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Myanmar: A US$2.8 billion market awaits?

Source: Asia Insurance Review | Mar 2014

Asia Insurance Review boldly projects that Myanmar’s market could generate premium volume of US$2.8 billion in 2030. 
By Benjamin Ang 
 
Myanmar could conceivably quadruple the size of its economy from US$45 billion in 2010 to more than $200 billion in 2030, according to a much-discussed McKinsey Global Institute’s report, “Myanmar’s moment: Unique opportunities, major challenges”.
 
It also forecasts that from 2010 to 2030, spending will potentially triple from $35 billion to $100 billion, and members of its consuming class will surge from 2.5 million to 19 million. 
 
Asia’s last frontier economy
Such positive forecasts and the world’s excitement over what has been described as Asia’s last frontier economy is understandable.
 
The previously closed and under-developed country has a large population of more than 60 million; it is young, with estimates of its working-age population as high as 76%; it is rich with natural resources, accounting for 90% of the world’s jade production and is among the top producers of rubies and sapphires; it is situated close to India and China, the two largest populations in the world; and with low wages, it is set to become the next “factory of the world”. 
 
The wheels are in motion
Foreign direct investments have been pouring in. “Foreign investment of permitted enterprises” as at end of 2013 was $44.27 billion, according to Ministry of National Planning and Economic Development data. (See Table 1 for top five investors by country.) 
 
More is set to come. The World Bank recently pledged a $2 billion multi-year development programme for Myanmar which includes “projects that dramatically improve access to energy and healthcare for poor people and support other key government development priorities”. The investment will include $200 million to help the country achieve universal health coverage by 2030, said Dr Jim Yong Kim, President, World Bank Group, noting that only one in four people in the once-isolated country has access to quality healthcare.
 
Vietnam’s progress
There is no doubt optimism fills the air, but just how much is the insurance market potentially worth? While no two markets are the same, perhaps the closest market it can be compared with is that of Vietnam’s. 
 
Vietnam has a young and large population of 90 million, and is also blessed with natural resources. More importantly, its progress from a closed and isolated economy which faced trade embargo to its market awakening, bears striking similarities to the path Myanmar is on right now. 
 
Specifically for the insurance industry, Vietnam’s first private insurer was not established until 1995. The time frame of its progress from 1995 to 2012 (Swiss Re’s sigma data in its latest report), is also the time frame we are looking at for Myanmar’s opening up of its market to private players in 2013 to 2030. 
 
A $2.8 bln insurance market
Myanmar’s penetration rate will reach 1.4% in 2030 if it matches the progress of Vietnam (1.42%). (See Table 2.) It is realistic, given that Indonesia (1.77%) and the Philippines (1.4%) also have similar penetration rates to Vietnam. In fact, if you look at the penetration rates of Emerging Asia (2.96%) and Emerging Markets (2.65%), 1.4% may even look conservative. 
 
Hence, we boldly project that Myanmar’s insurance industry could potentially register premium volume of $2.8 billion in 2030, given a penetration rate of 1.4% and GDP of $200 billion as McKinsey forecasts.
 
High returns, high risks
Like all investments, high returns come with high risks. There were actually close to 80 foreign insurers in the past before nationalisation in 1963. Reports of liberalising the insurance market had also surfaced in 1997, the year Myanmar became an ASEAN member. 
 
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.”
 
Great transformation or great disappointment
To reach its potential, Myanmar has a monumental task ahead. While there is much buzz and interest now from the international community eager to get in on the action, the goodwill and optimism could also evaporate all too rapidly. 
As McKinsey puts it: “The country’s growth trajectory could become either of one of the fastest economic transformations seen in past decades or a great disappointment”. 
 
It is still too early to tell how foreign insurers will be allowed access to the market (See Box “One foot in”). Even when foreign insurers eventually enter the market, China’s example has shown that foreign insurers may still face years of daunting challenges in gaining profitability or achieving significant market share. 
 
Much uncertainties remain, making it tempting to sit and watch. But oftentimes, fortune favours the brave.
 
One foot in
At least nine foreign insurers have set up representative offices in Myanmar. Most recently, Muang Thai Life Assurance received permission from Myanmar Insurance Business Supervisory Board to establish a representative office, joining AIA, ACE, MetLife, Mitsui Sumitomo, Prudential plc, Sompo Japan, Tokio Marine & Nichido Fire and United Overseas Insurance.
 
It is effectively just a foot through the door as no sales of products are allowed, with most using it as preparation with research, information gathering, and relationship building.
 
When will foreign players gain access?
So when will foreign insurers be granted access? While 12 local private companies were granted licenses last year, things are not so clear cut for foreign insurers.
 
The best answer is probably “when the market is ready”. Some have said that foreign insurers will be allowed to enter the market in 2015, in view of ASEAN Economic Community. Law firm Clyde & Co revealed that Deputy Minister H.E. Dr Maung Maung Thein said the government will nurture the domestic insurers for “one to two years” before foreign entrants are allowed. When Asia Insurance Review interviewed U Aye Min Thein, who was then Chairman of Insurance Business Supervisory Board, last year, he said: “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.”
 
How will foreign players gain access?
It is also too early to tell whether foreign insurers will be allowed to establish wholly-owned subsidiaries or will require JVs with local partners. But strategic alliances with local insurers to provide for matters such as training and consultation are already allowed with approvals.
Market quick takes
State-owned Myanma Insurance had a six-decade-old monopoly before the opening up of the market in 2013.
 
12 domestic private companies were granted licences in June last year. The insurers are Grand Guardian Insurance Public (GGIP), IKBZ, First National Young, Apex, Capital Life, Global World, Excellent Fortune, Pillar of Truth, Ayeyar Myanma, Aung Myint Moe Min, Citizen Business, and Aung Thitsar Oo.
 
Myanma Insurance posted earnings of $47 million for fiscal year 2012-2013.
 
Global World generated $91,200 in seven months of operations.
 
At least nine foreign insurers have set up representative offices – AIA, ACE, MetLife, Mitsui Sumitomo, Muang Thai Life Assurance, Prudential plc, Sompo Japan, Tokio Marine & Nichido Fire and United Overseas Insurance.
 
Business opportunities have existed for brokers and reinsurers.
 
According to Clyde & Co, the Ministry of Finance is considering plans to establish a stand-alone state-owned reinsurance unit to provide capacity to all of the 12 new license holders. 
 

 

 

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