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Insurance Spotlight on Cambodia Not only did very few people know what was really happening in Vietnam during the past 40 years but even fewer knew about the neighbouring countries. As we now see and hear from the aftermath of the tragedy in Burma, not much good has been going on there for quite a while but in Cambodia a dogged spirit of determination has been pulling people together and confidence is growing. It seems like one of the oldest countries in the world has become young again. About Cambodia Cambodia is a country in South East Asia with a population of approximately 14.5 million. The majority of the population are Khmer and are descendants of the Angkor Empire, which, at one time, extended over much of South East Asia. Between 1867 and 1953 the country was part of Indochina. For several years the country called itself Kampuchea but reverted to Cambodia in 1991 and Prince Sihanouk who had been deposed as king and had spent 15 years in exile returned as head of a constitutional monarchy. King Norodom Sihamoni succeeded his father in 2004. Widely known as one of the poorest nations in the world, Cambodia has emerged from decades of civil war, notably, the Khmer Rouge regime which left more than 1 million dead and the country’s social, physical and economic infrastructure destroyed. It took years to restore the infrastructure damaged during the war and return Cambodia back on track. The peace and stability of recent years have contributed to making Cambodia one of the fastest growing economies in Asia with GDP averaging at double digit figures since 2000. The economy is driven by the four main sectors, namely, garment export, tourism, construction, and agriculture. Garment products are mainly exported to the U.S. and therefore are dependent upon the U.S. economy. Economic growth as a whole is dependent on a narrow base and as a result is subject to volatility of internal and external environments. To sustain growth, the economy is diversifying into other areas such as financial services and industrial extraction of underground mineral resources. The Cambodian government is shifting its attention to the private sectors to promote investment and create employment. The government private sector forum is held twice a year with the aim to improve the business environment, build trust, and encourage investment. Through the forum, the private sector plays a role in shaping the economic policy of the government. In an effort to encourage investment further, the government is planning to launch the stock market in 2009 with technical and financial support from Korean Exchange. Legislations on the stock exchange are being drafted and will be ready in time for the eminent stock market. History of Insurance Market The history of Cambodian insurance market dates back to the colonial era in 1950s during which French insurance companies maintained local operations. After independence, the state-owned insurance company SNAR - Société National d’Assurances et Réassurances - carried on the business until 1975 and ceased operation when the Khmer Rouge seized control of the country. For many years after the Khmer Rouge regime, no insurance business was in operation. It was not until 1990 that state-owned Caminco (Cambodian National Insurance Company) was established and became the first to conduct insurance business after the war. However, due to the lack of human resources, technical experience and capacity, Caminco was not very active despite being the first and only company in the country. The lack of insurance legislation meant that Caminco was the only authorised and registered insurance company at that time. Caminco acted as an insurance provider as well as the regulator. Many companies which followed later were either agents or an insurance entity under Caminco’s legal supervision. In 1994, Indochine Insurance started up as an agent of Caminco. This was followed by Asia Insurance in 1995 with the great majority of shares owned by Asian Insurance International (Holding). In 1999, Forte Insurance entered the industry as another agent of Caminco. The lack of technical expertise on the part of Caminco had resulted in many local agents bypassing Caminco and placing insurance directly with offshore companies. In 2000, the Insurance Law was enacted by the National Assembly. It required all insurance companies to have a registered capital of SDR 5,000,000 (or US$7,000,000 using a fixed exchange rate). 10% of the registered capital must be deposited at the National Treasury. Many agents eventually transformed themselves into fully-fledged insurance companies after fulfilling the capital requirement. In 2002, Cambodia Re was established to accept reinsurance business from local providers. It is stipulated in the law that 20% of all risks must be ceded to Cambodia Re. Initially, the state owned and operated Cambodia Re, but later on in 2004, it was transformed into a joint-venture with Asian Insurance International (AII). Despite the transformation, in reality, Cambodia Re has remained the state-owned monopoly for reinsurance business. In October 2004, Indochine Insurance was forced to close down by the authorities for failing to comply with the capital requirements as stipulated in Insurance Law of Cambodia. After the demise of Indochine, only three companies were in operation namely Forte, Asia and Caminco. The absence of Indochine did not negatively affect the industry. In fact, the industry grew rapidly in line with the growth of the overall economy. Gross premiums more than quadrupled from US$2.4m in 1999 to US$10.8m in 2005. And it will continue to grow in many years to come. Insurance Today High growth potential is attractive to local and foreign companies alike who are looking for investment opportunities in the insurance industry. Recently, two new insurance firms have entered the insurance market, and to a great extent, have changed the competitive landscape of the industry. There are five local insurance companies with a licence to underwrite business in Cambodia. In descending order of market share, they are
All insurance firms are registered as local companies with varying degree of partnership with foreign companies. Forte, for instance, has a strong network of well known international reinsurers and brokers. The reinsurance network gives Forte the capacity to accept large risks including large industrial risks as well as oil and gas. Asia Insurance is an association of three foreign companies, based in Hong Kong, Thailand and Indonesia. Most of the risks accepted by Asia Insurance are reinsured back to its foreign offices, leaving only a small percentage for its own retention. Caminco is still the state-owned insurer and has been in the market the longest time. It is the largest auto underwriter in the Kingdom. It does, however, not do well in other classes of insurance such as property, health and personal accident. CampuBank Lonpac and Infinity are the new players. The market share data below is based on gross premium written and it shows that Forte leads the market with 51%, followed by Asia with 35% and the rest with 14%. The shares of the two new players are low due to their late entrance into the market in 2007.
Source: Ministry of Economy & Finance The product mix of all insurers in Cambodia includes property, casualty, automobile, health, engineering and marine cargo insurance. The recent discovery of oil and gas off the coast of Sihanoukville creates a relatively new market: the oil and gas insurance. Oil and gas risks are primarily underwritten by COGIC (the Cambodia Oil & Gas Insurance Consortium). This organisation is led by Forte and works in close cooperation with the Cambodia National Petroleum Authority (CNPA).
Source: Forte’s Audited Financial Report 2007 Due to the relatively small size of the market, local intermediaries do not play a big role in providing business. The stumbling block for intermediaries is the large capital outlay for a licence which requires a deposit at the National Treasury of US$10,000 and US$50,000 for agents and brokers respectively. That is why there are no licensed intermediaries in operation. Insurers may, however, have their channels of distribution apart from their own direct sales force. A good example is the network of travel agents who help sell travel insurance. All insurers are taxed on gross premium at 5%. Such tax will be paid to the government’s Tax Department. Insurance legislation in Cambodia is at the infancy stage. The Ministry of Economy and Finance is the government institution responsible for drafting the laws and enforcing the rules and regulations related to insurance. Active participation from the local insurers, notably Forte Insurance, has been instrumental to the development of the insurance law. Despite this, there remain a number of issues in the insurance legislation which need to be sorted out. There has been poor enforcement of certain part of the insurance legislation. In particular, the non-admitted law requires all firms to place insurance with local providers. But foreign multinationals are known to place insurance with foreign providers, thereby bypassing the law without due repercussion. In addition, automobile insurance for third party liability is compulsory for all commercial vehicles. But there is a lack of enforcement of such law in practice.
Source: Ministry of Economy & Finance Despite the issues involved, the insurance market will continue to grow and expand in conjunction with the development of the insurance legislation. There will be more competition, but the market pie will expand in line with the growth of GDP. The insurance market has expanded at more than 20% per annum in the past two years and should continue the momentum well into the years ahead. In reproducing this Highlight article we would like to acknowledge the whole team and writers at Benfield Research (www.benfieldgroup.com e-mail benfieldresearch@benfieldgroup.com telephone +44 (0)20 7522 4125) whose work we gratefully appreciate. If you would like Worldwide Risk Solutions to conduct an economic, business and insurance survey of any international markets please contact us – Details below. Worldwide Risk Solutions has access to a wide client base of internationally oriented organisations. Why not utilise this knowledge and experience? We can conduct a swift appraisal of your global activities or answer any questions you may have about international developments. Call +44 (0)1444 450 919 or send us an e-mail and we will respond immediately. And should you be passing through London, please let us know. For more information about any of the items discussed in the current or previous issues of WoRdS, please see our Contact Details George Worsley, Director |
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