Myanmar Times | October 1 marked yet another milestone in the ongoing development of the Myanmar insurance market with two important new regulations that are inter-linked.
The new regulations are the latest in a series of sweeping regulatory reforms, such as the opening of the market to foreign players in 2019, flexibility in product development as well as enabling bancassurance, which is the sale insurance through banks.
Starting October 1, private insurance companies are allowed to expand into so-called Commercial Lines – general insurance products for corporates and businesses. In practice, this usually involves large construction or infrastructure projects that are essential for the wider development of a country. This provides security for corporates expanding or entering Myanmar. Although the range of Commercial Lines is limited for now, it is a step in the right direction. By its very nature, these insurance products generally carry larger risks and often require expert skills to underwrite, which requires a significant up-skilling of those who work in the insurance industry.
The second new insurance directive allows private insurance companies to directly pass-through or ‘reinsure’ risk to overseas reinsurance companies. The direct access to international reinsurance companies provides domestic insurance companies with a powerful risk management tool to manage ongoing business growth as they can now grow their revenues without being constrained by managing risk.
Commercial Lines insurance isn’t entirely new to Myanmar. Up to October 1, Commercial Lines insurance business was transferred overseas via international brokers to international insurance companies. This meant that the domestic insurance companies lost out on new business premiums and the government lost out on potential tax revenues. Now a portion of these premiums can be retained and the premiums, profits and tax revenue can stay in Myanmar. Furthermore, the expansion into Commercial Lines requires domestic insurance companies to invest in new skills. This is where foreign JV partners play a helpful role as they can bring in experience and expertise.
The new regulations will make it generally easier for corporates to pursue larger scale operations or investments in Myanmar as now they can source insurance protection locally rather than work with overseas reinsurers through international brokers.
Over time, on the ground presence and local market knowledge will provide domestic insurance companies with a further competitive edge as they gradually acquire experience.
As with any new great powers, these changes come with great responsibility. On the risk management front, the industry and government need to jointly ensure that the risk management framework in an insurance company is strengthened and professionalized. Efficient capital management (total available capital compared to capital required to support risks retained), will become critical to success.
Up to now the only capital requirement for General Insurance companies is a minimum paid up capital of K40 billion, regardless of risk exposure. We understand that the regulator is already working on issuing new, updated risk-based solvency capital guidelines and the industry looks forward to collaborating with the regulators to ensure that the model is fit-for-purpose for Myanmar as it will be the back-bone for strong market growth in future years.
Anil Mancham is the Chief Executive Officer of KBZ MS. He has a Master’s degree in Applied Mathematics and a Master’s in Actuarial Science. He is a Fellow of the Dutch Society of Actuaries.