Singapore:

This outlook is supported by the industry's satisfactory financial profile, as evident from its five-year average combined ratio of 89 per cent, and adequate overall operating profitability, which is partly attributed to tariffed rates on small and numerous small personal insured risks, as well as support from its net investment income.

The Thai general insurance industry is characterised by predominantly short-tail insurance business, a satisfactory liquidity position, and good quality investment assets by domestic standards. Nevertheless the non-life sector as a whole remains overcrowded and over-serviced by its numerous participants, and is likely to face consolidation as a result of new capital requirements by the industry regulator, the Insurance Department.

Thailand benefits from minimal catastrophe risk. Nevertheless, the Thai non-life industry hosts more than 70 non-life insurers, and the resultant intense competition, particularly among the small to midsize general insurers. More than one-half of general insurers each has less than 1 per cent market share. During the 1990s, owing to strong growth rates in the industry, especially in the motor business, which averaged 25 per cent between 1992 and 1996, the number of general insurers increased to take advantage of the boom.

The Asian economic crisis, however, changed the fortunes of the industry, leading to two years of underwriting losses in 1998 and 1999 after six years of underwriting profits. Since the crisis, the general insurance sector has managed to stage a recovery, and in 2001, the industry's underwriting performance rebounded into the black, on the back of strong growth of about 13 per cent in its direct premium income. This growth outpaced the country's economic expansion of 1.8 per cent for the same year.

While premium growth for the industry had been gradually recovering, the events of 11 September 2001 had a profound impact on the industry. In a sector that was substantially reliant on foreign reinsurers, the fallout of 11 September 2001 resulted in shrinkage of reinsurance capacity, lower commissions, hardening rates, and tighter terms and conditions. Consequently, non-life companies increasingly realised that it was essential to underwrite business for profitability rather than market share, irrespective of the level of risk or the adequacy of pricing.

S&P expects the Thai non-life industry to maintain stable low double-digit growth rate in gross premium income. This will mainly be driven by proposed tax incentives, continued economic growth, and the government's drive for complete coverage for compulsory motor insurance.

Notwithstanding the stable growth of the industry, the small and midsize general insurers in particular, are expected to face significant challenges to their balance sheets and profitability due to their lack of economies of scale. In particular, with the Insurance Department's bid to reduce the number of players within the industry, small and midsize non-life insurers are expected to be those most affected by the current proposal to raise the minimum paid-up capital to Thai baht (THB) 300 million (US$7.1 million) from THB30 million, as well as to maintain a solvency margin of 20 per cent of net premiums.

Furthermore, with prevalent difficult investment conditions, the ability to rely on net investment income to provide an overall operating profit for such general insurers has been vastly curtailed. S&P however, considers the regulator's proposed measures, while tough, will prove beneficial for the overall financial strength of the industry, in terms of enhancing its capitalisation and improving the inherent structure of the sector.

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