For the life insurance industry, there?s nothing quite like a national near-death experience to boost the balance sheet, as Thailand shows.
The country?s number two life insurer, Thai Life, is pondering the sale of a 20 per cent stake, which some analysts predict would fetch $500m, valuing the company at $2.5bn. If successful, it will be Thailand?s third big insurance deal this year after Prudential acquired Thanachart Life Insurance and Hong Kong based investor Richard Li bought ING Thailand. Investors should not be surprised if the trend continues.
Thai Life director Duangduen Kongkasawad recently told local media that a consultant had been hired to assess regional investment opportunities as part of the company?s expansion drive.
Thailand will join the nine other countries of the Association of Southeast Asian Nations in 2015 to form a regional ?Economic Community? which will strengthen economic ties and dismantle trade barriers. The new trade bloc is likely to further bolster the market for life insurance policies while forcing greater competition among companies already invested.
In a recent report, the ratings agency Fitch said that it expected Thailand?s life insurance sector to show stable growth in 2013 mostly due to the increasingly affluent and swelling middle-class. The report credits Thailand?s widespread flooding in 2011 as a catalyst for growth in the domestic insurance sector. Although property damage was substantial ? estimated by insurance groups at costing $15bn to $20bn ? there were comparatively few casualties and even fewer life insurance claims. Oddly enough, the flooding was a welcome opportunity for life insurance because it heightened risk and protection concerns in an under-developed market.
In the seven months to September, the industry grew by 17.52 per cent on last year, to $6.9bn. Despite this recent growth, penetration is still low in Thailand. The value of life insurance premiums is only at 2.7 per cent the value of GDP, compared to 4.3 per cent in Singapore, so there is still room for growth in the country of 70m people.
This fact has not been lost on acquisitive western insurers. In November, British insurance giant Prudential acquired the whole of Thailand?s Thanachart Life Assurance for $590m in cash. Thanachart Life Insurance has over 1m active life policies in Thailand, and Prudential said the buyout will double its market share.
In a separate recent deal, Hong Kong business tycoon Richard Li bought insurer ING?s units in Thailand and Hong Kong for $2.1bn, a value 24.3 times the company?s estimated 2012 earnings ? indicating that Li expects considerable room for growth.
Emboldened by a stock market up 30 per cent from 2011, Thai companies this year agreed a record $27bn on overseas investments, which puts it just behind Japan and China as number three foreign shopper of 2012. Just this week Thailand?s Charoen Pokphand Group bought HSBC?s stake in the Chinese insurer Ping An for $9.4bn, in the second largest Thai outbound M&A on record.
It seems there?s no stopping Thailand?s drive for recognition as a tier one global investor.
Related reading:
Meet Dhanin Chearavanont, the man who swooped in on Ping An, beyondbrics
Bold deal turns spotlight on Thai tycoon, FT
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