelling for both local and global insurance players.

Myanmar could reap a dynamic demographic dividend over the coming decades as a larger proportion of the population are of working age compared to dependents both younger and older. PROJECTED POPULATION 15-64 AGE GROUP IN MYANMAR

Source: New Asia Property Research / United Nations, Department of Economic and Social Affairs, Population Division This compares favourably with many ageing populations in countries in the region. For life insurance this is one of the key factors behind the future growth of the industry along with rapid economic growth that would propel a large proportion of the population into the middle income bracket, which is the main target market. POSITIVES FOR REAL ESTATE It is estimated that around half a million people are employed in some capacity in the insurance industry in Vietnam. Although Myanmar has some way to go before coming close to this figure, it shows that with a successful liberalisation process Myanmar can reap the reward with a significant number of relatively skilled jobs that will positively impact the office market. Many of those of these jobs will handle the selling and administering of insurance policies. There are three broad methods of selling insurance policies to the general public. One is through bancassurance which involves selling through existing bank branches operated by banks under the same holding company as the insurance companies, as is the case for many of the local insurers in Myanmar, but it is also possible through a relationship with an outside bank. A more traditional method is through tied-agents, whereby independent agents represent a particular insurance company. The third way is through digital channels which are growing rapidly in Asia, an approach used by Zhong An from China which

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amassed 500 million customers in the country since its founding in 2013. However, person-to-person relationships are likely to remain a key focus on the business for some time to come. It is likely that the main head office of most of the foreign insurance companies will be downtown given that the regulatory agency and Myanma Insurance both have their offices located there. Many insurance policies will be underwritten for businesses and so proximity to their client base will be important. Most will take a floor of a building, but will over time graduate up to a whole building as the market grows. Regionally, insurance companies take non-prime space as their main office but usually in good quality grade B offices. In Yangon, given the lack of office space, insurers would opt for the better quality office buildings and should be able to obtain competitive rates in a relatively soft market and given the magnet effect in attracting other insurance-related tenants. Presence in other parts of Yangon as well as the main cities will also be a major part of their rollout over the first few years and further afield beyond that. Locations where people can pay premiums plus put in claims and for agents to visit and do paperwork will be required. It is likely that the bulk of the jobs in the insurance industry will be agents and brokers with limited numbers in the more technical fields such as underwriting, loss adjusting and surveying. Many agents will not have a fixed base, instead visiting their client base regularly at their homes. However they will still need to visit the insurance companies to process policies, report claims and learn about new products, and so easy-to-reach locations throughout the country will be important. Secondary locations for insurers and brokerages could be office space but would more likely take the

form of a retail location with easy access for visitors. Many of the local partners in future JVs will have space of their own that they currently use and can be upgraded. The opening up of the insurance sector will not be like the “Big Bang” when the telecoms sector opened to two mobile players who quickly devoured office and retail space. However in the medium-and long-term the direct effects on demand for office space for insurance should be just as significant. One of the key financing methods for government infrastructure spending is through bond issues, both of short and longer duration. Given the long term investments of insurance companies covering policies that can amount to a someone’s lifetime, long-term bonds are in demand. As buyers of such bonds, insurance companies play a very important role in the development of an efficient capital market that can support infrastructure spending that in turn positively impacts the real estate sector as roads, bridges and mass transit networks that enhance property values. Insurers want to reduce claims and the insured want cover and also lower premium payments for their properties. As a result insurance provides a market-driven regulatory system that helps to reduce risk such as through safety improvements to buildings specially to prevent fires and other damage. The effect will be a general upgrading of construction quality towards more international standards. If the reforms to the insurance industry do take place as promised the impact may not be dramatic to begin with but over time will play a fundamental role in the long term economic and social development of Myanmar

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