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Myanmar - Asia's last frontier economy?

Source: Asia Insurance Review | Mar 2013


Many investors and businesses are enthusiastic about Myanmar. It is no exception for those in the insurance industry. 
Described by some as Asia’s last frontier economy, Myanmar is undergoing significant reforms with investments pouring in. Data from the Directorate of Investment and Company Administration showed that “Foreign Investment of Permitted Enterprises” for last year amounted to US$41.49 billion. 
Myanmar’s draw
With a population of over 60 million, of which 62.25% are of working age, and a relatively low wage, the country is poised to be the next “factory of the world”. 
Industrialisation is expected to significantly boost its GDP per capita estimated at $856.80 in 2011. The IMF projects that Myanmar’s GDP will grow from $51.9 billion in 2011 to $126.9 billion in 2021. According to U Aye Min Thein, Managing Director of Myanma Insurance, and Chairman of Insurance Regulatory Body of Myanmar – the market should be liberalised by then with foreign insurers licensed. (See Too early to tell on next page)
Still early days
But of course, it is still early days in the land of golden pagodas. Conditional approval was granted to 12 domestic private companies out of 20 applicants only in September last year. Three of these companies plan to offer life insurance, with the rest intending to operate as composite insurers.
However, no licences have been granted yet as these companies still have to meet the capital and staff’ training requirements. 
The minimum capital has been set at MMK6 billion ($7 million) for life insurers, MMK40 billion for non-life players and MMK46 billion for composite insurers. When approved, companies will be required to pay MMK1 million in annual fee and MMK3 million in license fee. 
 Of the paid-up capital, 60% must be held in government banks, 30% has to be used to purchase treasury bonds, and 10% should be deposited into an interest bearing Myanma Economic Bank account. The 60% to be held in government banks will be refunded to the company a year after. 
To provide the people with financial security
Mr Yan Paing, Director, Capital Life Insurance, said it is hard at this stage to answer questions about the potential GWP and market share expected but added: “I am sure the people are very interested to see these insurance products although it will take a while for them to become familiar with the concept and actually utilising the benefits of insurance.”
Noting that the Myanmar people previously do not have insurance to protect their families, he said that as one of the first private life insurance companies, the main goal is to provide the people with financial security.
“Even though term life is only allowed at the moment, I think consumers would be also interested in whole-life products that can offer both security and saving components as the interest rate and the inflation rate are high in the country,” he said. “Our strategy is not to focus on lavish marketing, but to focus on market segments like institutions and building up trust and establishing firm relationships.”
On when he is expecting to start operating, Mr Yan Paing said: “We are expecting to start in May 2013 because we still need some time in finalising the policies, getting the right people and executing the procedure that needs to be done.”
Opening up to foreign players
As for foreign insurers looking to enter, while 2015 was reported as the year that the market may be opened to foreign players in view of the ASEAN Economic Community goal, the regulator said that in the event that domestic insurers are not ready for competition by then, the targeted year may shift to 2020.
But that is not to say Myanmar should be placed on the back burner till then. Business opportunities do already exist for brokers and reinsurers. More companies are expected to try and get in on the action as sanctions are lifted, as well as the setting up of more representative offices in the country. 
Non-life insurers such as Tokio Marine & Nichido Fire Insurance, Mitsui Sumitomo Insurance and Sompo Japan Insurance already have representative offices. Last year, Japan’s Taiyo Life was granted a licence to set up a representative office in Yangon to prepare for a possible entry into the domestic life market.
On whether foreign players should be allowed to launch wholly-owned subsidiaries or require JVs with local partners when the time comes, Mr Yan Paing said the Ministry of Finance and Myanmar Insurance Supervisory Board have yet to make the decision but he added: “Personally, it will be a surprise if foreign insurers can come in independently to the market by that time. The entrance of foreign insurers would help the industry to grow faster but monopolising the market should be discouraged. It would be best if the government, the foreign insurers and the locals could come up with a way to compromise and create a win-win situation for everyone.”
Not without risks
 So is it all about gearing up for a gold rush? Not quite. Historically, there were actually close to 80 foreign insurers in the past before nationalisation in 1963 and reports of liberalising the insurance market had also surfaced in 1997, the year Myanmar became an ASEAN member. But plans had not taken off then. 
However, certain measures since should provide some assurance to investors. PwC said in a report that the Union of Myanmar Foreign Investment Law (MFIL) provides an explicit guarantee that an economic enterprise with a Myanmar Investment Commission permit cannot be nationalised during the term of the contract or during any extended term. It added: “The MFIL also includes a provision which expressly provides that upon the expiry of the contract term; the government guarantees that an investor may remit his investment and profits in the foreign currency in which such investment was made, as specified.” 
Political will is also evident. President U Thein Sein had said in his inaugural address: “We will open doors, make reforms and invite investments as necessary for development of the nation and the people.”
Market challenges
Of the greatest challenge the market faces, Mr Yan Paing said: “I would say the biggest challenge would be changing the mindset of the people to protect themselves and appreciating the benefits of insurance. It is not just for Capital Life alone; all participants in the industry need to work together to market and educate the public on the importance of insurance.”
For foreign insurers, it is not just about access to the market, because that eventuality will happen. They may still face daunting challenges in achieving profitability or significant market share after licenses are given, as seen in China’s example where foreign players are hardly making any impact in the country. 
The insurance industry is at the cusp of greater things to come and both the regulator and the regulated will be working hard to bring the country up to speed.
 Too early to tell

When will Myanmar’s insurance market be opened to foreign insurers? Will foreign wholly-owned subsidiaries be allowed or will foreign players need local partners?  U Aye Min Thein, Managing Director of Myanma Insurance, and Chairman of Insurance Regulatory Body of Myanmar shares with Asia Insurance Review his thoughts on liberalising the industry.

How is Myanmar’s economy reforming?

Each and every sector of Myanmar including the financial and economic industries is reforming in line with international standards and ASEAN’s standard. The insurance industry is also in the process of liberalising and local private insurers will be licensed before the end of this year. 
When will the insurance industry be opened to foreign insurers?
We are trying to open the insurance market to foreign companies before 2015. However, the domestic insurers may not be ready for competition by then, and if that is the case, the targeted year may shift to 2020.
Myanma Insurance will play a leading role in the opening up for private domestic companies and foreign companies.
How many insurers will be allowed in the market and what will be the requirements?
The total number of insurance companies, including foreign insurers, should be about 20 in our insurance market. 
We are revising the Insurance Business Law and the Insurance Business Rules, but the minimum capital, annual fee and license fee for foreign insurers may be the same as those for domestic insurers.
It is too early to tell whether foreign insurers will be allowed to establish wholly-owned subsidiaries or will require JVs with local partners as the Insurance Business Law and the Insurance Business Rules are being revised.
What are the concerns when it comes to liberalising the industry and what will be done to try and minimise the negative effects? 
At the initial stage, all private insurance companies are required to use the same policy premium rates to avoid unhealthy competition resulting in price competition and unprofitability. They will have to compete for the clients’ attention through the services they provide. But the Insurance Business Supervisory Board will liberalise the market in the near future.
What awaits as the market liberalises?
We hope that the insurance market will grow steadily. As the market opens up, we will have many things to do in respect of regulations and its supervision.




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