Sector faces M&A rise to tap growth, says Fitch

More mergers and acquisitions (M&A) are expected in the Thai life insurance industry, driven by strong growth prospects, says Fitch Ratings.

It follows last week’s agreement by Japan’s Meiji Yasuda Life to acquire a minority stake in Thai Life Assurance.

Foreign investors are attracted by the relatively low penetration rate of the Thai insurance market, the growing middle-income segment and bancassurance opportunities.

Life premiums grew at a 14% compound annual growth rate from 2007-12 and by a strong 19% last year.

The growth potential is enhanced by the relatively small proportion of insurance premiums (life and non-life) to gross domestic product, about 4.4% in 2011, less than in Singapore and Malaysia but higher than in Indonesia and the Philippines.

Fitch believes foreign partnerships could strengthen Thai life insurers’ technical expertise and support their growth aspirations in Asean.

Among the six leading Thai life insurers, which account for a combined 80% market share, three companies, including Thai Life, have partnerships with leading foreign insurers.

Transactions have picked up recently, with Meiji Yasuda’s deal and the takeover of Thanachart Assurance by Prudential Life (Thailand) in May.

The ratings firm also believes other local life insurers may also look for strategic alliances. These factors could further boost M&A activity, although the 25% cap for foreign holdings means overseas partners are likely to be minority shareholders, Fitch said.

Thai Life is the second-largest life insurer in Thailand in terms of assets, premiums and agency-channel sales.

However, the 15% capital investment of 70 billion yen (22.33 billion baht) by Meiji Yasuda is unlikely to affect the Japanese group’s credit profile, as it held 3.6 trillion yen in net assets and other reserves at the end of March.

This transaction follows its initial investment in Indonesian life insurer Avrist Assurance in 2010 and a subsequent increase in its stake in 2012.

‘‘We expect Japanese life insurers to be key candidates for M&A activity in Asean. The four largest — Nippon, Meiji Yasuda, Dai-ichi and Sumitomo Life — have been seeking opportunities in Southeast Asia, hoping to capture growth potential,’’ Fitch said.

‘‘Dai-ichi invested in Indonesian Panin Life in June 2013. Sumitomo Life also invested in Vietnam’s financial group Bao Viet Holdings in December 2012.’’