Thailand’s non-life insurance sector is highly fragmented with the presence of 66 players chasing premium growth in a relatively stagnant market. The regulator, the Office of Insurance Commission (OIC), identified the need for a consolidation in the sector to assure its viability and to protect policyholders from potentially detrimental consequences of prolonged price wars. Furthermore, OIC is keen to enhance the overall the risk management practices of the insurance industry and has, hence, introduced various regulatory changes and guidelines in the recent years to raise the standards of Thailand’s insurance industry to international practices.
Implementation of RBC framework
In September 2011, Thailand implemented a Risk-Based Capital (RBC) framework aligning the Thai insurance industry to other Asian economies such as Indonesia and Malaysia. The initial statutory minimum capital adequacy ratio was 125% which was then increased to 140% in January 2013. This move to a new RBC framework was a positive step in developing a more sophisticated risk management system for the Thai insurance industry.
Impact of 2011 Thai flood
Coincidently in the same year, Thailand experienced the worst flood damage in decades. Traditionally, local capacity in Thailand is limited and most of the risk exposures are ceded to the international market.
This dependency became fully apparent during the 2011 Thai floods, which became known as “the worst flooding yet in terms of the amount of water and people affected.” The event caused 65 out of 77 Thailand provinces to be declared as flood disaster zones, and over 20,000 square kilometres (7,700 sq mi) of farmland was damaged. Economic loss estimated by the World Bank reached US$45.7 billion, making the 2011 Thai floods one of the most costly Nat Cat events in modern history.
Sweeping regulatory changes
Out of the US$45.7 billion economic loss, US$15 billion was insured. Thailand’s domestic insurance capacity is constrained. Since a significant proportion of risks affected in the 2011 flooding event were reinsured in the international markets, this led to additional layers of complication and disputes when it came to recovering losses. A number of the domestic players had issues in paying claims to affected policyholders as they had difficulties in collecting payments from their reinsurers.
Thai cedants were also relying heavily on single reinsurers to provide them with the necessary coverage, which led to high concentration and counterparty risks. Since in recent years some reinsurers either pulled out of the market or closed down their operations in Thailand, their cedants were left with the severe financial burden to settle the claims. In response, the OIC has become more stringent. Primary insurers are no longer allowed to rely on a single reinsurer but have to maintain a panel of reinsurers in order to limit and diversify counter-party credit risk.
The insurance rates surged following the floods, but these increases have then evaporated due to the price declines in the following years, particularly in property. The Thai insurance market suggests that underlying rates have now returned to pre-flood level, with some of the policies even falling below pre-flood levels.
Peak Re’s commitment to the market
Since 2013, Peak Re has been active in the Thai insurance market. With the lessons learnt from the 2011 Thai floods, primary insurers are now keen to partner with reinsurers who not only have a strong financial background and a capital base distinct from most other players’, but are also willing to understand local conditions and practices.
Peak Re is committed to establishing long-term partnership and growing with our cedants. We understand the importance of knowledge transfer and exchange. In 2014, Peak Re hosted its first ‘thought-leadership’ seminar on earthquake risk, another underestimated peril in Thailand, which was attended by representatives from more than 80% of the market players.
Local cedants are particularly looking for solvency relief products, and we are here to provide products that enable cedants to meet tighter capital requirements while reducing their reinsurance counter-party credit risk. The amount of business written in Thailand confirms Peak Re’s successful development in the market. In the 2015 January renewals, Peak Re’s premiums increased by 63%, driven primarily by new business from existing clients, testifying our clients’ growing confidence in Peak Re. In the most recent January 2016 renewals, Peak Re grew its Thai premiums even more drastically, in excess of 150%. This success also reflects a widening of our customer base and includes business from clients hitherto unseen in the open market.
Insurance protection is about a promise to settle claims swiftly when needed, and hence speedy claims settlement has always been part of Peak Re’s culture. According to our record as of 30 June 2015, 80% of our claims were settled within 5 working days and Peak Re is very proud of this achievement. Thailand is a well-developed non-life insurance market in Emerging Asia. With enhanced regulations and better understanding of the counter-party credit risk, we are confident that the Thai insurance industry will become more resilient and sophisticated. Peak Re will continue to contribute to the development and growth of the sector as a whole, rather than just taking reinsurance premiums out of a competitive primary market.
