ASEAN ECONOMIC COMMUNITY: OPPORTUNITIES AND CHALLENGES …/media/Files/Other/2014/ASEAN economi… · ASEAN 5 ASEAN 6 CLMV Indonesia ASEAN 5+Brunei Cambodia Malaysia Lao PDR Philippines

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Bridging Borders Webinar Series 1

ASEAN ECONOMIC COMMUNITY:

OPPORTUNITIES AND CHALLENGES FOR

INSURERS

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2

Welcome

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A link to a recording of the webinar will be available

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respond to your questions by email after the webinar

Heng Loong Cheong Partner

Bridging Borders Webinar Series

Welcome

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Heng Loong Cheong

Partner

Introduction

Heng Loong Cheong Partner, Hong Kong

Ann Leung Senior Associate, Hong Kong

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Welcome



AEC: Background and Policy Context (1)

ASEAN 5 ASEAN 6 CLMV

Indonesia ASEAN 5+Brunei Cambodia

Malaysia Lao PDR

Philippines Myanmar

Singapore Vietnam

Thailand

ASEAN Community (2020)

ASEAN

Economic

Community

(2015)

ASEAN

Political –

Security

Community

(2015)

ASEAN

Socio-

Cultural

Community

"Three Pillars"

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Welcome



AEC: Background and Policy Context

(2)

"Key Characteristics"

ASEAN Economic Community

Single Market

and Production

Base

Highly

Competitive

Economic

Region

Region of

Equitable

Economic

Development

Region Fully

Integrated into

the Global

Economy

• Free flow of

goods

• Free flow of

services

• Free flow of

investment

• Freer flow of

capital

• Free flow of

skilled labour

• Competition

policy

• Consumer

protection

• Intellectual

Property Rights

• Infrastructure

Development

• Taxation

• E-Commerce

• SME

Development

• Initiative for

ASEAN

Integration (IAI)

• Coherent

Approach

towards

External

Economic

Relations

• Enhanced

participation in

global supply

networks.

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Welcome

In recognition of diversity in economic and social backgrounds

AND the transitional economies of the "CLMV" states:

Common objectives and single end goal for ALL ASEAN

member states

Different timelines and milestones for each member country

depending on individual circumstances / readiness for reform

(i.e., "pre agreed flexibilities")

Liberalization through "ASEAN minus X" formula where:

member countries that are ready can liberalize first; and

be joined by others later

Respect for:

national policy objectives; and

differences in the level of economic and financial sector

development among individual member countries

Flexibility of member countries in setting their own preconditions

for liberalization and establishing own timelines



AEC: Implementation by 2015 – dream

or reality? (1)

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Welcome



or reality? (2)


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Welcome

Liberalization covers 4 "modes" of supply for the delivery of

services in cross-border trade (as defined by the WTO)

Mode 1: Cross-border supply

Mode 2: Consumption abroad

Mode 3: Commercial presence

Mode 4: Presence of natural persons

AEC is a "work in progress"

Overall score of 68.2 out of 100 in latest (March 2012) AEC

Score card

Majority of ASEAN member states already complying with

benchmark for foreign equity participation (e.g., 80% in

Indonesia, 70% in Malaysia)

BUT cross-border trade in insurance services (Mode 1) still

widely restricted




or reality? (3)

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2 "track" development of ASEAN insurance sector?

1 for "regional champions" competing with their global /

regional peers across national borders

1 for all other (re) insurers mainly serving local needs / the

interests of domestic policyholders

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or reality? (4)



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There should be no restrictions at all to Mode 1 (Cross-border

supply) and Mode 2 (Consumption abroad)

Only permitted exceptions if:

bona fide regulatory reasons (e.g., public safety)

AND this is agreed by ALL member countries on a case by

case basis

So, in theory insurers should be able to:

Use a branch located in another ASEAN country to write

policies for local policyholders (Mode 1)

Be approached by policyholders from another ASEAN

country, and write polices for such policyholders (Mode 2)

Ann Leung Senior Associate


AEC: Likely / possible opportunities

and challenges for insurers

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Indonesia has committed to liberalize its insurance sector by

2015

Foreign equity participation quite liberalized- up to 80%

permitted

Foreign ownership can exceed 80% if the following

requirements are satisfied:

there is a mandatory need to increase capital;

the Indonesian shareholder cannot contribute its pro rata

share of the additional capital;

such increase is not applied for during the initial

establishment stage; and

it is by way of share subscription and the number of shares

held by the Indonesian shareholders remain the same (while

such shareholding may be diluted)



AEC: Likely / possible opportunities and

challenges for insurers- Indonesia (1)

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If a foreign insurer would like to issue insurance policies to local

residents in Indonesia, a local entity must be established

Any party (including foreign insurers) wishing to carry on

insurance business or provide insurance to Insured Objects in

Indonesia requires a license from the Financial Services

Authority (FSA)

"Insurance business" is very broadly defined. Includes

"marketing and distribution of insurance products"

"Insured Objects" is also very broadly defined. Covers almost

all kinds of insurance services





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Cross border supply of insurance services to Insured Objects

in Indonesia through a foreign insurer is not allowed, except

where no local insurer is capable or willing to provide the

coverage in question

Whether consumption abroad by Indonesian policyholders is

permitted depends on the residence status of the individual:

outside Indonesia on a long term/ temporary basis

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Thailand has not specifically committed to liberalizing its

insurance sector by the end of 2015

Foreign investment threshold is very low - generally 24.9%

and may go up to 49% with permission from the Office of the

Insurance Commission (OIC)

The insurance sector has made little tangible progress to

realize the AEC goals so far

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challenges for insurers- Thailand (1)



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A foreign (non-admitted) insurer must be licensed in Thailand

to carry on insurance business in Thailand

Non- admitted insurers are not allowed to market their direct

insurance products (reinsurance excepted)

Non- admitted insurers cannot, directly or through any local

intermediaries, facilitate the entering of insurance contracts

No restrictions on Thai nationals on the purchase of non-

admitted insurance

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The OIC published an AEC roadmap in March 2014

The AEC roadmap addresses 3 main areas

i. Enhancing financial stability of insurers;

ii. Developing a competition strategy to boost growth; and

iii. Developing fundamental infrastructure necessary for

business expansion

Specific details and precise commitments underlying the

broad concepts yet to be announced

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Welcome

Malaysia has committed to liberalize its insurance sector by

2015

Insurance industry in Malaysia is relatively open to foreign

investors

Foreign equity ownership limit of 70% for Malaysian insurers

and reinsurers

No foreign equity ownership limit for Malaysian insurance

intermediaries




challenges for insurers- Malaysia (1)

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Foreign insurers are not permitted to carry on insurance

business in Malaysia unless licensed

Meaning of "carry on an insurance business"

Soliciting and advertising of insurance policies in Malaysia by

unlicensed foreign insurers not allowed

Providing insurance service through local intermediaries:

Insurance agents: unless prior written approval from the

Bank Negara Malaysia (BNM) is obtained, foreign insurers

cannot provide or market their products in Malaysia through

an insurance agent

Insurance brokers: foreign insurers can be approached by

approved Malaysian insurance brokers to issue life policies

for clients in Malaysia





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The FSA does not prohibit consumption of insurance services

abroad if the execution is done outside Malaysia

Approval is required from BNM for direct placement outside

Malaysia of insurance of property located in Malaysia

(including any ship / aircraft registered in Malaysia)

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Welcome

Singapore has committed to liberalizing its direct non-life

insurance, reinsurance and retrocession, insurance

intermediation and services auxiliary to insurance sub-sectors

by end of 2015

No limits on foreign ownership of Singaporean insurers and

insurance intermediaries




challenges for insurers- Singapore (1)

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Non- admitted insurers are not permitted to carry on

insurance business in Singapore, whether directly or through

insurance intermediaries

Non- admitted insurers are not permitted to advertise its

activities to promote their insurance products or solicit

insurance business within or outside Singapore

Consumption abroad of life insurance by Singapore residents

is allowed provided that such sales do not render the offshore

life insurer's business activity to be carrying on of insurance

business in Singapore





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Currently, no tangible measures to achieve the remaining

steps towards liberalizing the insurance industry

Further discussions with ASEAN insurance regulators in 2015

are likely to determine Singapore's next steps

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In Summary

Varied progress across the ASEAN member states

Insurance sector still heavily regulated by domestic laws of

member states

A great degree of liberalization needed to meet the 2015

milestone date




challenges for insurers

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Welcome


Q&A

THANK YOU!

Heng Loong Cheong

Partner

Ann Leung

Senior Associate

Documents

ASEAN ECONOMIC COMMUNITY: OPPORTUNITIES AND CHALLENGES …/media/Files/Other/2014/ASEAN economi… · ASEAN 5 ASEAN 6 CLMV Indonesia ASEAN 5+Brunei Cambodia Malaysia Lao PDR Philippines