Industry Report 2017: Insurance/Reinsurance Industry in Cambodia

/ July 1, 2017

Executive Summary

Insurance Industry Overview

- Law on Insurance 2014: Insurance industry in Cambodia is currently governed by the Law on Insurance 2014, which is an ambitious revise of the Law on Insurance 2000. The law, which came into effect in February 2015 and which will be followed by three sub-decrees, is believed to provide the Kingdom with one of the most advanced insurance regulatory schemes in the region.

- Minimum capital requirement is SDR5mn for re/insurer: A general/life/reinsurance company is required to have a minimum capital of SDR5mn, where the exchange rate will be determined on the day when the license is issued.

- Solvency requirements: As part of the solvency requirements, an insurance (general or life)/reinsurance company must maintain a deposit equivalent to 10% of the registered capital with the National Treasury. In addition to the deposit requirement, the insurer/reinsurer is also obliged to maintain a solvency margin in accordance with the level of previous year’s net premium, except for the first year of operation which requires the company to have at least 50% of registered capital as solvency margin.

- Compulsory insurance: Passenger transport liability insurance, construction liability insurance, motor vehicle (used for commercial purposes) third-party liability insurance, professional liability insurance for insurance brokers, are made compulsory by Sub-decree on Insurance 2001. The new Law on Insurance 2014 also makes liability insurance on motor vehicles compulsory, however, the implementation of this is not expected soon for a number of reasons, including the challenge of determining an affordable premium for the poorest owners of vehicles and the challenge of collecting premiums throughout all of Cambodia.

- Market penetration is on upward trend, yet at very low base: Premium-to-GDP (general) ratio has risen gradually from only 0.11% in 2002 to 0.36% in 2016. Premium per capita (insurance density) grew more than ten folds during the same period. However, Cambodia’s penetration rate remains one of the lowest in the region. General and life insurance-premium-to-GDP ratio was at 0.3% and 0.1% in 2015, vs Asian average’s 1.74% and 3.59%, respectively.

General Insurance

- Seven general insurance companies: Currently, there are seven general insurance companies: Forte Insurance, Infinity Insurance, Campu Lonpac Insurance, Asia Insurance, Cambodia-Vietnam Insurance (CVI), Caminco Insurance, and People & Partner Insurance (PPI).

- General (non-life) growth is remarkable; at a 2006-2016 CAGR of 19.2%: General insurance gross written premium has increased remarkably over the past ten years, rising at a 2006-16 CAGR of 19.2%. In 2016, growth was at 14.2%, much higher than an emerging markets’ 5.3% estimated growth.

- Property/fire insurance is most important line of business: Property/fire insurance with USD26.3mn in gross written premium accounted for 37.4% of total gross written premium in 2016. Great demand for the products may be associated with the fact that the risk of fire damages and property losses are highly perceived among Cambodians.

- Auto insurance is not most important as used cars dominate auto market: Unlike in many countries where auto insurance is the most important line of business, auto insurance in Cambodia is the just the third most important, contributing only 14.5% to total gross written premium (vs 57.6% in Thailand). This may be because the compulsory auto insurance is not implemented, while used cars, whose owners may not feel the need to purchase an insurance policy, is still dominating the auto market.

- General (non-life) retention rates are maintained low; large scale risks are transferred: Net-to-gross-premium ratios had been below 40% over 2012-2014. Retention rates are generally low for the lines of business that lead to high risk exposures—including property, MAT (marine, aviation and goods in international transit), and engineering—as local insurers’ capital size is normally not big enough to retain large scale risks.

- Premium ceded to local reinsurer stands at 12.3% in 2015: Only 12.3% of total general gross written premium in 2015 went to the only local reinsurer, Cambodia Re, with the remaining 42.5% going to overseas reinsurers. The current regulation requires local direct insurers to reinsure at least 20% of the insurance risk with the state-owned reinsurance company at the minimum premium rates defined by the Ministry of Economy and Finance. However, this regulatory requirement will be most likely eliminated once Cambodia fully implements the ASEAN Framework Agreement on Services (AFAS), under which insurance as one of the financial services sectors will be liberalized by the ASEAN member states.

- Forte leads general (non-life) market with 46.9% market share: In terms of gross written premium, Forte is leading the general (non-life) market with 46.9% market share in 2016. This is followed by Infinity with 13.9%, Asia 12.2%, Campu Lonpac 10.3%, CVI 8.6%, Caminco 6.4%, and PPI with 1.8%.

- Ultra-low loss ratio thanks to few natural catastrophes & transfers of large-scale risks: General insurance overall market loss ratio stood at 32.1% (2013), far lower than Asia Pacific average of 68.1% (2014). The ultra-low loss ratio is mainly thanks to the Kingdom’s favorable geographical location where there is very few natural catastrophes, and the transfer of large-scale risks by local insurers to overseas reinsurers.

- General insurers’ aggregate total assets: USD 97.8mn; shareholder equity: USD 68.8mn: In 2015, general insurers’ aggregate total assets came to USD 97.8mn, up 21.1% YoY, while shareholder equity reached USD 68.8mn (+22.2% YoY).

- General insurers’ aggregate net profit: USD 5.8mn; ROE: 9.4% in 2015: General insurance’s sector aggregate net profit rose 15.8% from USD 5.0mn in 2014 to USD 5.8mn in 2015. Meanwhile, ROE stood at 9.4%, vs the world’s average of 7.2%. Cambodian market’s relatively higher overall profitability compared to the world can be attributed to its better underwriting performance with ultra-low loss ratio.

- General insurance’s ultra-low underwriting leverage: While the sector’s net-premium-written-to-shareholder-equity ratio was 36.1% in 2015, five companies have the ratio below the average, and only one company has the ratio above 100%. This suggests an ample room for raising the underwriting leverage and ultimately increasing the overall profitability.

Life Insurance

- Six life insurance companies: Currently, there are six life insurance companies: Cambodian Life, Manulife (Cambodia), Prudential (Cambodia) Life Assurance, Sovannaphum Life Assurance, Bangkok Life Assurance (Cambodia), and AIA (Cambodia) Life Insurance.

- Life business has shown impressive growth: Life insurance’s total gross written premium increased more than 20 folds from slightly over USD1.9mn in 2013 to about USD43.2mn in 2016. The remarkable growth result is not surprising given that it has just begun from 2012.

- Life insurers are currently making loss: Currently, life insurers are not making profit, recording a significant net loss of USD 13.8mn in 2014 and USD 16.6mn in 2015. This may be due to the nature of the business which requires significant amount of upfront investment.

Reinsurance

- Cambodia Re is the only reinsurer: Cambodia Re, which is owned 80% by the MEF and 20% by Asia Insurance International (Holding) Company (AII), is the only reinsurer in the market. As a national company, it has good knowledge and understanding of the local culture and risk profiles allowing it to develop and offer appropriate reinsurance solutions to fulfill domestic insurers’ needs. At the same time, Cambodia Re also provides to its client value-added supports such as fire tariff implementation and provision of data on risk and loss profile.

- Impressive business growth: Gross premium written (GPW) by Cambodia Re surged at a 2007-2016 CAGR of 19.6% from USD 1.7mn in 2007 to USD 8.7mn. Net premium written (NPW) has grown at an even faster pace in recent years, at a 2014-2016 CAGR of 25.3%. Last year, growth was 15.4% for GPW and 22.3% for NPW.

- Outstanding underwriting performance: Over the past 10 years, combined ratio has fluctuated between 60~78%, much lower than the Asian median of 95.5% (2015). This is associated with low loss ratio which has swung between 30~46%, compared to Asian median of 64.2% (2015). Loss ratio is low due to the Kingdom’s favorable geographical location that does not suffer from huge catastrophic loss as in other countries in Asia.

- High operational profitability: Operating ratio stood at 48% in 2015 and 59% in 2016, very well below 100%. In addition to outstanding underwriting performance, investing performance has been quite satisfactory as a result of high deposit rates offered by the country’s banking institutions.

- Robust profit growth with increasing ROE: Net profit surged on average 22.9% over 2011-2016. However, last year net profit declined 9.1% YoY to USD1.43mn due largely to 44.4% surge in net claims incurred as a result of rising claims from engineering-related insurance policies. The overall profitability, represented by ROE, has been on an upward trend, increasing from 5.4% in 2011 to 10.94% in 2015.

- Underleverage suggests great potential for future growth: Retention ratio has fluctuated between 53~60%, significantly below Asian median of 79% (2015). Meanwhile, NPW-shareholder-equity ratio was at only 31% when it was its peak last year, nearly double that in 2008, but this is so much lower than Asian median and average which can be more than 100%. Low retention and underwriting leverage suggest an ample room for future growth even without additional capital injection.