Healthy economy a feast for insurers

Average returns of 40%, outlook bullish on rise in consumer spending, property boom

An increase in the annual personal tax deduction for life insurance premiums, a surge in automobile sales on the back of the recovering economy and low interest rates are expected to fuel growth in the insurance sector and operating performance of listed insurers.

On the whole, though, insurance is generally regarded as a low-liquidity sector, as most investors prefer holding onto their shares in the long term rather than drawing short-term profits.

But once their operating performance achieves continuous growth, most insurers are willing to share their wealth with the shareholders, according to Somkij Oranchatchawan, an analyst at SCB Securities.

The insurance sector last year ranked 11th out of the 30 SET sectors last year in terms of total shareholder return (TSR), with a one-year average of 40.12%. The sector ranked 17th in market capitalisation at 22.68 billion baht.

Among the 21 listed insurance firms, Bangkok Insurance delivered the highest one-year TSR at 98.13%, followed by Syn Mun Kong Insurance at 95.68%, and Dhipaya Insurance at a solid 77.07%. Trailing the pack were Thaivivat Insurance (-32.34%), Nam Seng Insurance (-31.25%) and Interlife John Hancock Assurance (-29.8%).

``The industry as a whole will grow further this year,'' Mr Somkij said.

According to the Insurance Department, the life and non-life sectors are forecast to produce a combined 224.80 billion baht in premiums this year, representing a 20.55% increase from 2002.

Low bank interest rates, coupled with the increased annual tax deduction for life insurance premiums to 50,000 baht from 10,000 baht, has the life insurance industry forecasting a 25% increase to 153.34 billion baht this year. The general insurance industry is forecast to grow at a slightly slower pace of 12% to 71.45 billion baht.

Leading driving forces behind the industry growth include a rise in consumer spending and vehicle sales, the rebound in the property sector as well as improved consumer confidence.

However, the general insurance expert is still taking a relatively conservative view.

Suchin Wanglee, the president of the General Insurance Association, said that non-life insurance was expected to expand by 6-7%, assuming overall domestic economic growth of 3% to 4% this year.

As a rule, he said, insurance industry growth was about double the annual gross domestic product growth figure.

``In 2003, business is expected to be normal, except for the possibility of a US-Iraq war,'' he said.

``The auto insurance market is unlikely to exceed the growth rate of last year, as most people have already had their [car] purchasing sprees at the end of last year.''

Mr Somkij predicted a 10% growth in auto premiums, which totalled 34.55 billion baht last year, compared with 33.6 billion in 2001, for both compulsory and voluntary coverage.

Non-motor insurance segments are expected to face tougher prospects, as foreign reinsurers have imposed tighter conditions given the increased international risks arising from terrorism. As well, there are a number of large construction projects in the pipeline.

Reungdej Dusdeesurapoj, chief executive and managing director of Syn Mun Kong Insurance, said competition in the auto insurance sector was definitely heating up this year.

Despite a tougher environment, his company is expecting 5% growth in revenue this year to 2.23 billion baht, with vehicle insurance contributing 2.2 billion baht.

``Fast settlement of claims, speed of claims adjusters' services and pricing will remain the key strategy for auto insurers to win clients this year,'' Mr Reungdej said.

Syn Mun Kong set an industry standard by guaranteeing that its claims officers would get to an accident scene in 30 minutes or less.

Thaivivat Insurance has also introduced a speed guarantee, along with other inducements including free cars for prime customers as well as free haulage.

Thaivivat Insurance expects revenues to grow 10% this year to 930 million baht from 850 million baht last year, a 12% rise from a year earlier. _Charoen Kittikanya

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