Cambodia’s burgeoning (re)insurance potential

June 15 2020 by Yvonne Lau

Cambodia is often overshadowed by its neighbours.

However, the country’s economy is one of the fastest-growing in the world. Between 1998 and 2018, the annual average growth rate was recorded at 8%, according to the World Bank, whole poverty rates dropped from 54% in 2004 to 13.5% in 2014.

And the middle class is burgeoning too – the country aims to reach middle-income status by 2030.

“The growth has not happened by chance. It’s the result of the Ministry of Economy and Finance’s (MEF) successful implementation of policy and strategy.” Huy Vatharo, Cambodian Re

Cambodia’s insurance market is a nascent frontier with the penetration rate at 10% of the population (and just over 4% for life).

But years of reform and opening up has led to greater market development and activity.

“The growth has not happened by chance,” said Huy Vatharo, managing director at Cambodian Re and former chairman of the Insurance Association of Cambodia (IAC). “It’s the result of the Ministry of Economy and Finance’s (MEF) successful implementation of policy and strategy.”

Reinsurance potential
The market has been growing consistently, particularly since the early 2010’s. From 2014 to 2019, total gross premiums increased by 35% annually. Total market assets reached US$427 million in 2018, up from US$100 million in 2014.

“The MEF introduced the ‘Reinsurance Prakas’ in 2020 — [allowing] any public limited company with more than three shareholders to legally carry out a reinsurance business in Cambodia.” Jay Cohen, Tilleke & Gibbins

It was the 2014 Insurance Law that provided the foundation for market regulation, says Jay Cohen, partner at Phnom-Penh based law firm Tilleke & Gibbins. It implemented clear licensing protocols and shaped greater consumer protection.

By 2019, the number of insurance companies in the country grew to 80 — including one state-owned reinsurer — compared to 11 players in 2015.

And there could be a breakthrough in reinsurance, should further reforms be made.

Cohen told InsuranceAsia News (IAN): “The MEF introduced the ‘Reinsurance Prakas’ in 2020 — [allowing] any public limited company with more than three shareholders to legally carry out a reinsurance business in Cambodia,” once it has been licensed.

“Notably, a reinsurance license is valid for an indefinite period with annual renewal, whereas an insurance license is only valid for three years. It will be interesting to see whether the ‘Reinsurance Prakas’ opens the Cambodian reinsurance market for the entry of a greater number of [players].”

However, the reinsurance segment may be hampered by the 2001 Sub-Decree on Insurance — which stipulates that “all licensed insurers must reinsure 20% of their risk with the state-owned reinsurance company,” notes Cohen.

Foreign players
Taking advantage of more beneficial regulation, a handful of foreign players have entered the country in recent years.

In the latest move, Malaysia-based Etiqa was granted a license to start operations last month. They join AIA, Japan’s Dai-ichi Life, Manulife, Prudential, amongst others.

Etiqa offers fire and personal accident coverage for retail and commercial policyholders. But future plans include a larger, diversified portfolio — inclusive of motor, travel, term life and investment-linked policies.

As Kamaludin Ahmad, chief executive of Etiqa, notes: “We [plan] to stay for the long-term.”

Prudential was one of the first players to enter the market and set up their in-country operations in 2013. Wilf Blackburn, Prudential’s regional chief executive of growth markets, told IAN that positive demographics and economic growth will drive strong demand, particularly in life segments. “There is plenty of runway going forward,” he said.

Last year, Prudential became the only insurer to have issued 200,000 policies which they managed through 2,600 agents/consultants and 320 staff — and became the leading life insurer in the country.

Blackburn notes that these figures highlight the potential of life products. “Life insurance, despite being a relatively new [market offering], is increasingly valued by Cambodians.”

Indeed, 2018 saw life premiums grow by 51% (while P&C premiums grew by 15% that year).

The road ahead 
Cambodia’s insurance market contributed around 0.8% of the total GDP — says the International Monetary Fund (IMF). The market’s total assets in 2018 stood at US$427 million, and they paid over US$25 million in claims.

Blackburn says that the life market is still “untapped — meaning the opportunity for growth is positive.” And for Prudential, “South-East Asia is at the centre of Prudential’s growth strategy — and Cambodia is a very important part of this.”

Cohen said that Covid-19 will have an impact, but specific implications are difficult to predict – with he World Bank suggesting the economy may see its first contraction since 1994.

While 2019 saw total gross premiums shoot up by 25% — Covid-19 and the ‘Reinsurance Prakas’ “raise questions of whether this strong market growth will continue through 2020.” 

Taking a longer term view – there is still a long road ahead for development. There is plenty of (re)insurance potential and market share to capture for both domestic and foreign players – making Cambodia one of Asia’s most exciting (re)insurance markets.