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FINANCIALS Interest rate rises fail to console insurance companies Profits and one-year return healthy but outlook subdued on projections of possible economic slowdown By CHAROEN KITTIKANYA The current economic slowdown, rising oil prices and political turmoil may affect consumer confidence and spending, eventually affecting the overall insurance industry.  This is thelong-term scenario, despite
a hike in interest rates, which is a boon
for insurance industry investments.‘‘The insurance industry is closely tied to the country’s economy,’’ said Suchin Wanglee, the chairman of SET-listed Navakij Insurance (NKI). ‘‘Although the interest rate prospect is favourable for the industry, this single factor is not enough to ensure the performance and bottom line of the insurance industry, if the economy is in trouble, the stock market is bearish, the political climate is unstable and local consumption is dampened.’’  According to the latest projection
from the Economic and Business
Forecasting Center of the University of
the Thai Chamber of Commerce, domestic
consumption could shrink by 15-30
billion baht amonth if Thailand’s political
situation doesn’t stabilise by Juneor July.The figures represent a 5-10% decline in total consumption, currently estimated at 300 billion baht a month. In the worst case scenario annual consumption could drop by 4%, the forecasters said. According to the centre, small enterprises and services such as tourism and entertainment would be hardest-hit.The construction industry would also suffer if government megaproject investments failed to get off the ground. Before political tension began to escalate in February, the centre had projected that consumption would increase by 4.5- 4.6%, on par with 2005. However,Reungdej Dusdeesurapoj, CEO and managing director of Syn Mun Kong Insurance (SMK) had a more positive outlook. Mr Reungdej said that insurance businesses would emerge with a strong bottom line at the end of the year if costs and policy underwriting could be managed astutely and investments handled carefully SMK aims to build up its portfolio in the lucrative non-motor segment this year and reduce its investment in stock to 25% this year from 30% of 3.05 billion baht baht last year. According to MrReungdej ,SMKplans to increase its proportion of non-motor premiums to 20% over the next two years from its current 15%. For the motor insurance segment, which made up 80% of the company’s premiums last year, Mr Reungdej said new policies, particularly in the highloss voluntary segment, would be more selective and carefully underwritten. Last year, SMK posted 102.71 million baht net profit, a rise from 90.51 million baht on total premiums worth of 3.37 billion baht. The company projects its premium earnings to grow 12% this year to 3.957 billion baht. Measured by total shareholder return (TSR), NKI was quite strong, with a one year average of 37.7%, 45.1% for three years, 48.0% for five years and 9.4% for 10 years. SMK’s one-year TSR was 10.8%, 11.8% for three years, 33.7% for five years and -3% for 10 years. However,SMK’smarketcapitalisation was much smaller than NKI’s, which ranks 16 thamongnon-life insurers. Ranking is based on the amount of premium earned by general insurance companies, which currently stands at 70. SMK’smarket capitalisation is 700 million baht and NKI’s is 1.537 billion baht. NKI recently announced a plan to merge with Ocean General Insurance Co. Once the deal is complete, Ocean, owned by the Assakuland Bulsuk families, would become the second largest shareholder of Navakij, holding 6.86% of the company’s registered capital of 300 million baht. According to Mr Suchin, the consolidation with Ocean would help Navakij gain market share, ‘‘which in turn will enhance our competitiveness in the nonlife insurance industry’’. Ocean had gross written premiums last year of 385.01 million baht and net written premiums worth 202.96 million. Navakij has invested about 400 million baht over the past five years acquiring other small local insurers, as part of a strategy to face growing competition and market liberalisation. The company bought out International Assurance Co in 2001 for 140 million baht, and made a tender offer last year to buy out shares of SET-listed ThaiCommercial Insurance Plc (TCI). TCI was delisted from the SET on March 28. However, in terms of performance in themarket, Siam Commercial New York Life (SCNYL) seems to be doing the best, with an outstanding one-yearTSRaverage of 229.2%. According to Guy Horton, the chief executiveofficer ofSCNYL, company profit was expected to be even higher in 2006 due to significant business growth over the course of 2005 and strong sales through the company’s multiple distribution channels this year. ‘‘If the current economic slowdown and environment, rising oil prices and economic turmoil continues in the long term, consumer confidence and spending may be affected,’’ said Mr Horton. ‘‘But life insurance helps to provide certainty and promotelong-termfinancial security, therefore we would anticipate that the life insurance industry should be relatively robust even in the face of adverse economic or political conditions.’’ SCNYL reported a net profit of 289.6 million baht last year compared to a net loss of 170.6 million baht in 2004. The company reported net insurance premium revenue of 8.58 billion baht in total in 2005, a significant rise from 5.74 billion baht in 2004, with net investment income of 511.79 million baht, up from 284.25 million baht in 2004. The company reported total revenue of 9.12 billion baht last year, up from 6.04 billion baht in 2004. All of the listed insurance firms reported profits last year, including Nam Seng Insurance Plc (NSI), which had posted a net loss in 2004. Bangkok Insurance Plc (BKI), the biggest listed insurer with a market capitalisation of 10.21 billion baht, led the pack with anet profit last year of 594.89 million baht in total, down slightly from 667.457 million in 2004. The company reported an increase in total underwriting income,reporting 4.14 billion baht in 2005 compared with 3.55 billion baht in 2004. But its earnings on investment dropped to 394.10 million baht compared with 418.14 million baht in 2004. BKI’s TSR was 23.2% for one year, 24.3% for three years, 42.4% for five years and 9.1% for 10 years. ‘‘The performance of the overallmarket remains in good shape this year,’’ said Mr Reungdej. ‘‘But profitability will be determined by how well each firm, particularly those engaged in high-riskmotor insurance, can control risk and operating costs while creating the highest satisfaction for customers through after-sale services.’’
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