The insurance coverage business’s capital adequacy ratio (CAR) fell to simply above 250% from about 300% earlier than the pandemic, nonetheless, business consultants nonetheless consider the scenario is below management as many companies have been capable of accumulate capital throughout the earlier interval of financial progress.
On the finish of 2020, the CAR of life insurance coverage was 306.14%, down from 362.34% on the finish of 2019 from the affect of an increase in rates of interest and bond yields.
In the meantime, Tommy Pichet Jiaramaneetaweesin, president of Actuarial Enterprise Options, gave a greater outlook for all times insurance coverage, reporting the business’s CAR was 334% within the first quarter based mostly on weighted common calculations, or 307% from straight-line averaging.
Mr Pichet mentioned the declining progress of recent companies and first-year premiums eased life insurers’ burden to put aside a capital reserve.
The CAR of non-life insurance coverage sprung up from 284.89% to 348.36% on the finish of 2020 because of rising consciousness of well being and medical insurance coverage throughout the pandemic.
“The business’s present scenario doesn’t appear worrying as a result of most insurance coverage companies collected numerous capital when financial progress was nonetheless good,” mentioned Chayanin Kerdpholngam, assistant secretary-general of the Workplace of the Insurance coverage Fee (OIC).
Ms Chayanin mentioned that the business’s CAR declined as anticipated, according to final yr’s stress take a look at that steered the pandemic would have some affect on the insurers’ funds however to not a vital state.
The OIC can also be modifying some minor guidelines about capital adequacy associated to second-tier subordinated debt, permitting insurance coverage corporations that purchase subordinated debentures issued by insurance coverage corporations to exclude this funding of their second-tier capital.
The early prevention will cut back the affect of subordinated debentures if the second-tier capital turns into extra fashionable just like the banking business.
Final yr, Advance Life Assurance, a life insurance coverage firm, issued subordinated debentures to strengthen its capital reserve however this yr it is a non-life insurance coverage firm that has filed to challenge subordinated debentures, mentioned Ms Chayanin.
Tada Phutthitada, president of the Thai Bond Market Affiliation, mentioned elevating capital from the issuance of subordinated debt may also help insurance coverage corporations survive when the rate of interest declines.
The decrease rate of interest may drive insurance coverage corporations to order capital in keeping with the brand new Worldwide Monetary Reporting Customary or IFRS17.
When the rate of interest picks up, this strain to order capital can be eased.
Mr Tada says that the market views international rates of interest as all-time low at the moment, in keeping with long-term authorities yield curves which climbed for a interval.
