The Future of Insurance Business in Thailand post COVID-19 – is M&A the answer?

The COVID-19 pandemic has driven businesses in Thailand to become more proactive about managing their risks and adopting a more strategic approach to maintain the resilience of their businesses. This is particularly true in the insurance sector, which was heavily affected by the pandemic.

When the COVID-19 outbreak started in early 2020, lump-sum COVID-19 medical insurance policies proliferated in Thailand as people and insurance companies were optimistic about the containment of the outbreak. The lump-sum policies were short-term policies which paid out a sizable lump sum when the policyholder contracted COVID-19. At the early stages of their issuances, non-life insurance companies benefitted from the high market uptake of these lump-sum policies, which generated high profits at that time.

However, when COVID-19 restrictions were relaxed in early 2021, Thailand experienced a third wave of infections. As a result, the claims for payouts under the lump-sum policies mounted throughout 2021, causing considerable strain on the balance sheets of multiple insurers.

In early 2022 the payout-driven financial strains caused some of the country’s top insurers to go into liquidation as they did not have sufficient capital reserves to pay out the claims. Some insurers managed to mitigate their COVID-19 exposures through reinsurance. However, on the whole, the lump-sum policies had a severe negative impact on the industry.

In 2023, total losses related to the lump-sum policies suffered by insurance companies in Thailand are estimated at THB34 billion (USD1.1 billion), which is approximately 19% of the capital and surplus of the industry as of September 2021¹.

As the insurance market recovered from the pandemic, macroeconomic concerns arising from high inflationary pressures, high interest rates and political uncertainty have exposed the industry to new risks and challenges. Many Thai business operators are beginning to recognise the importance of diversification and asset allocation to remain resilient and gain a competitive advantage in the market to increase profit yields.

According to the Thai General Insurance Association, Thailand now has 52 insurance companies, of which 47 are non-life insurance companies, as of February 2023² . This is a proportionally high number given that the total population in Thailand is approximately 70.3 million as at May 2023.

The Office of Insurance Commission (OIC), as the main regulator of insurance companies in Thailand, is encouraging mergers and acquisitions among insurance companies to push firms to strengthen their financial health and boost competitiveness. Since 2007, the OIC has also stopped issuing new licences for life and non-life insurers to reduce the number of insurance companies.

Similarly, the Thai government previously announced their intention to consolidate the insurance industry by encouraging smaller insurance companies to merge and to make it easier for foreign investment into the Thai insurance industry. The purpose of this is to help local insurers to become more competitive, increase capital, facilitate knowledge transfer and to help local insurers gain a competitive advantage in the market. This is particularly critical in a slowing economy.

Under the current Insurance Act, Thai insurers can allow foreign shareholdings of more than 25 per cent, but not exceeding 49 per cent of the total voting shares, subject to the approval of the OIC. Additionally, insurers may allow foreigners to hold more than 49 per cent (up to 100 per cent) of the total voting shares if permission is granted by the Ministry of Finance (MOF). These regulatory changes have created new momentum for M&A activity within the insurance sector as more international players are looking to merge with or acquire Thai insurance businesses to penetrate the local market.

Insurers have already sought and received approval from the MOF to have foreigners hold 100 per cent of its shares since the law came into effect. The integration has allowed certain international insurance groups to leverage their international insurance businesses to increase the competitiveness of their Thai businesses.

In Summary

In a post-pandemic world, strategic M&A and portfolio optimization should be promoted as a way for insurers to increase their resilience in the market, maintain stability and growth. This will also strengthen the Thai insurance industry as a whole in the long term.