Are Vietnamese and Cambodian insurers good takeover targets?

via Khmer NZ News Media

Posted on 06/28/10

by Jason Wulterkens

Back in late April the Financial Times noted that “Southeast Asia’s insurance sector [would] likely see an uptick in M&A as major foreign players clamor[ed] to make acquisitions in the region.” Vietnam and Cambodia, the piece argues, stand out as especially attractive targets:

“Vietnam, the most vibrant economy in the Indochina region, has already attracted lots of international insurers’ capital, thanks largely to its big youth population and government policy to encourage people to buy insurances, continued the Indochina source. Vietnam has a life insurance penetration rate of just 0.7%, and a population of 88.1 million.”

Although the market share of Vietnam for life insurance is dominated by three main players–Prudential (40 percent), Bao Viet (34 percent) and Manulife (10 percent) per the Vietnam Insurance Association– smaller sized insurers are becoming increasingly relevant: ACE Life, AIA Life, Dai-ichi Life Vietnam, Previor, Cathay Life, Great Eastern, and Korea Life, for example, all showed marked growth in 2009.

Per Cambodia, FT wrote that “there is no foreign ownership cap in the country’s financial services sector, and thus “banking and insurance businesses are combined into one license, meaning that if an entity secures a license, it can provide both services at the same time.” Cambodia’s non-life insurance market is more developed than its life one, as the majority of its citizens still cannot afford the personal life insurance products. While Cambodia’s economy has grown between 6%-10% in recent years, the increases have been driven by construction, garment and tourism rather than the agriculture sector–the defacto foundation for roughly 85% of the population’s livelihood which nonetheless suffers from habitually shoddy infrastructure, low productivity, a lack of access to markets and poorly developed rural financial services. The results in tow have been persistent rural poverty and food shortages. Cambodia’s government claims to be aggressively targeting the situation, and points to international backed schemes to alleviate its chronic, urban-rural income disparity. Last December, for instance, the Asian Development Bank’s (ADB) Board of Directors approved a loan and grant totaling $30.7 million (joining the International Fund for Agricultural Development (IFAD) and the Government of Finland’s combined $19.1 million) targeted to increase crop productivity and output, improve post-harvest management, increase market access and price transparency, offer greater access to rural financial services, and foster knowledge of agriculture technologies.

According to Youk Chamroeunrith, general manager and director of Forte, the largest domestic insurer in terms of premium revenues, the fundamental issue holding back life insurance growth in Cambodia is the lack of both a proper regulatory framework as well as overall general awareness of the products, despite the fact that the World Bank identified life insurance as a vital sector to encourage public savings and drive productive investment. Moreover, foreign investment schemes, he says, are crucial to the industry’s growth. To that extent, the World Bank noted in April that foreign direct investment in Cambodia would reach $725 million this year, up from an estimated $515 million in 2009.

Non-life is already a rapidly growing sector and is driven chiefly by property, fire, motor and medical business lines. Premium revenue for the entire industry grew 19 percent in the first two months of 2010 and is still forecast to grow approximately 20 percent for the year, per figures released from the General Insurance Association of Cambodia (GIAC) in the spring. This coincides with 1Q results from Forte which reported premium-derived income growth of nearly 20 percent.