Research Paper Cambodia Insurance Sector

INSURANCE SECTOR IN CAMBODIA

PHNOM PENH SECURITIES PLC. No. 32, Monivong Blvd, Phnom Penh, Cambodia Tel: +855-23-426-999 Fax: +855-23-426-495 Website: http://www.pps.com.kh

In this Paper: Executive Summary Page 01 Overview of Insurance Sector Page 02 Insurance in Detail Page 03 Outlook of Insurance Sector Page 06 Leading Companies in the Sector Page 07

EXECUTIVE SUMMARY
This Report is analyzing the current development of Cambodia insurance sector, which has a very high potential growth in the future. After several years of fragile development of insurance sector, Cambodia finally made a transition to a Free Market Economy that allowed the sustainable growth of insurance market, and new private insurer joined the sector since 2000. Today, the industry comprises of six direct writing companies, including one state-owned enterprise, and one national reinsurance company. During the last decade, especially from 2005, the gross premium of insurance market has increased significantly with an average rate of 17.02%, from US$10.85 million in 2005 to US$24.87 million in 2010. And as the market is still quite small compared to other ASEAN countries, this growth is expected to continue soaring at a very rate in the future in line with the development of Cambodian economy because of customers confidence, understanding of insurance benefits, and the effectiveness of controlling technical frameworks, laws and regulations of the government aimed to preserve the benefits to insured and insurer. Among all insurance companies in Cambodia, Forte insurance acquires the major market share followed by Infinity, Compubank Lonpac, and CAMINCO. With this regard, the growth of insurance market will mostly benefit to the leading company. Therefore, investing in such company is to get higher profit but lower risk, and PPS is here to help all investors to realize your goals.

12 May 2011

1|P a g e

Research Paper Cambodia Insurance Sector

OVERVIEW OF INSURANCE SECTOR

The insurance sector in Cambodia first started in 1956 with only some French insurers, and later on was monopolized by the Government before the remove of such activities during Khmer Rouge Period. CAMINCO was established in 1990 for the resume of insurance market, and there are six companies excluding one Reinsurance company (state-owned). The average growth of premium in the last 6 years is 17%.

The development of Insurance sector in Cambodia has started in 1956 with the existence of some insurers (mostly French companies) to serve the needs in the country. Since 31 December 1963 however, the Government bought back all private shares from the insurance companies; and a national monopolized insurer, Socit National dAssurance (SNA), was established to serve the insurance market from 01 July 1964 to 17 April 19751. After the Khmer Rouge Regime, and in line with the economic and financial reform policy, the Government had issued and adopted some necessary laws and regulations to resume the insurance sector in Cambodia. With this regard, a state-owned insurance company, Cambodian National Insurance Company (CAMINCO) was established in 1990. Since 2000 moreover, Cambodia made a transition to a Free Market Economy that allowed the growth of insurance market, and new private insurer joined the sector. Today, the insurance industry comprises of six direct writing companies and one national reinsurance company, while intermediary sector is not developed as there are only two agents and no brokers licensed. Currently, life insurance is not yet available in Cambodia, and there are 6 types of non-life insurance such as Fire, Engineering, Motor Vehicle, Marine, Health, and Miscellaneous. Because of the favorable climate of economic growth, the Cambodia insurance sector has also grown continuously. Even though the general premium growth in 2009 slightly slowed down to a contraction of 3.18% due to the worldwide economic and financial crisis, the sector quickly recovered in 2010 by rising up 24.29% to US$24.87 million (figure 01). This growth is also expected to increase in the coming years in line with the economic development forecasted by the Ministry of Economy & Finance (MEF), because of customers confidence, understanding of insurance benefits and the effectiveness of controlling technical frameworks, laws and regulations of the government aimed to preserve the benefits to insured and insurer. Figure 01: Cambodia Insurance Sector Development
Year 2005 2006 2007 2008 2009 2010 2011 (f) Gross Premium
(Million US$)

Insurance Penetration
(Premium as a % of GDP)

Insurance Density
(Premium per Capita in US$)

Growth Rate 6.84% 11.81% 44.23% 18.16% -3.18% 24.29% 25.00%

10.85 12.13 17.49 20.67 20.01 24.87 31.09

0.17% 0.17% 0.20% 0.20% 0.19% 0.22% 0.24%

0.80 0.89 1.27 1.48 1.41 1.74 2.15

Source: MEF - Insurance Division, IMF - Database, and PPS staffs estimation
1

12 May 2011

From 17 April 1975 to 07 January 1979 is the period of Khmer Rouge Regime, and all infrastructures were destroyed and merchandising activities were fully removed including insurance activities. 2|P a g e

Research Paper Cambodia Insurance Sector

INSURANCE IN DETAIL
Within the same period, the average growth of gross premium of insurance market increased quite significant of 17.02% compared to only 6.98% of growth of claim.

As the insurance sector keeps expanding continuously, the insurance business will become one the main sector in Cambodia in the coming years. Thus, looking at more detail in the industry is very crucial to all stakeholders, especially investors, since they can first catch the opportunity of the market. During the last six years, the gross premium of insurance market has increased significantly, with an average rate of 17.02%, from US$10.85 million in 2005 to US$24.87 million in 2010; while the claim has rose only 6.98%, from US$3.40 million to US$12.89 million in the same period (figure 02). Figure 02: Gross Premium Vs Claim

Source: MEF Insurance Division and GIAC

Distribution of Gross Premium by Line of Business

The main source of market premium is always contributed by Fire insurance (26.67%), and followed by motor (19.81%) and engineering insurance (12.37%). In 2010 however, the growth of former was just only 1.02% y-o-y, while the latter (engineering) soared up 208.85% y-o-y (more than 2 times).

Fire insurance is always the main source of market premium followed by motor and engineering insurance in the last decade. From 2006, its gross premium has an average contribution of 26.67% of the whole market, while 19.81% and 12.37% for motor and engineering insurance, respectively. In addition, health and personal accident (main sub class of miscellaneous insurance 2 ) insurance keep growing gradually recently because of the awareness of such insurance benefits, that (health insurance) mostly has been provided by companies. In 2010, because of the boost in infrastructure and construction investment in the country, the premium of Engineering hugely grew to US$3.82 million, which is 205.85% y-o-y increase (figure 03). In the meantime, the second major growth was Miscellaneous insurance with an increase of 25.85% compared to last year, because of mainly from contribution of Personal accident insurance sub class insurance; however, it is still difficult to find out its real growth because of some premium from aviation are also included in this line; while Medical line rose up 20.37% to the third fast growth to reach US$3.31 million.

12 May 2011

Miscellaneous insurance consists of 7 sub classes insurance such as Money insurance, Product liability insurance, Travel insurance, Fidelity insurance, Employers liability insurance, Workman compensation, and Personal accident insurance, which is the most important. 3|P a g e

Research Paper Cambodia Insurance Sector

Motor business, a former major premium, increased only 8.71% to US$4.90 million; however, it is quite better than other 2 lines of business Fire and Marine insurance which slightly increased by 1.02% and contraction of 0.08%, respectively. This slow down is mainly due to some restriction criteria on providing policies, since this line (Fire) is quite danger in Cambodia compared to other insurance business. Figure 03: Premium by Line of Business in Last 5 Years
Line of Business Fire Engineering Motor Marine Health Miscellaneous Gross Premium (Million USD) 2006 3.33 1.30 2.30 0.50 0.83 3.87 2007 4.13 1.83 3.02 0.43 1.22 6.89 2008 5.56 3.94 4.25 0.33 2.25 4.34 2009 6.11 1.25 4.51 0.47 2.75 4.92 2010 6.18 3.82 4.90 0.47 3.31 6.19 24.87 Ratio (2010) 24.83% 15.37% 19.70% 1.89% 13.31% 24.89% 100.00% 2010/2009 1.02% 208.85% 8.71% -0.08% 20.37% 25.85% 24.29%

Total 12.13 17.49 20.67 20.01 Source: Source: MEF - Insurance Division and GIAC

Nonetheless, according to the report release recently by the General Insurance Association of Cambodia, the biggest market premium is still Fire insurance followed by Motor and Health insurance (figure 04), while Miscellaneous line is excluded as it is composed of 7 other different sub classes. Figure 04: Distribution of Premium in 2010
Miscellaneous 25% Fire 25% Engineering 15% Motor 20% Marine 2%

Health 13%

Source: GIAC

Offer of Claim by Line of Business

As Fire insurance is the main source of premium, it is also the important amount of claim for insurer. Due to the fire of one garment factory, the total claim 2009 was hit the highest level (US$14.30 million) in Cambodian insurance history. Anyways, it got better in 2010, as declining 9.92% y-o-y.
12 May 2011

It is normal that the increase of revenues always lead to the rise of costs, the importance is to have higher growth of the former than the rate of latter. Insurance business is not excluded. The average growth rate of premium is 2.44 times faster than the rate of claim during the same period (mentioned above). The highest claim in the history of insurance sector was in the year of 2009 (see figure 02 above and figure 05 for more detail). The hardest hit was due to large loss of a garment factory which caught by fire. With this regard, the relevant insurance company paid around US$9 million for less regarding to
4|P a g e

Research Paper Cambodia Insurance Sector

the property damage of the factory. This loss made gross claim incurred of the whole market soared to US$14.30 million, an increase of 174.16% compared to the year of 2008. Figure 05: Gross Claim by Line of Business in Last 5 Years
Line of Business Fire Engineering Motor Marine* Health Miscellaneous Total Gross Claim (Million USD) 2006 2.27 0.02 0.79 0.06 0.20 0.48 3.81 2007 0.74 0.06 0.91 0.01 0.21 0.31 2.23 2008 2.15 0.43 1.37 -0.01 0.57 0.70 5.22 2009 10.41 0.19 1.63 0.00 0.97 1.10 14.30 2010 7.63 0.45 1.21 0.01 1.72 1.86 12.88 2009/2008 383.31% -54.78% 18.57% -159.65% 69.58% 56.67% 174.16% 2010/2009 -26.69% 134.91% -25.36% 20.32% 77.19% 69.50% -9.92%

Source: MEF Insurance Division and GIAC * The figure of -159.65% means that the claim of Marine line was increased by 159.65% in 2009 compared to 2008.

In 2010 however, it is a strong year for insurance sector, since the premium significantly increased but the claim decreased to the contraction of 9.92%. According to the figure 05 above, it is obvious to see that the claim of Engineering was grown significantly followed by Health and Miscellaneous line, while Fire and Motor insurance turned to a contraction growth. However, the claim of Fire line was still very high (59.25% of the whole gross claim) compared to other lines of business (figure 06). Figure 06: Offer of Claim in 2010
Miscellaneous, 14.45%

Health, 13.31% Fire, 59.25% Marine, 0.05% Motor, 9.42%

Engineering, 3.53%

Source: GIAC

Wide rain in 11 October 2010 was another cause to increase of claim in the year. Some areas in Phnom Penh was caused by flood which impacted 11 garment factories and other buildings and contents, while around 13 provinces was also affected by the heavy rain of the following days. With this regard, insurance companies kept their reserve for the claim amount up to US$2.88 million, in addition to the already paid amount of US$6.17 million. Actually, the torrential rain in October reflects what the World Climate change, and the level of rainfall on that day is highest in Cambodian history, according to the local news. Anyways, the total gross claim was quite better than previous year.
12 May 2011 5|P a g e

Research Paper Cambodia Insurance Sector

OUTLOOK OF INSURANCE SECTOR

As the insurance market in Cambodia is still small compared to other ASEAN countries, and in line with the strong development of Cambodian economy and keeping growth of the sector, insurance market has a very high potential growth in the future. Although at very low of growth rate, the expected gross premium in 2015 will reach US$54.53 million.

Even though the insurance sector has shown a significant growth in the last decade, the level of acquiring insurance in the country is still quite low. In 2008 for instance, the insurance penetration (see figure 01 above) was just only 0.20% and the insurance density in Cambodia US$1.48, which was the lowest rate among ASEAN countries (figure 07). Therefore, this indicates that Cambodias insurance market has high potential growth in the coming years.
Figure 07: Comparison of Non Life Insurance to the Selected ASEAN Countries
Gross Premium Country (Million US$) Brunei Cambodia Indonesia Malaysia Philippines Singapore Thailand 59.23 20.67 2,136.29 3,114.36 617.38 2,489.71 3,028.46 Insurance Penetration (Premium as a % of GDP) 0.73% 0.20% 0.47% 2.06% 0.39% 1.37% 1.17% Insurance Density (Premium per Capita in US$) 148.85 1.48 9.35 112.43 6.78 683.99 47.78

Source: ASEAN Statistic 2009 and GIAC

According to the forecast of the government, real GDP growth is expected to be higher than last year to reach 6.5% and 7% in 2011 and 2012, respectively. This is mainly because of the high return of agriculture sector and strong rebound of garment factories and constructions activities, which are core business lines to generate more premiums to insurance market. Based on the figure obtained from GIAC last week, insurance premium revenue increased 24% in the first two months of 2011 compared to last year, as both number of policies and rates increase. This was led by an increase of annualized 40% of three main categories including fire insurance, miscellaneous, and personal accident insurance. Meanwhile, the claim declined by 22% in the same period. Thus, it is obvious to say that the year of 2011 will be another strong year for insurance sector, and the growth rate can be met the forecast rate 25%. In fact, in line with the GDP growth, if the insurance premium revenues continue increasing only at an average of 17% 3 , it can reach US$54.53 million (figure 08). Therefore, the six existing insurance companies will enjoy the growth of this cake together. Figure 08: Estimation of the Growth of Insurance Premium
Year Gross Premium (million US$)
3

2011 29.10

2012 34.04

2013 39.83

2014 46.60

2015 54.53

If the forecast growth rate of 25% in 2011 is ignored 6|P a g e

12 May 2011

Research Paper Cambodia Insurance Sector

LEADING COMPANIES IN THE SECTOR

Among all insurance companies in Cambodia, Forte insurance always acquires the major market share (nearly half of the whole), and is going to expand their business and diversify more products; while CAMINCO, the oldest age and mature experience insurer in the industry, is also going to privatize in the near future.

As mentioned above, the Cambodia insurance sector currently consists of six insurance companies; however, the major insurer is Forte Insurance and normally followed by Infinity and Compubank Lonpac insurance. In 2009, Forte control nearly half of the whole market of net premium US$7.65 million (figure 09). With this regard, the growth of insurance market will mostly benefit to Forte insurance the leading company. Therefore, it is very important to analyze the strategy of this insurer, and know their trend of development, in order to be eligible to share the cake on time. Figure 09: Market Share of Each Company by Net Premium in 2009
3.36% 19.40% 16.40% 46.15% 0.10% 14.59%

ASIA CAMINCO COMPUBANK LONPAC CAM-VN FORTE INFINITY

Source: MEF Insurance Division

In respond to the growth of the sector, Forte insurance might expand the business and diversify their products including life insurance4. And if this is the case, getting more funds and expertise in the sector is an appropriate strategy for sustainable development. Hence, this can be realized through going public or private equity financing. Moreover, CAMINCO, is set to privatize soon as well in order to complete the process of developing a private insurance sector in Cambodia, according to the Financial Sector Development Strategies (FSDS) 2006 2015. And if the Cambodia Securities Market is successful to launch within this year, the privatization of CAMINCO will be between 2012 and 2013. Therefore, preparing in advance to join insurance market means getting ready to acquire the profitable growth. The detail of leading and potential companies to list in stock market will be discussed in next research papers. And PPS is welcome all investors to join and share the growth of Cambodia.

12 May 2011

Due to lack of some necessary elements of legal framework, life insurance is a very business for all insurers in Cambodia. 7|P a g e

Research Paper Cambodia Insurance Sector

Contact
PHNOM PENH SECURITIES PLC. N . 32, Monivong Blvd, Phnom Penh, Cambodia Tel: +855-23-426-999 Fax: +855-23-426-495 Website: http://www.pps.com.kh
o

Disclaimer This information contained herein, including any expression of opinion, is based upon sources carefully considered and believed to be reliable, but their accuracy and completeness are not guaranteed. Even though the opinions are fair and reasonable in the circumstances prevailing at the time, the use of this document shall be solely risk of the users. PPS accepts no liability for any damage caused by using this paper.

12 May 2011

8|P a g e