Thailand Life Insurer - Low Interest Rate Environment

The Thai Life Assurance Association (TLAA) has called for the Office of Insurance Commission (OIC) to relax rules to broaden investment opportunities for life insurers, enabling them to cope with a prolonged low-rate environment. The association has requested the regulator widen investment scope and raise flexibility based on the risk acceptance of each insurer, said president Nusara Banyatpiyaphod.

If investment risks remain the OIC's largest concern, the regulator may gradually ease the regulations, raise the ceiling limit or provide permission on a case-by-case basis, she said.

Life insurance companies are scrambling for higher returns to match their promised yields to policyholders -- particularly those who take out insurance products with savings features -- and avoid losses amid falling bond yields and low interest rates.

Over the past few years, life insurers have adjusted by lowering the minimum guarantee to policyholders and focusing on unit-linked or investment insurance products for which customers have to accept risks themselves.

Some firms have diversified to invest in property offering higher returns than bonds but producing a steady income stream and launched participating policies that guarantee a minimum return to policyholders and with which they can earn additional returns if the insurers' investment yields a better return.

Mrs Nusara said the TLAA, according to the proposals, asked the regulator to allow local life insurers to allocate more assets to foreign markets.

"The low-interest-rate environment for an extended period is the biggest challenge for life insurance business that needs to be addressed," she said. "The challenge is seen not only in Thailand, but also other countries including Indonesia and Vietnam where interest rates once stayed at a high level."

Abolishing the minimum investment requirement of 500 million baht in each property project to mitigate risk and diversifying to invest in other types of real estate are also among the TLAA's proposals, Mrs Nusara said.

At present, life insurers are restricted to investment in office buildings.

Property yields attractive returns amid record-low interest rates as investors earn returns from rentals and capital gains from higher property prices, Mrs Nusara said.

"The nature of property investment is complemented by the insurance business, as both are long-term commitments," she said. "The long-term investment is enough to achieve the target in the event that short-term returns from investment fall short of the goal."