The world's top insurance firms are setting their sights on Myanmar, steeling themselves for a fight with corruption and ghosts from the nation's political past.
Prudential Plc , AIA Group Ltd <1299.HK> and Manulife Financial Corp are among the global insurance giants preparing to enter Myanmar as the government rolls out a framework for the sector's development with the lifting of European and U.S. sanctions.
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The opportunities are many. A large population, economic reforms and a natural resources industry could combine to create rising wealth among Myanmar's people. There is also money to be made by general insurers providing cover for the impending boom in construction projects.
"A few years ago everybody needed to have a China story and India as well," said Michael Daly, a director and consulting actuary for the China and Southeast Asia life insurance practice at Milliman Inc. "Now the attention has shifted to Southeast Asia."
Myanmar could produce $1.6 billion in annual premium revenues, according to Reuters calculations based on economic data and comparisons with neighboring markets. That would less than 10 percent of what Singapore premiums bring in now, but in line with Vietnam's current insurance market.
With the opportunities come obstacles, including new rules governing foreign insurers that are yet to be tested.
In addition, the country's one sole established insurer - state-backed Myanma Insurance - is guaranteed certain contracts, effectively closing off portions of the market.
Other challenges include competition from a handful of regional players and corruption.
The country's political history may also pose problems for insurers looking to sell products to high net worth individuals who may have ties to the former junta or be on blacklists.
And yet the early enthusiasm among global insurers shows how tough things have become in their home markets and how crucial they see their position in Southeast Asia's growth story.
Global insurers have had their eyes on Southeast Asia, buying up assets and opening offices in Indonesia, Cambodia, Sri Lanka, Malaysia and Thailand as growth rates in the developing world far-outpaced developed markets.
Premiums in Singapore, Indonesia, Malaysia, the Philippines, Thailand and Vietnam are expected to rise an average of 7.9 percent next year, according to a report by Swiss Re, more than double the global life insurance average.
Myanmar is attractive to insurance executives as its population of nearly 60 million makes it one of the largest in the region. Per capita gross domestic product is also over $850, near the $1,000 mark that insurers say is the threshold where individuals begin buying insurance.
Tokio Marine Holdings Inc <8766.T>, Sompo Japan Insurance Inc <8630.T>, Mitsui Sumitomo Insurance Co Ltd <8725.T> and United Overseas Bank Ltd have already established representative offices in Myanmar.
Before nationalization in 1963, there were more than 70 local and foreign private insurance companies in Myanmar.
"Myanmar is an economic rising star," said David Wong, who runs Manulife's Southeast Asian operations and who travelled to Myanmar this fall as part of a Canadian delegation. "It's not far behind Vietnam."
MYANMAR VS. VIETNAM
Analysts and executives interviewed by Reuters struggled to put an exact dollar figure on Myanmar's insurance market.
Using Vietnam as a model, Myanmar may eventually generate between $1 billion and $2 billion in premiums a year, according to a Reuters analysis, based on sources and economic data.
Vietnam last year had a GDP of $120 billion and generated just over $1.8 billion worth of premiums. That meant an insurance penetration of 1.5 percent of GDP.
If Myanmar's economy grows 7 percent annually in the next decade - the lower end of the rate estimated by the Asian Development Bank - it will double in size in 10 years' time to over $100 billion. If its insurance penetration matches or comes close to that of Vietnam, Myanmar could generate around $1.6 billion in premiums.
Singapore brings in around $19.5 billion in premiums, the highest in Southeast Asia.
DARK PASTS, LOCAL LAWS
The clearest obstacle for a foreign insurer in Myanmar is corruption.
Transparency International ranks Myanmar as one of the four most-corrupt nations, on par with Afghanistan and only half a point better than North Korea and Somalia.
Rampant corruption would make it nearly impossible for global insurers to run proper background and business checks on policies for individuals and corporations.
Even worse, corruption could get an insurer in trouble if the company backs a person or entity that later becomes a criminal liability, a not-too-distant possibility in a country such as Myanmar.
"Many businessmen with close links to the military are now keen to reposition themselves as business friendly and compliant," said Richard Dailly, managing director at consulting firm Kroll Inc. "However, many of them still appear on blacklists either because of their close link to the regime or their proximity to narcotics production."
Detailed market information is also hard to come by, with debt and equity analysts and ratings agencies yet to begin covering Myanmar's insurance sector. Performing due diligence is difficult, Dailly adds.
The laws governing Myanmar's insurance sector are loosely-worded and don't apply to the state's monopoly, though some parts of the law could be attractive to foreign insurers.
Insurers can get licenses from the Central Bank of Myanmar that allow them to write policies in foreign currencies. Other parts of existing laws could prove worrisome.
So far, government officials are saying foreign insurers will be kept at arms-length until around 2015. That's when they will be granted licenses and allowed to do business, the deputy minister of finance and revenue told Reuters in September.
"For those who invest the time and energy and know-how to actually help it develop, those people are going to get a once-in-a-lifetime opportunity," said Ince & Co partner Iain Anderson, an industry lawyer who recently travelled to Myanmar.
(Additional reporting by Taiga Uranaka in TOKYO and Lawrence White in HONG KONG; Editing by Michael Flaherty and Ryan Woo)