The dearth of investment options in the local capital market has prompted insurers in Cambodia to rely on underwriting for profits instead of investment returns, but industry leaders say if the government can provide more investable securities options it could attract large pools of untapped insurance investment.
“The government has to support the development of a diverse and significant securities market in Cambodia to provide investment options that are suitable for insurance companies seeking to diversify the investment of their capital and reserves,” chairman of the Insurance Association of Cambodia (IAC) Huy Vatharo said.
Cambodia’s first state-run insurance company was established in 1990 and in the years since, the country’s insurance sector has grown exponentially. Seven local and international insurers now provide general insurance coverage, while life insurance first arrived on the scene in 2012 and is today offered by four insurers.
In developed countries, insurers are a dominant institutional player in the financial market, investing huge capital sums in stocks and bonds. In Cambodia, however, they face limited opportunities for investment given the country’s fledgling capital market, with just five listed companies and no bond issues. As a result most investible funds are channelled into real estate or bank deposits, or back into the company for growth.
According to Vatharo, the total insurance premium increased fourfold in the last five years, from $30.2 million in 2011 to $113.6 million in 2016. While the amount invested in securities remains negligible, it appears to be increasing as insurers diversify their investment portfolios.
“Cambodia’s securities market is not yet popular for insurance companies to use as an investment option,” Vatharo said. “However, a few insurance companies have put their investment in recently listed stocks. Their investment size is not significant, but it indicates a trend that insurance companies have started to diversify their investment portfolio.”
Youk Chamroeunrith, managing director of Forte Insurance, said if capital market conditions improved it could set off a flood of investment from insurers, driving further growth. “The trend is that the investment climate [in Cambodia] is not that good, and that is why insurance companies are looking for underwriting profit rather than investment profit [from the premiums],” he explained. “However, if insurance companies can invest in capital markets, it will help the economy to grow which will allow insurers to make investment profits as well.”
While traditionally investing funds in real estate and bank deposits, Chamroeunrith said that Forte has also directed a portion of its portfolio into local stocks and private equity. “We’ve invested a small amount of our funds into the securities of one listed company on Cambodia’s stock market,” he stated, adding that the bourse’s lack of liquidity has discouraged large-scale investment. “Liquidity is a very important consideration given the short-tail liability nature of our business.”
According to Antoine Fontaine, partner of law firm Bun & Associates, insurers have limited options when it comes to investing their float – the difference between premiums collected and claims paid out – as well as any other cash on hand. “The stock exchange is still nascent, access to real estate is very restricted for foreign companies, private equity is generally considered neither as a sufficiently reliable nor liquid asset, and the Kingdom does not yet issue government bonds,” he explained.
Moreover, insurers must satisfy a minimum capital requirement which mandates them to deposit 10 percent of their registered capital with the National Treasury. Furthermore, they must meet solvency requirements that require an additional 50 percent of their registered capital to be deposited in a commercial bank, as well as restrictions on how they invest their float.
According to Fontaine, a 2001 sub-decree on insurance states that at least 75 percent of an insurer’s reserve funds must be invested locally, however “in practice, it is rarely enforced due to the lack of reinvestment options.”
Robert Elliot, CEO and general manager of Manulife Cambodia, said besides government solvency requirements insurers are also bound to their own internal investment policies. “Manulife has strict investment guidelines about what to invest in to protect our customers’ assets,” Elliot said. “We also need to ensure that our assets and liabilities are matched.”
He said the company currently invests its float in bank deposits but has plans to diversify its asset classes when Cambodia’s financial market matures. “At the moment, we place our investible funds with banks in Cambodia,” he stated. “[However,] we continuously monitor the development of the capital market in Cambodia, including the stock market, so that we can utilise our capital efficiently.”
Further, he said life insurance companies could spur economic growth in the Kingdom’s capital market given that they have a large pool of funds that could potentially be invested in local securities. “Life insurance is a long-term business that plays a very important role as a great facilitator in developing capital markets such as cash, debt instruments, real estate and equity,” Elliot said. “As the industry grows, the demand for quality assets also increases.”