Thai Economy 2006

Overall Thai economy in the third quarter, expanded by 4.7 percent, slowed down from 6.1 percent and 5.0 percent in the first two respective quarters. Overall GDP in the first three quarters registered a satisfactory growth 5.3 percent, underpinned primarily by robust export of goods and services which helps compensate for the slowdown in domestic demand. Economic projection for 2006: GDP growth is projected at 5.0 percent with 4.6 percent inflation rate current account surplus of 0.2 percent of GDP and 1.8 percent unemployment rate. In private consumption and investment the growth of which were smaller than in 2005 owing to higher inflation, interest rate, and high oil price. In addition, consumer and business confidence weakened partly due to domestic political situation. However quarterly economic growth indicated continued economic slowdown as a result of slowdowns in private expenditure and investment.

 

Factors Supporting Growth

1. Trade balance and current account balance over expected cause from the export expanded.
2. Recovery private consumer confidence cause by renewal decrease domestic oil price, slowdown inflation rate include interest rate in system constancy. After Bank of Thailand increased interest rate policy to 5.0 percent.
3. Exports still served as key engine of growth in2006, especially exports of electronics that flourished from expansion of electronics cycle and exports of rubber in the light of increasing demand in China and India. Exports to major markets including the US, Japan, Asian and Europe expanded satisfactorily in tandem with those economic conditions. Meanwhile, exports to other markets like China, India, Middle East and Eastern Europe performed well as well.
4. Employment rose and unemployment rate was equal to the same period of 2005. The number of employed person in the third quarter were 36.68 million people, rose by 0.6 percent from 36.48 million people in the third quarter of 2005.

Risk Factors

1. Slowdown of agriculture goods price and some flood-affected group of people experienced several damage on crops and facing with higher food and crop prices which eventually affected income and the disbursement is still benchmarked to the 2006 fiscal year framework.
2. Due to adverse trade balance especially, the US current account deficits are dramatically ig. Therefore, US as to use foreign investments in order to compensate deficit situation Also, the current account deficits can impact on fluctuation of exchange rate. Moreover, the recession of US economy also impact on Asia exporting Hence, Asian exporters have to stimulate their exporting growth.
3. Appreciation of baht and tightened trade cause export and decreased inflation basic goods price on the global market reduce.
4. Latest economic indicators in October 2006 showed that the economy continues its downtrend in the last quarter of 2006. Private consumption expenditure and investment slowed down despite improved confidence, falling inflation and clear interest rate policy. It is expected that investors will continue to suspend their decision on investment until the direction of the new constitution and next government are clear. In addition, there should also
5. Bank of Thailand change interest rate policy from repurchase rate 14 days to repurchase rate 1 days and decrease interest rate policy to 4.75 percent or decreasing 25 percent.

The above risk factors result in decreased growth of Thailand‘s economy. A number of agencies have revised their GDP growth estimation, as detailed in Table 1.

Table1 Economic Indicators

Sources 
Forecasted and updated by Nation Economic and Social Development Board (NESDB) in December 4,2006
Forecasted and updated by Kasikorn Research Center (KRC) on November 28, 2006
Forecasted and updated by Bank Thai in October 2006
Forecasted and updated by Thailand Development Research Institute (TDRI) in December 27, 2006

Thailand 2007 Economic Forecast

Thai economy in the first three quarters of 2006 showed a favorable growth. Concurrently, the fundamental of the economy was also sound and stable as observed in several key economic indicators such as low unemployment rate, declining public debt to GDP and lessened inflationary pressure as a result of upward interest rate adjustment in the earlier period and falling oil price since August. Moreover, interest rate started to be stable and confidence in the economic fundamental has been restored encouraging higher capital flows from abroad into the stock market. Consumer confidence has also improved since September. All of these positive factors will continue to support the economic growth in 2007. Nevertheless, there are still some downside risks associate with the economic outlook, from both external and internal factors including a global slowdown, the US twin deficits problem which could materialize and put depreciation pressures on the US dollar and possible rising and volatile oil price due to the production constraints of petroleum industry. Global Actuarial Consulting (GAC) presents a table comparing estimations of the kingdom’s economic outlook in 2007.

Table 2 summarizes estimates of the kingdom’s economic outlook in 2007.

Table 2 Forecasting of Economic Indicators 2007

Remark  * In USD Terms
                  ** Inflation include all kind of goods
Sources
Forecasted and updated by Nation Economic and Social Development Board (NESDB) in December 4,2006
Forecasted and updated by Kasikorn Research Center (KRC) on November 28, 2006
Forecasted and updated by Bank Thai in October 2005
Forecasted and updated by Thailand Development Research Institute (TDRI) in December 27, 2006

 

Summary of Thai Non-life Insurance Business 1997-2005

GAC has studied Thai non-life insurance business during 1997-2005, During this period the Thai non-life insurance business went through two stages a recession stage and a recovery stage. During the recession stage (1997-1999), the Thai non-life insurance business slowed because of the Asian economic crisis. The direct premium of all types during this stage decrease, compared with 1996 (See Figure 1).

Figure 1 Direct Premium and Premium growth

During the recovery stage (2000-2004), Thai non-life insurance business grew because of the September  11^th terrorist attack in the United state and the recovery of the Thai economy. Interestingly, the proportion of miscellaneous insurance in market rose from third to second, ahead of fire insurance (See Figure 2). The recovery of the Thai economy is also the positive factor to Thai non-life insurance business (See more in Table 3) but Thai economy growth has continued to slow in 2003.

Figure 2 Proportion of Direct Premium

GAC analyzes the growth rate of Thai non-life insurance business by using the direct premium. In 2005, direct premium of all types was 88,470 million baht. The growth rate of 2005 was 11.58 percent compared with the11.42 percent growth rate in 2004 (See in Table 3). If we look at each line of business, most of business have continued to increase except the miscellaneous growth, which slowed from 15.77 percent (in 2003) to 8.38 percent (in 2004) but increased to 19.50 percent again (in 2005). In addition, the automobile growth slowed from 19.88 percent (in 2003) to 10.37 percent (in 2005) (See in Table 4).

Table 3 Gross Domestic Product, Direct Premium and Their Growth Rates

Sources: National Economic and Social Development Broad.
Department of Insurance

Table 4 Direct Premium and Direct Premium Growth Classified by Line of Business

Source: Department of Insurance

The top five insurance companies in the Thai market in 2004 are Viriyah Insurance (13.55%), Dhipaya Insurance (7.95%), Bangkok Insurance (6.64%), Sampanth Insurance (4.26%) and Deves Insurance (3.76%) All of top five insurance companies,  Viriyah Insurance, Dhipaya , Bangkok Insurance , Sampanth Insurance were particular successful in the growth rate of direct premium is 12.12 ,3.29 , 24.78 and 15.12   Thai non-life insurance business in 2006 is expected to grow at a faster rate than in 2004. The research department of Thai Reinsurance expected direct premium of 2006 at between 81,420-84,395 million baht or 13.0-17.2 percent. Thai non-life insurance business has continued to grow because of Thai economic growth.Financial Ratio Analysis of Thai Non-life Insurance Business

Global Actuarial Consulting has done financial ratio analysis of Thai non-life insurance business by using data from annual insurance report of Thailand by Department of Insurance (DOI) from 1997-2004. In our analysis, we will show in three different of views. First, we analyzed financial ratio of overall non-life insurance companies (all 76 companies)¹ Second, we analyzed the financial ratios of companies that write primarily automobile²(36 companies). Finally, we analysed the financial ratios for companies that are not primarily automobile insurers (40 companies).

We used the following financial ratio³:

1. Leverage Ratios or Debt Ratios
2. Liquidity Ratio
3. Asset Utilization Ratios
4. Stability Ratio
5. Profitability Ratios
6. Management Ratios
7. Employee Productivity Ratios

Leverage Ratios or Debt Ratios

Over 6 years (1997-2004), the leverage ratio of whole non-life insurance business is higher than standard criteria (debt to equity ratio should be less than 1 and debt to asset ratio should be less than 0.5) and deteriorates in this period. From 1997 to 2002, the debt to equity ratio of whole business grew up from 1.38 to 1.50 but  decreased to 1.32 in 2003 and then increased to 1.59 in 2004 In addition, the average of these period is 1.39. The debt to asset ratio of whole business was 0.58 in 1997, 0.61 in 2004, and 0.58 for average term. Companies that write primarily automobile are much more highly leveraged than the whole non-life insurance business. For example, debt to equity ratio and debt to asset ratio in average term are 3.05 and 0.75, respectively. In particular, total debt to equity ratio has been extra increasing from 2.79 in 1997 to 3.87 in 2004. On the other hand, debt to equity ratio of all other companies in average term is 0.82 and average of debt to asset ratio is 0.45

Asset Utilization Ratios

Average investment asset to total asset ratio of the whole non-life insurance business, companies that write primarily automobile, and all other companies are lower than criterion that are 63.01, 54.82, and 69.22 percent, respectively.

Investment yield in Thai non-life insurance business has continued to decrease during 8 years in line with the fixed deposit rate (12 months or 1 year). However, investment yield have been higher than the fixed deposit rate. The investment yield of three of them in average term is 5.42, 5.80, and 5.18 percent, respectively. The average fixed deposit rate (1 year) is 4.06 percent.

The investment asset to total asset ratio during 1997 to 2004, not only the whole non-life business is increasing from 60.35 percent in 1997 to 66.59 percent in 2004 but also in companies that write primarily automobile is increasing from 51.02 percent to 60.15 percent. Conversely, all other companies is decreasing from 68.20 percent in 1997 to 71.43 percent in 2004. This indicates that investment asset to total asset ratio of companies that write primarily automobile is lower than another group but its investment yield is higher. That is this group has higher asset utilization.

Liquidity Ratios

From 1997 to 2004 the liquid asset to loss reserve ratio of the whole non-life business, companies that write primarily automobile, and all other companies are at reasonably good rate compared with the criterion. The average liquidity ratio for whole business is 400.67 percent, increasing from 361.10 percent in 1997 to 440.25 percent in 2004. Similarly, this ratio in 1997 of companies that write primarily automobile is 190.83 percent and increased to 313.38 percent in 2004, with an average of 229.90 percent. The average liquidity ratio of all other companies group is 775.39 percent, increasing from 876.01 percent in 1997 to 899.81 percent in 1999, but beginning to decrease in 2000 up to 690.44 percent in 2002 and then rapidly increasing to 910.62 percent in 2003 and rapidly decreasing to 636.79 again in 2004. As the result, over the period the growth rate of loss reserve was higher than liquid assets.

Stability Ratio

      We analyze stability by using solvency margin ratio, which should be more than 100 percent. The solvency margin of the whole non-life business had been decreasing from 1998 to 2002 from 103.92 percent to 53.92 percent and then increasing to 77.89 2004 with an average of 91.91 percent. In particular, this ratio of companies that write primarily automobile is very low which is not over 50 percent in each year during 1997 to 2004 and its average solvency ratio is at 35.37 percent. Unlike all other companies has been more over than 100 percent every year, its average solvency margin ratio is at 201.92 percent.

Profitability Ratios

The underwriting profit to net written premium ratio average for the whole non-life insurance business during the period is 2.70 percent. There is only one year, 2000, that had a ratio higher than standard criterion (should be more than 5 percent) at 6.96 percent. Companies that write primarily automobile have made a loss every year except 2000. On the contrary, this ratio for all other companies had been higher than standard criterion every year and the average is 15.14 percent. The underwriting profit to net written premium ratio for companies that write primarily automobile and all other companies are similar to net profit to net written premiums. But for the whole non-life insurance business it has been higher than standard criterion every year except 2000.

The average return on assets (ROA) for whole non-life insurance business is 2.89 percent, which is less than standard criterion (should be more 5 percent) and also ROA ratios in each year are not over 5 percent. The average return on equity (ROE) is 6.90 percent and its value in every year but 1999 is more than 5 percent. The average ratios of the all other companies group are 5.35 percent and 9.75 percent, respectively. However, for companies that write primarily automobile, the average ROA (-0.35 percent) and average ROE (-1.46 percent) has been lower than 5 percent because of net underwriting losses.

Management Ratios

Both the expense ratio and combined ratio of non-life insurance business refer to the proportion of expense. The  average expense ratio is usually between 35 percent to 40 percent. Combined ratio, which adds loss incurred and commission or brokerage, is higher. The average combined ratios of whole non-life insurance business, companies that write primarily automobile, and all other companies are 94.59 percent, 101.32 percent, and 81.48 percent, respectively

                As compared in 1997, collection of insured’s premium payment for whole non-life insurance business in 2004 has been slowing down and the average of this ratio is 19.34 percent. This is due to increased competition, with many companies extending the credit term of premium payment to their customer or agent/broker, especially companies that write primarily automobile. The average of uncollected premiums to direct premiums ratio for this group is at 20.17 percent, higher than 18.63 percent of all other companies group.                 Over 8 years, the non-life insurance business has an average gross premium retention rate of 72.72 percent, decreasing from 76.69 percent in 1997 to 72.31 percent in 2004. From 1997 to 2004 reinsurance for non-life insurance business had been increasing. The all other companies group that has average retention is almost 50 percent . Conversely, group of companies that write primarily automobile retain a much higher percentage of written premium, with average retention at 89.09 percent.

Employee Productivity Ratios

In 2004 the non-life insurance business produced direct premiums of 3.54 million baht per employee, which was an increase from 1997 of 2.78 million baht per employee or an average over the period of 2.88 million baht per employee. On other hand, operating expenses in 1997 of 576 thousand baht per employee increased to 771 thousand baht per employee or 625 thousand baht per employee average for period. Operating expense is an important factor that affects  profit besides loss incurred. As shown that underwriting profit of non-life insurance business in 1997 at 86 thousand baht per employee decreased to 63 thousand baht per employee  in 2004. The average of this ratio is 56 thousand baht per employee.

Both companies that write primarily automobile and all other companies, direct premiums per employee increased during 1997 to 2004. The average was 2.29 million baht per employee and 4.11 million baht per employee, respectively. The premium per employee for the all other companies group increased much more than for companies that write primarily auto. All other companies had the greatest employee productivity and underwriting profit increased from 291 thousand baht per staff in 1997 to be 342 thousand baht per staff in 2004. The average underwriting profit of this group is 333 thousand baht per staff. Companies that write primarily automobile had an average underwriting loss of 75 thousand baht per employee. Its underwriting loss of 25 thousand baht per employee in 1997 increased to 54 thousand baht per employee in 2004.

Operating expense in all other companies group increased from 549 thousand baht per employee in 1997 to 1,033 thousand baht per employee in 2004. Conversely, for companies that write primarily automobile operating expense increased from 591 thousand baht per employee in 1997 to 661 thousand baht per employee in 2004.

Bibliography

Department of Insurance, Annual Insurance Report of Thailand, 1997.
Department of Insurance, Annual Insurance Report of Thailand, 1998.
Department of Insurance, Annual Insurance Report of Thailand, 1999.
Department of Insurance, Annual Insurance Report of Thailand, 2000.
Department of Insurance, Annual Insurance Report of Thailand, 2001.
Department of Insurance, Annual Insurance Report of Thailand, 2002.
Department of Insurance, Annual Insurance Report of Thailand, 2003.
Department of Insurance, Annual Insurance Report of Thailand, 2004.

Bank of Thailand. Available from: http://www.bot.or.th
Department of Insurance. Available from: http://www.doi.go.th
Fiscal Policy Office. Available from: http://www.fpo.go.th
Kasikorn Research Center. Available from: http://www.krc.co.th
National Economic and Social Development Board. Available from: http://www.nesdb.go.th
The Thailand Development Research Institute (TDRI) Available from: http://www.tdri.or.th

 

Appendix
List of Companies That Write Primarily Automobile and Other Companies

Companies that write primarily automobile are the following :

1. Road Victims Protection 2. Liberty 3. Sampanth Insurance 4. Viriyah Insurance 5. Sahawattana Insurance 6. Synmunkong Insurance 7. Kurnia Insurance 8. LMG Insurance 9. Thai Development Insurance 10. Erawan Insurance 11. Mittare Insurance 12. Num Seng Insurance 13. Chao Phaya Insurance 14. Commercial Insurance 15. The Safety Insurance 16. Kamol Sukosol Insurance 17. Thai United Insurance

18. South East Insurance (2000) 19. Patchara Insurance 20. National Insurance 21. Thaivivat Insurance 22. Phutthatham Insurance 23. Thai Zurich Insurance 24. Thai Setakij Insurance 25. BT Insurance 26. Assets Insurance 27. Universal Insurance 28. Muang Thai Insurance 29. Union Prospers Insurance 30. Osotspa Insurance 31. Navakij Insurance 32. Bangkok Thonburi Insurance 33. Thai Insurance

Companies that don’t write primarily automobile are the following :

1. AXA Insurance 2. Aviva Insurance (Thai) 3. QBE Insurance 4. Indara Insurance 5. Krungthai Panich Insurance 6. Generali Insurance 7. Bangkok Insurance 8. Thai Commercial Insurance 9. New Hampshire Insurance 10. Bangkok Union Insurance 11. Thai Charoen Insurance 12. Paiboon Insurance 13. Charan Insurance 14. Ocean Insurance 15. Mitsui Sumitomo Insurance 16. New India Assurance 17. Samaggi Insurance 18. Dhipaya Insurance 19. International Assurance 20. Siam City Insurance 21. Ayudhya Insurance

22. Allianz C.P.General Insurance 23. Sri Muang Insurance 24. Royal and Sun Alliance 25. Wilson Insurance 26. Dhanavat Insurance 27. Asia International Insurance 28. Chubb Insurance 29. Deves Insurance 30. Sompo Papan Insurance 31. Union Insurance 32. Advance Insurance 33. Phatra Insurance 34. China Insurance (Thai) 35. Combined Insurance 36. ACE Insurance 37. A.I.A. 38. Thai Health Insurance 39. Blue Cross Insurance 40. Bangkok Health Insurance 41. Thai Medical Care 42. Apex Health Insurance

  

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¹There are 66 domestic companies, 5 foreign branch companies, and 5 companies that underwrite only health insurance (excluding Ambassador Insurance Co.,Ltd.)

² We split Thai non-life insurance companies into the companies that write primarily automobile ( the proportion of automobile is greater than or equal to 50 percent) and all others (the proportion of automobile less than 50 percent) because the companies that write primarily automobile have different risks than the others, which affects business planning. Lists of both group are shown in the Appendix.

³ Criteria of our ratio based on DOI and Thai Re Insurance Co.,Ltd.

 

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