Thailand's Life Insurance Outlook. Thai Insurers to gain from rising rates

Higher interest rates are likely to benefit Thai life insurers, but to a smaller extent than those in other Asian markets, Fitch Ratings says. Their capitalisation should remain manageable despite the impact on earnings in the short term from volatile markets.

Thailand’s life insurers are likely to benefit from higher interest rates through wider investment margins and lower reinvestment risk. They will also find it easier to match the high rates in older guaranteed-return products. Nonetheless, the benefit to be lower than for insurers in other Asian markets that have wider duration gaps.

The current inflationary environment could raise lapse risks on existing policies as policyholders switch to new products with better returns, and Thai life insurers may face challenges in new business growth.

However, rising inflation that raises the cost of living and reduces consumer confidence could reduce life insurers’ growth in new business. Lapse risk is also likely to rise as policyholders switch to new offerings that offer better returns.

Fitch believes the pandemic has accelerated insurers’ digitalisation to meet changing customer needs, optimise costs and stay competitive in the market. Agents and bancassurance to remain core distribution channels for insurers.

Insurers will also face increasing cyber-related risks as they expand their digital offerings. Fitch expects the digital transformation to have low to medium impact on insurers’ credit ratings.

Fitch expects the ageing population to continue to provide growth opportunities in health insurance. Life insurers are likely to manage underwriting performance through risk prevention.

Local regulations have been supportive and allowed insurers to deal with rapid changes in the market and volatile economic conditions.

For example, rules have been adjusted to allow the sale of insurance products digitally, and to provide insurers more options to manage investment yields.

Fitch expects the overall capitalisation of Thai life insurers to be manageable, despite volatile equity markets, which will have a short-term impact on their earnings. The risks of unrealised losses from fixed-income holdings is limited as most of the investments are classified as held-to-maturity.

Enhancing Business Profiles via Digitalisation Thai life insurers have enhanced digitalisation since the Covid-19 pandemic to meet changing customer needs, optimise costs and remain competitive in the market.

Agents and bancassurance to remain important distribution channels, while distribution online increases over the longer term. The impact of digitalisation on Thai life insurers’ ratings is likely to be low to moderate.

Insurers are also focused on efforts to deal with increasing cyber-related risks to prevent operational outages, and damage in terms of earnings and brand value.

by Yana Keller