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Asian Insurance Focus: India, China, Vietnam & Thailand
The Knowledge Centre (Sheffield Haworth), Sep 2008, Pages: 572
Globalization is the key source which is bringing about an 'irreversible transformation' in the Asian insurance market. India and China are 'dynamically' driving the growth of insurance markets in Asia. This process has been expedited by the 'soothing impact' of the Asian financial crisis on reform resistance and its contribution towards acceleration of change, including deregulation, particularly 'on the back of gradual opening up of two of the most important growth markets - China and India,' says the study conducted by Swiss Re, one of the world's leading reinsurers.
Asia is becoming an important growth engine for global insurers due to the changing socio-economic dynamics. According to a latest research report from HSBC, in order to be long-term winners, life insurance companies in Asia need to diversify their income streams such that at least 25% of earnings are sourced overseas, while maintaining a dominant position in the domestic market.
Many Asian financial services companies have exceeded the overall growth rate for their domestic economies and are therefore looking to expand globally or invest their shares in new markets. Another trend predicted by PwC, was that intra-Asian trade would continue to increase, particularly as the West decreased its investment in this region. The increasing wealth and educational development in Asia, has built a good foundation for the development of financial services.
China is the major hand behind the dynamic growth in the Asian insurance sector. Being the world’s largest untapped insurance market, it has the GDP growth of over 10% per annum, rapid economic development and a burgeoning consumer class. It has been the fastest-growing nation for the past quarter of a century, and its economy is the 4th largest in the world after the US, Japan and Germany, with a nominal GDP of US$3.42 trillion (2007) when measured in exchange-rate terms. Several factors like China’s aging population; high savings rate and poor social security systems as well as an increasing number of wealthy consumers segment, are responsible for this astounding level of growth.
However, India has also significantly contributed towards the development of the insurance sector in Asia. Indian economy is the 12th largest in the world, with a GDP of $1.25 trillion and 3rd largest in terms of purchasing power parity. With factors like a stable 8-9 per cent annual growth, rising foreign exchange reserves, a booming capital market and a rapidly expanding FDI inflows, it is on the fulcrum of an ever increasing growth curve. Between 2000 and 2007, it had an increase of 120% and reached $47.89 billion, and the CAGR growth during this time frame has been 11.96%. It was one of the most consistent growth patterns we have noticed in any other emerging economies in Asian as well as Global markets.
Vietnam has become one of the fastest-growing economies in the world, averaging around 8% annual gross domestic product (GDP) growth from 1990 to 1997 and 6.5% from 1998-2003. GDP in the country rose 8.5 percent in 2007 and has increased by over 50 percent since 2001. From 2004 to 2007, GDP grew over 8% annually. Vietnam's inflation rate, as measured by the consumer price index, which stood at an annual rate of over 300% in 1987, was below 4% from 1997 (except in 1998 when it rose to 9.2%) until 2003. However, in 2004 the consumer price index increased to 9.5%, dropping in 2006 to 7.5%. It is due to these remarkable developments that Vietnam has caught the attention of foreign insurers looking for an alternative to the twin super economies of India and China.
Thailand is the 2nd largest economy in Southeast Asia, after Indonesia, a position it has held for many years. Thailand ranks midway in the wealth spread in South East Asia as its 4th richest nation per capita, after Singapore, Brunei, and Malaysia. It is also an anchor economy for the neighbouring least developed countries of Laos, Burma, and Cambodia. Its economy is expected to grow by 4.2 % in 2007 from 5 % in 2006. The Thai economy in 2008 is forecasted to grow at 5.6% (in the forecasted range of 5.0-6.0%).
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