Global insurers expanding in Southeast Asia turn to Cambodia
HONG KONG, July 4 — Two global life insurers are opening offices in Cambodia, one of Southeast Asia's few untapped insurance markets, as they strengthen their foothold in a region that could eventually be a key driver of revenue growth.
Britain's No. 1 insurer Prudential said on Monday it won in-principle approval from the Cambodian government to open a wholly foreign-owned life insurance operation. The announcement came within a week of Canada's top insurer Manulife saying it would set up its country office in Phnom Penh.
Manulife, which once leaned on Canada and the United States for the bulk of its revenue, now derives a third of its sales from Asia. For Prudential, the region became the largest contributor to its operating profit last year.
As the developed economies in Asia become saturated, insurers such as Manulife and Prudential are flocking to Southeast Asia, drawn by its young populations and lack of insurance policy holders.
Until now, the industry has ignored Cambodia, a country with a population of 14 million and a per capita GDP that the World Bank estimates at US$750. But the disproportionate number of young people in the country - with the majority of the population under the age of 30 - coupled with the pace of economic growth, has proved tempting to both Prudential and Manulife.
While few in the industry are expecting major revenues from such a tiny nation, they acknowledge its growth potential within the 10-member Association of Southeast Asian Nations (ASEAN).
"With its emerging middle class, we see Cambodia as a virgin market with very significant potential," David Norris, a Hong Kong-based spokesman for Manulife, said in an e-mailed statement on Tuesday.
Cambodia's economic growth clocked in at over 10 percent from 2004 to 2007, according to data from the International Monetary Fund. Last year, it expanded 6.1 per cent, just behind Indonesia's 6.5 per cent, and is forecast to be the region's fastest-growing economy in five years' time.
Cambodia, the current chair of ASEAN, has received significant investments from China and South Korea in the last few years. In April, it launched its own stock market with a single listed company under a joint venture with Korea Exchange, Asia's fourth-largest bourse operator.
Financial services are in their infancy in Cambodia, where the state was practically dismantled under the ultra-Maoist Khmer Rouge regime from 1975 to 1979. During the period, 1.7 million people, or a quarter of the population, died.
British ambassador Mark Gooding told Cambodian government officials last week that Prudential would invest $7 million in the country, which is the minimum capital required for an insurer to operate under Cambodian law, according to reports in the Phnom Penh Post and China's official Xinhua News Agency.
Besides Prudential and Manulife, the only other life insurer operating in Cambodia is the government-controlled Cambodia Life, which received its license and began operating at the end of May.
Unlike other Southeast Asian governments that place limits on foreign companies, Cambodia allows foreign insurers to own 100 percent of their businesses.
It may further sweeten the deal for life insurers by limiting the number of licenses it makes available to a total of four, a source with knowledge of the situation said, declining to be identified because the information was confidential.
Entering Cambodia will also be relatively cheap, industry analysts and bankers said.
Prudential and Manulife have operations in neighbouring Vietnam and Thailand and may be able to leverage management expertise from those countries, they said. — Reuters