Life Insurance, Capital Market and Investment Considerations

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1 Life Insurance, Capital Market and Investment Considerations Kitti Sutthiatthasil Executive Vice President Head of Office of the President OIC Advanced Insurance Institute 28 September 2018

2 Agenda 1 Status of the Thai Capital Market in ASEAN 2 Unknown Facts & Figures about the Thai Capital Market 3 Insurance Companies & Capital Market 4 Challenges, Trends and Future Perspectives 2

3 Roles of the capital market to support economic growth 1 Status of the Thai Capital Market in ASEAN Capital Raising Investment Choices Value Creation Efficient fund-raising venue for local and international business Optimize financial structure More investment choices and return and risk profile Provide suitable products for different segments of customers Corporate governance and disclosure transparency Effective and transparent mechanism for tax collection for the government 3

4 The capital market plays an important role in the development of Thai economy 1 Status of the Thai Capital Market in ASEAN Thailand s outstanding value of Bank lending, Equity market and Bond market, Market Cap to GDP (RHS) Unit: Billion USD Market Cap to GDP = 115% 1, % Market cap to GDP 1,400 1, % Total Outstanding June 2018 (Bil. USD) 1,313 (100%) 1,000 80% Market Capitalization of stock 494 (40%) Global Financial Crisis % 40% Corporate Bond Outstanding Gov t Bond Outstanding (7%) (19%) Asian Financial Crisis % Bank lending* 461 (34%) M2018 0% Note: Market cap and bond outstanding and bank lending as end of May 2018 Source: The Stock Exchange of Thailand, Bank of Thailand, ThaiBMA, NESDB GDP 4

5 Government policy and technology have driven the capital market development 1 Status of the Thai Capital Market in ASEAN Daily average trading value on SET since 1975 Million Baht 60,000 50,000 40,000 Investors Listed Companies SET infrastructure and services Retirement Mutual Funds Long Term Equity Funds FTSE: Advanced Emerging Market 44,302 3 Technology Enablers 1 Computerized Trading 30,000 20,000 10,000 0 Established Government Pension Fund Social Security Office Provident Funds 1 Mutual Funds Computerized trading 2 Money Channel New Trading Engine SET CONNECT 2 3 Internet Trading Smart Phone & Program Trading Thai Institute of Directors SET s Corporate Governance Center Privatization 5

6 The size of the Thai market has grown sharply due to strong performance of listed companies 1 Status of the Thai Capital Market in ASEAN Market capitalization of ASEAN Exchanges (2015 June 2018) Unit: Billion USD CAGR 5% 349 CAGR 15% CAGR 4% CAGR 13% CAGR 1% Thailand Singapore Malaysia Indonesia Philipines Source: World Federation of Exchanges (WFE) as of June 2018, Indonesia s figures as of May

7 Thailand has been the most liquid capital market in ASEAN since Status of the Thai Capital Market in ASEAN Average daily trading value of equity markets Unit: Million USD 2,500 2,000 2,056 Thailand 1,500 1,643 1,395 1,292 1,483 1,472 Singapore 1, , ,127 1, ,036 1,119 1, , M2018 Indonesia Malaysia Philippines Source: The Stock Exchange of Thailand, World Federation of Exchanges as of June 2018, Indonesia s figures as of May

8 From 2013 to 2018, Thailand has been the largest fund raising venue in ASEAN 1 Status of the Thai Capital Market in ASEAN Size of IPO issued in ASEAN exchanges Unit: Million USD Country M M 2018 Thailand 6,522 4,024 4,350 1,503 3, ,215 Singapore 5,137 2, ,525 3, ,257 Malaysia 2,835 1,251 1, , ,496 Indonesia 1, , ,743 Philippines 1, , ,446 Source: Bloomberg, as of June

7 13 44 173 128 30 47 94 63 239 155 83 579 432 973 1,773 2,192 2,165 1,209 3,023 3,762 3,730 1,048 1,485 2,448 1,664 1,989 6,520 4,295 2,921 3,828 3,078 1,531 1,054 3,012 2,651 3,191 9,986 8,651

listed companies (Million USD) 16,000 14,000 1 Thailand s Eastern Seaboard Development 2 Recapitalization after the 1997 financial crisis 4 Thai companies regional and global expansion 12,000

9 ,773 2,192 2,165 1,209 3,023 3,762 3,730 1,048 1,485 2,448 1,664 1,989 6,520 4,295 2,921 3,828 3,078 1,531 1,054 3,012 2,651 3,191 9,986 8,651 7,245 9,337 7,885 11,636 14,129 The capital market has been the main source of fund in the period of opportunities and challenges 1 Status of the Thai Capital Market in ASEAN Capital raised from listed companies (Million USD) 16,000 14,000 1 Thailand s Eastern Seaboard Development 2 Recapitalization after the 1997 financial crisis 4 Thai companies regional and global expansion 12,000 10,000 8,000 6,000 4,000 3 Domestic growth Eastern Economic Corridor Development 2, M2018 Source: The Stock Exchange of Thailand, Bank of Thailand 9

10 Top Thai listed companies have continuously changed 1 Status of the Thai Capital Market in ASEAN Ranking PTT SCC BBL IRPC TOP INTUCH AOT SCCC RATCH TMB SCIB CPN BANPU TRUE BEC Note * Daily average market cap of listed companies in SET 100 in 2006 and 2018/6M Source: The Stock Exchange of Thailand market cap* (Mil. Baht) /6M PTTEP ADVANC KBANK KTB SCB PTTCH THAI LH RPC BAY EGCO GLOW CPF BDMS BIGC 659, , ,000 52,000 46,000 30,000 Compared to 2006 New listed co in Top 30 Increase Stable Decrease PTT SCC BBL AOT CPALL INTUCH KTB TOP BDMS CPN LH IRPC BH MINT BEM PTTEP ADVANC KBANK PTTGC SCB BJC IVL HMPRO CPF TRUE EGCO GLOW GPSC TMB EA market* cap (Mil. Baht) 1,495, , , , , ,800 10

11 Thai listed companies employ 1.5 million people in Status of the Thai Capital Market in ASEAN Number of employees in Thai listed companies in 2017, classified by industry Unit: people Agro & Food Industry (49 companies) Services (107 companies) 355, ,630 Property & Construction (97 companies) Financials (59 companies) Technology (38 companies) 110, , ,141 Thai listed companies employ 1.5 million people Industrials (91 companies) 93,253 mai (150 companies) 59,843 Consumer products (40 companies) 58,911 Resources (48 companies) 57,994 Note: Included only companies that disclose information, excluded non-performing group Source: Listed companies annual reports 11

12 The capital market enhances accounting transparency resulting in improved tax collection 1 Status of the Thai Capital Market in ASEAN Corporate income tax Unit: Percent (LHS), Billion Baht (RHS) 60% Listed companies Non-listed companies Contribution from listed companies % 20% 0% 42% 42% 44% 43% 40% 40% 37% 34% 35% 35% 34% 32% 32% 28% 28% 29% 24% % 23% 20% Source: Revenue Department, The Stock Exchange of Thailand Reduction of the corporate income tax rate from 30% to 20% 12

13 The capital market is a source of fund for the country s recent infrastructure investment 1 Status of the Thai Capital Market in ASEAN Examples of infrastructure investments raising fund through SET 100% 80% 41.2% 29.0% 42.1% 17.8% 38.1% 32.5% Local Investor 60% Foreign Investor 40% 20% 57.6% 70.7% 57.8% 70.3% 52.0% 52.6% Local Institute Foreign Institute 0% 11.5% 9.4% ABPIF EGATIF BRRGIF BTSGIF DIF JASIF Investing in the revenue sharing of power plant business in Amata Nakorn Industrial Estate Investing in the right to availability payments of North Bangkok Power Plant Block 1 for 20 years Investing in the green line skytrain Investing in the right to the rental revenues of telecommunication towers, core fiber-optic cable grids & related transmission equipment Investing in core fiberoptic network for broadband Internet 14.5% Investing in the right to the Net Revenue of biomass power plants Electricity Transportation Telecommunication Source: The Stock Exchange of Thailand as of May

14 Agenda 1 Status of the Thai Capital Market in ASEAN 2 Unknown Facts & Figures about the Thai Capital Market 3 Insurance Companies & Capital Market 4 Challenges, Trends and Future Perspective 14

15 Thai stocks have provided highest return over long term 2 Unknown facts and figures about the Thai Capital Market Total Nominal Return index, categorized by asset class ( ) Return per year* Thai Stocks 191,434 Baht Gold 156,256 Baht 6.7% 4.6% 10,000 Baht Bank Deposit 121,803 Baht 2.0% Note: *Compound Annual Growth Rate (CAGR) Source: SETSMART, Bloomberg 15

16 During the past 10 years, overall performance of investment in Thai stocks outperformed the economy 2 Unknown facts and figures about the Thai Capital Market Comparison of GDP and Thai listed companies net profit growth Base year: 2008 = Net profit of Thai listed companies 315 Comparison of nominal GDP growth and listed companies profits in ASEAN during Nominal GDP growth Net profit growth Net profit growth to Nominal GDP growth Financial Crisis Net profit of energy sector Nominal GDP 159 Thailand 5% 14% 2.8x Singapore 5% 7% 1.4x 100 Malaysia 6% 6% 1.0x 50 Base =100 Net profit of non-energy sector Indonesia 12% 17% 1.4x Philippines 8% 16% 2.0x Vietnam 13% 22% 1.7x Source: The Stock Exchange of Thailand, NESDB, IMF, Bloomberg 16

17 2 Unknown facts and figures about the Thai Capital Market Thai listed companies registered growth in the first quarter Thai listed company performance H1/2018 VS H1/2017 Unit: Million THB Industry* Market capitalization** Net profit Million THB % H1/2017 Net profit H1/2018 Change % RESOURCE 4,089,333 23% 159, ,242 2% FINANCIAL 2,931,800 16% 112, ,844 9% PROPCON 2,688,727 15% 75,909 71,403-6% SERVICE 4,238,117 24% 54,889 63,786 16% TECH 1,624,115 9% 40,752 53,785 32% INDUSTRIAL 1,045,946 6% 39,317 47,855 22% AGRO 994,096 6% 24,956 24,071-4% CONSUMP 119,781 1% 4,063 3,866-5% mai 290,729 2% 2,543 3,553 40% Total 18,022, % 514, ,405 8% Note: *excluding Non-Performing Group **market capitalization data as of 30 June 2018 Source: SET 17

2/1/2014 7/5/2014 8/9/2014 9/1/2015 18/5/2015 16/9/2015 18/1/2016 25/5/2016 23/9/2016 25/1/2017 30/5/2017 27/9/2017 31/1/2018 5/6/2018 Thai listed companies are global leaders in the well-being

Ranked in global sector Business hilight 28.3 1 st airport in Thailand and serves more than 120 million Operates 6 international passengers a year 12.6 2 nd 30% of customers from abroad 11.

18 2/1/2014 7/5/2014 8/9/2014 9/1/ /5/ /9/ /1/ /5/ /9/ /1/ /5/ /9/ /1/2018 5/6/2018 Thai listed companies are global leaders in the well-being sector 2 Unknown facts and figures about the Thai Capital Market Company / GICs sector Airport service Health care facilities Real estate operating Hotel & resort Market capitalization (billion USD) Ranked in global sector Business hilight st airport in Thailand and serves more than 120 million Operates 6 international passengers a year nd 30% of customers from abroad th developer with 30 shopping centers in Thailand and 1 Thailand largest retail developing project abroad th Operates hotels in 25 countries and have restaurant presence is in 18 countries Thai global leaders in well - being stocks total return (data as of Sep 13, 2018) Well being stocks* SET *Well being stocks total return calculated equal weight of AOT, BDMS, CPN, MINT total return. Source: Bloomberg as of Sep 13, 2018 Note: Global Industrial classification standard (GICs) 18

Investing in Thai companies also benefits from growth opportunities outside Thailand Thai listed firms revenue from abroad to total revenue Number of Thai listed companies investing abroad (% of

19 Investing in Thai companies also benefits from growth opportunities outside Thailand Thai listed firms revenue from abroad to total revenue Number of Thai listed companies investing abroad (% of total revenue) (Data of 112 companies which continually reported revenue from trade and investment abroad during ) 35% 36% 37% 40% 40% 41% 42% 43% 45% 45% 46% 46% (data as of end-2017) America 40 2 Unknown facts and figures about the Thai Capital Market Europe 45 Middle east 22 Africa 16 South Asia 37 North Asia 87 ASEAN 186 (CLMV 140) Australia Note: Revenue from abroad refers to the revenue derived from business operating overseas and exports revenue. Nevertheless, some firms usually classify revenue from overseas based on geographical locations of customers without indicating whether the amount is derived from operation overseas or exports. All foreign revenue that fall under these criteria will be classified as revenue from abroad Myanmar Laos Vietnam Singapore Cambodia Indonesia Malaysia Philippines Note: One company may invest in more than one country/ region Source: The Stock Exchange of Thailand 19

29/6/2018 5/7/2018 11/7/2018 17/07/2018 23/07/2018 31/07/2018 6/8/2018 10/8/2018 17/08/2018 23/08/2018 29/08/2018 4/9/2018 10/9/2018 2 Unknown facts and figures about the Thai Capital Market

20 29/6/2018 5/7/ /7/ /07/ /07/ /07/2018 6/8/ /8/ /08/ /08/ /08/2018 4/9/ /9/ Unknown facts and figures about the Thai Capital Market Investors could capture growth in CLMV through Thai listed companies SET CLMV total return index performance (data as of Sep 13, 2018) SET CLMV Index: selection criteria Stocks selected from Thai-listed companies, generating 10% of annual revenues from CLMV countries or THB 100 million annually (~USD 3.1 million). The market cap of selected stocks must be THB 5 billion (~USD 1.5 million) with at least 20% of free-float. Monthly traded status, indicated by the turnover ratio, 0.5% of total listed shares. Source: The Stock Exchange of Thailand SETCLMV index SET index 20

Thai listed companies are ESG leaders globally 2 Unknown facts and figures about the Thai Capital Market Number of Thai listed companies in DJSI Index Ranking World s Top Stock Exchanges on

KBANK, PTT, PTTEP, PTTGC, SCB*, SCC DJSI EM: AOT, BANPU, BTS*, CPALL, CPF, CPN, HMPRO, IRPC, IVL, KBANK, MINT, PTT, PTTEP, PTTGC, SCB*, SCC, TOP, TRUE, TU *new members in 2018 Source : DJSI Note:

21 Thai listed companies are ESG leaders globally 2 Unknown facts and figures about the Thai Capital Market Number of Thai listed companies in DJSI Index Ranking World s Top Stock Exchanges on Sustainability DJSI World Index DJSI Emerging Market Index 2018 DJSI member: Total 19 listed companies DJSI World: CPALL, CPN, KBANK, PTT, PTTEP, PTTGC, SCB*, SCC DJSI EM: AOT, BANPU, BTS*, CPALL, CPF, CPN, HMPRO, IRPC, IVL, KBANK, MINT, PTT, PTTEP, PTTGC, SCB*, SCC, TOP, TRUE, TU *new members in 2018 Source : DJSI Note: DJSI Emerging Market Index has been calculated since Ranking from Measuring Sustainability Disclosure Report Out of 55 global stock exchanges, SET made it the only Asian Stock Market to reach the top 10 Source: Measuring Sustainability Disclosure report by Corporate Knights Note : The report tracked 7 indicators of Thailand s 92 large listed firms, consisting of 1. Rate of employee turnover 2. energy use 3. carbon emission 4. rate of employee injury 5. personnel costs 6. waste generation 7. water use 21

29/6/2018 5/7/2018 11/7/2018 17/07/2018 23/07/2018 31/07/2018 6/8/2018 10/8/2018 17/08/2018 23/08/2018 29/08/2018 4/9/2018 10/9/2018 Environmental, Social and Governance (ESG) has been at the core of

22 29/6/2018 5/7/ /7/ /07/ /07/ /07/2018 6/8/ /8/ /08/ /08/ /08/2018 4/9/ /9/2018 Environmental, Social and Governance (ESG) has been at the core of quality of the Thai listed companies 2 Unknown facts and figures about the Thai Capital Market 65 52% 3.5% of Thai listed firms selected into 2017 Thailand Sustainability Investment Lists of Market Cap on SET & mai THSI dividend yield is higher than the market average of around 0.5% SET THSI Index: selection criteria Stock selected from the THSI list and not limited to the number of the stocks from the list. The market cap of selected stocks must be THB 5 billion (~USD 1.5 million) with at least 20% of free-float. Monthly traded status, indicated by the turnover ratio, 0.5% of total listed shares. SET THSI total return index performance (data as of Sep 13, 2018) SETTHSI index SET index Source: The Stock Exchange of Thailand 22

23 2 Unknown facts and figures about the Thai Capital Market Strong fundamentals of the country and listed companies have been the drivers of index recovery after crises 23

24 Agenda 1 Status of the Thai Capital Market in ASEAN 2 Unknown Facts & Figures about the Thai Capital Market 3 Insurance Companies & the Capital Market 4 Challenges, Trends and Future Perspectives 24

25 Investor base in the Thai stock market is well diversified 3 Insurance Companies and the Capital Market Average daily trading value by investor type Unit: Percent, data as of June 2018 Holding value by investor type* Unit: Percent, data as of May 2018 Local Institute 10% Prop. Trade Local Investors 13% 41% Local Investors 46% Local Institute + Prop trading 23% Foreign Investors 36% Foreign Investors 31% Remark: Holding value by investor type on book closing date Source: The Stock Exchange of Thailand 25

26 Insurance companies held a significant portion of the Thai stocks 3 Insurance Companies and the Capital Market Equity holding value in Thai stock by local institutional investors Proportion of equity holding value to market cap. Unit: Million USD 7.2% 6.9% 1,184 3,710 1,323 3,281 2,466 1,752 2, ,663 2,285 8,107 8, % 6.6% 1,703 1,599 4,381 3,997 3,082 2,804 1,304 1,378 3,369 3,067 11,999 13, % 7.6% 2,124 4,721 2,309 4,316 3,428 1,727 3,369 4, ,895 16,646 15, % 2,465 5,468 3, ,694 18, % 2,800 7,805 6,168 1,079 6,265 26, % 2,880 7,702 6, ,304 28,109 Non-life insurance Life insurance Social securities office Gov. pension funds Provident funds Mutual funds** M2018 Equity holding value* (Mil. USD) Market cap (Mil. USD) 19,833 18,480 25,837 26,116 32,793 30,013 35,850 50,331 51, , , , , , , , , ,134 Remark: * Excluding opened-end fund which have specific objective, i.e, Vayupak fund, property fund for resolving financial institution problems, Thailand equity fund. ** Including Thai equity funds, LTF, RMF equity, 50% of mix funds Source: SET, AIMC, OIC, GPF, SSO 26

27 Millions (Baht) Thousands (Baht) Equity proportion holding of life insurance companies has been lower than that of non-life insurance companies 3 Insurance Companies and the Capital Market Equity holding proportion in Thai equities by life insurance companies Unit: Million THB Equity holding proportion in Thai equities by non-life insurance companies Unit: Million THB % % % % Life insurance - Equity Life Insurance - Total Non-life insurance - Equity Non-life insurance - Total 27

Technology has made investment more accessible to individual investors 3 Insurance Companies and the Capital Market Number of retail trading accounts Unit: Accounts Online trading & Digital channel

28 Technology has made investment more accessible to individual investors 3 Insurance Companies and the Capital Market Number of retail trading accounts Unit: Accounts Online trading & Digital channel for investors 626, , , ,851 CAGR 13% 1,098,731 1,244,907 1,353,225 1,510,053 1,588, M2018 Average daily internet trading value by retail investors Unit: Million USD (69%) (70%) (30%) M (31%) An internet based information database system SET Application & SET Member Online trading Investment consultant Source: The Stock Exchange of Thailand 28

29 MSCI stock additions & FTSE advanced emerging market country help attract foreign investment 3 Insurance Companies and the Capital Market Foreign participation in Thailand s stock market Unit: Million USD per day Daily average foreign trading value in MSCI Thailand Standard Index and non-msci stocks Unit: Million USD Number of stocks in MSCI Thailand Standard Index Unit: Company 24% % 20% 22% 1,282 25% 30% 1,115 1,006 1,107 1, % 1, M2018 Proportion of foreign trading to total trading value Local trading value Foreign Trading value (70%) (68%) (71%) (70%) (71%) (68%) Non-MSCI MSCI* M2018 Upgraded to FTSE advanced emerging country (2012) Remark: * Data as of May Semi Annual Index Review (SAIR) during Source: SETSMART, Bloomberg 29

Most of top 10 life and non-life insurance companies are

Insurance Exchange / Group Non-Life Insurance Exchange /

Hong Kong 9. Hong Kong / London / New York 10. - 1. - 2.

30 Most of top 10 life and non-life insurance companies are listed 3 Insurance Companies and the Capital Market Life Insurance Exchange / Group Non-Life Insurance Exchange / Group 1. Hong Kong 2. Subsidiary of KBANK Euronext / Subsidiary of KTB 5. Delisted from SET / Subsidiary of SCB 6. SET 7. New York 8. Hong Kong 9. Hong Kong / London / New York SET 3. SET 4. SET 5. Restructuring to be listed on SET 6. Delisted from SET 7. In the process of M&A with Tokyo Marine 8. SET 9. Tokyo 10. Subsidiary of TCAP Source : Life and Non-life Insurance Company Associations 30

31 Insurance related companies are listed on the Thai Capital Market 3 Insurance Companies and the Capital Market Life insurance 1 company Life reinsurance 1 company Non-life insurance 13 Companies Non-life reinsurance 1 company Insurance companies with bank distribution channel Insurance brokers Other insurance companies *In the process of filing for listing on SET **Listed on mai % Total market capitalization of insurance related companies = 0.85% 31

32 Most Thai insurance companies heavily invest in fixed income products 3 Insurance Companies and the Capital Market Duration of fixed income holding matches policy holders %Portion of Investment Portfolio 3% 5% 0% 21% 100% 90% 80% 70% 60% 50% Life Insurance %Asset Class by companies 40% 71% 30% 20% 10% 0% Equity Bond Mutual Fund Cash Others Equity Bond Mutual Fund Cash Others Note : Life insurance companies: Fixed income 60% and Equity 30% Non-life insurance companies: Fixed income 60% and Equity 30% unless SET-listed if approved by a registrar Source: Annual reports 32

33 Thai insurance companies allocate towards fixed income 3 Insurance Companies and the Capital Market Source: Letting Insurance Data Speak for Itself, Society of Actuaries (March 2018) 33

34 Holding of Thai equities - AIA Source: Thailand Securities Depository as of 24 Sep

35 M&A activities in insurance sector in Thailand 1H The past 5 years has witnessed M&A of non-listed insurance companies 2015 ❶ 3 Insurance Companies and the Capital Market ข อม ล : Bloomberg, บร ษ ทประก นภ ย, ประชาชาต ธ รก จ, Website ป จจ บ น อย ระหว างกระบวนการปร บโครงสร างฯ เข าจดทะเบ ยนใน SET 35

36 M&A activities in insurance sector in Thailand 1H Insurance Companies and the Capital Market

37 3 Insurance Companies and the Capital Market Two major challenges in terms of rules and regulations related to the investment in the capital market 1. Qualifications of lecturers on investment defined by OIC - Qualified lecturers are limited. Cannot provide training and expanding agent. 2. Risk Based Capital II - The appropriate risk charge for each asset. - Criteria relating to using derivatives to manage portfolio risk. 37

38 Qualifications as defined by OIC (Chapter 3, Article 12 (3)) 3 Insurance Companies and the Capital Market Institute Office of Insurance Commission lecturer qualifications Bachelor Degree, experience in asset management business not less than 10 years Lecture in asset management not less than 25 hours. Approved to act as an fundamental investment analyst on capital market or securities investment analyst under the Securities and Exchange Act 38

39 Lecturer qualifications required by other institutes 3 Insurance Companies and the Capital Market Institute Association of Investment Companies ASCO Training Institute Thai Professional Finance Academy Thai Financial Planner Association ( TFPA ) Lecturer Qualifications 1. Experience in securities business, asset management, bank or other related financial institute not less than 5 years 2. Lecture in related to 1. contents 3. Approved or Licensed from regulatory authority or qualified in investment management area - Investment Consultant - Investment Planner - Analyst - Fund Manager - CISA - CFA - AFPT (CFP 1, 2 + SLC) - CFP - Ph.D. in related fields 39

40 Key obstacles 3 Insurance Companies and the Capital Market 1. Qualifications of lecturer on investment defined by OIC. - Qualified lecturers are limited. Cannot provide training and expanding agent. 2. Risk Based Capital II - The appropriate risk charge for each asset. - Criteria relating to using derivatives to manage portfolio risk. 40

41 3 Insurance Companies and the Capital Market Capital adequacy is measured based on the Capital Adequacy Ratio ( CAR ) CAR Ratio (%) = Total Capital Available (TCA) Total Capital Required (TCR) Prescribed Capital Required (PCR) = 140% Minimum Capital Required (MCR) = 100% Other regulations related to CAR The Company will be listed on the watch list. The Company has to submit full valuation CAR on monthly basis. The Company has to submit forecasted financial position and CAR for the next 0-3 years. Business expansion is prohibited. License revoked. Any other actions due to related laws. Dividend payment is prohibited if CAR after stressed falls below 200%. Additional investment in investment properties is prohibited if CAR is less than 250%. Source: Office of Insurance Commission 41

Risk-based Capital Approach 3 Insurance Companies and the Capital Market Risk-based Capital Insurance companies need to maintain their capital adequacy to cover risks from their business operations

42 Risk-based Capital Approach 3 Insurance Companies and the Capital Market Risk-based Capital Insurance companies need to maintain their capital adequacy to cover risks from their business operations and unexpected loss to ensure the policyholders. Insurance companies are exposed to three types of risks: Investment Risk: Technical Risk: Non-Technical Risk: Direct and indirect investment Underwrite or Liability Risk Operational Risk, Liquidity Risk Capital = Asset Liability Adjust Risk Charge of each asset class 42

43 RBC II : Potential Practical Difficulty 3 Insurance Companies and the Capital Market Equity: Increase 2 times risk charge Confident Level 43

44 RBC II : Potential Practical Difficulty 3 Insurance Companies and the Capital Market SOE, Corporate Bond, Non-rated Bond : increase 3-8 times Risk Charge 44 44

45 RBC II : Potential Practical Difficulty 3 Insurance Companies and the Capital Market The stress test results from 23 insurance companies in 2016 are as follows : - 95% Confident Level : 3 insurance companies have TCR less than 140% 2 insurance companies have TCR less than 100% % Confident Level : 8 insurance companies have TCR less than 140% 4 insurance companies have TCR less than 100% OIC plans to adopt RBC II in year 2020, starting at 95% Confidence Level and gradually increase to 99.5% in the future. Action to the Thai insurance industry with a capital adequacy level in accordance with RBC II - Threshold of TCR should be considered lower than the current set at 140% - Adjust the risk charge in each asset to be more appropriate - Insurance companies need to adjust their portfolios to TCR level as set by the OIC, which may affect the sufficient of return for asset-liability in the general case and unexpected incident. TCR = Total Capital Requirement 45

46 Agenda 1 Status of the Thai Capital Market in ASEAN 2 Unknown Facts & Figures about the Thai Capital Market 3 Insurance Companies & Capital Market 4 Challenges, Trends and Future Perspectives 46

47 Volatility-Uncertainty-Complexity-Ambiguity World 4 Challenges, Trends and Future Perspectives 47 47

48 What is happening in the financial service sector? 4 Challenges, Trends and Future Perspectives Transformation Evolution Revolution 48

49 New technologies & innovations emerge around the world 4 Challenges, Trends and Future Perspectives 49 49

50 The environment is constantly changing 4 Challenges, Trends and Future Perspectives Disruptive technology New technology (AI/Blockchain/Cloud) Cost of Cyber security Risk management & Human development Demographic shifts Aging society Social media & mobile app Urbanization Global connectedness & Protective regulations Cross-border flow (money, information, people) Cost of regulatory compliance New types of players Machine Learning Big Data Cyber Security Artificial Intelligence Regulatory Changes 50

51 The Digital Future of Insurance 4 Challenges, Trends and Future Perspectives ISSUES & CHALLEGES Ever-escalating costs: 10.5% of the world s GDP Shift from communicable to lifestyle-driven chronic disorders Focus on treatment, not prevention Unstandardized and uncoordinated care Varied and inefficient payment models Fragmentation of services What steps can health insurers take to make healthcare in the future more accessible, affordable, equitable and high-quality? Technologies and applications that are enabling efficient automation of many aspects of care and administration, better decision-making, stronger connectivity with more informed customers and more advanced datadriven innovations All aspects of health insurance s existing business model will be impacted by the coming digital transformation: Distribution, underwriting, products, pricings and claims as well as how health insurers interact with customers Insurers will be able to develop closer relationships with their customers and be enabled to partner with them in health management and lifestyle improvements Digital processes help control and reduce costs and provide the opportunity to change the insurance payment structure Identify and work with new outside partners such as MedTech start-ups, app developers and genomics experts Source: The digital future of health insurance, Asia Insurance Review, September

52 4 Wealths Model Wealth Accumulation 4 Challenges, Trends and Future Perspectives Wealth Protection Retirement Planning Children s Education Financial Independence Investment Planning Emergency Resources/Cash Resources Financial Independence Children s Education Investment Planning Wealth Accumulation is important to ensure that you amass sufficient funds to meet your life goals and plan for a comfortable retirement. Careful planning helps to prioritize objectives and, with the right execution, helps to optimize income, budgets, savings and investments. Wealth Protection is the foundation of financial planning. It safeguards your wealth and future earning capacity and ensures that your financial goals are not sidetracked or delayed due to unfavorable life events. A complete evaluation considers financially detrimental concerns such as Premature Death, Disability, Major Diseases, Hospitalization and Healthcare Costs, Accidents, Personal Property Loss, Theft and Restoration to Damaged Property to ensure that you and your family remain protected should such events occur. Wealth Management Wealth Distribution Portfolio Management (Investment Planning) Tax Planning Business Continuity Estate Planning (Wills and Trust) Children Head Start Financial Planning Lifetime Giving Legal Entities Wealth Management involves strategically and efficiently managing your accumulated wealth, taking into consideration your assets, investments and tax status. An effective strategy is imperative to meeting your financial objectives and many even shorten the time it takes to meet them. Wealth Distribution ensures that your wealth is passed on to your love ones and through philanthropic activities according to your wishes. The appropriate estate planning services may include wills, trusts, holding companies, joint ownership, tax planning and other legal instruments. With the right implementation, you enjoy peace of mind knowing that your wealth is efficiently distributed to your intended beneficiaries. Source: 52

53 Ecosystems across industries are interconnected 4 Challenges, Trends and Future Perspectives Transportation ECOSYSTEM OPEN ARCHITECTURE PLATFORM Capital Market Customer Experience Telecommunication Service Bus Healthcare Front Office Middle Office Back Office Travel Reference Data Customer Data Insurance 53

Distributors Wealth Management Investors Bank Stock Bank Payment Processing Payment platform for capital market in

54 SET builds and enhances market utility infrastructures, creating business opportunity for long term growth 4 Challenges, Trends and Future Perspectives Asset Management Companies Broaden access to mutual funds FundConnext Distributors Wealth Management Investors Bank Stock Bank Payment Processing Payment platform for capital market in order to enhance efficiency OTC Market Mutual Fund E-Money Provider Payment Platform (FinNet) e-dividend Stock Subscription E-Money Provider 54

55 SET is creating partnership platform to drive inclusive growth SET Vision: To Make the Capital Market Work for Everyone Economy Enabler of Thailand s competitiveness and springboard for regional growth Capital Market Spearhead the development of Thai capital market by embracing disruptive technology and accelerating innovation Exchange Business capability transformation & efficiency improvement for sustainable growth

56 Concluding Remarks The Thai capital market has high-quality products and has served the Thai economy and companies domestically and internationally Insurance companies can grow and generate higher return in a long term through the capital market Insurance and investment are part of every life and complement each other Digital and technology are disrupting the current business model and creating new opportunities Significant investment in digital infrastructure is required to support the growth of the industry 56

Thailand s economic resilience amid global uncertainties. March 2017

Thailand s economic resilience amid global uncertainties March 217 Thailand s economic resilience amid global uncertainties I. Thailand s economic resilience II. Thai corporates target for sustainable