Myanmar has not escaped the effects of the economic downturn in southeast Asia, but the long-term outlook for the country remains bright, and the government is proceeding with liberalising the insurance industry. Darin Kobatake describes the process taking place.

Prospects for the Myanmar (Burma) insurance market looked very bright during 1996 and the early part of 1997. Foreign companies were opening offices in droves, and vessels queued for weeks outside of the main harbour to unload their cargo of used Japanese cars. The government has passed legislation (discussed below) to begin the process of liberalising the insurance market. However, the economy of Myanmar has not escaped the effects of the economic downturn that has plagued southeast Asia, but the long-term outlook for the country remains bright.

The government is proceeding with liberalising the insurance industry, and foreign insurance companies are beginning to re-enter the market after a long absence. Economic activity has reawakened and has been stimulated by the government's efforts to attract foreign investment. Export driven activities will create the demand for insurance in the short term. In the more distant future, consumer demand will permit the growth of personal insurance.

Liberalisation
Insurance in Myanmar originated in 1826 largely to serve the needs of the British companies that were operating during the country's colonial period. The growth of the insurance industry paralleled the growth of commerce, and by the 1940s there were approximately 140 companies in operation. Two companies belonged to local individuals while the rest were owned by foreign interests. One of these local insurance companies was the Burma National Insurance Company, which was eventually nationalised following the Insurance Board Act of 1950 and the Insurance Companies Nationalisation Act of 1951. The nationalised company became known as the Union Insurance Board (UIB) and then Myanma Insurance (MI) in 1981. State owned MI today remains the only established insurance company in Myanmar and has 34 branches nationwide. In addition to the branches, MI has recently permitted private local companies to act as its sales agents.The government's first steps towards liberalisation aim to privatise the industry through domestic participants and capital. Under this plan, 13 consortia have submitted bids for the first round of licenses that are presently being considered by MI.

The next stage of liberalisation contemplated is the participation of foreign companies. Similar to the banking sector, the government expects to open the market to foreign companies in phases. First, it would like to see the foreign companies establish a representative office in Myanmar. Second, such companies would be permitted to form joint ventures with private or public parties. Finally, the last phase envisions the granting of branch offices to foreign companies.

Established presence
In anticipation of market entry, the following foreign companies have established representative offices in Myanmar:
Sumitomo Marine and Fire Insurance
Tokyo Marine and Fire Insurance
Yasuda Fire and Marine Insurance
Mitsui Fire and Marine Insurance
Overseas Union Insurance Company
Asia Insurance Company
MMI Insurance Company Limited
[MAE] (Malaysian)
Brokers: Jardin, Aon, TRB and Kininmonth Lambert.

Many of the Japanese insurance companies have followed their conglomerates' industrial and trading arms into Myanmar. A conglomerates' industrial or trading group will often establish an operation in Myanmar and having insured its activities through MI, seek to use its related insurance group as a re-insurer.There have been some developments in the liberalisation of the market to foreign companies. First, Jerneh Asia Berhard (Malaysia) entered into the market in 1997 in a roundabout way through a joint venture with Myanmar Economic Corporation named Myanmar International Insurance Corporation (MIIC). Though this joint venture ran into problems, MIIC remains active. However, a local bank has since replaced Jerneh Asia Berhard.

The second group to make some headway in the domestic market is Japan's Yasuda Fire and Marine Insurance. It has chosen to enter into the market through a proposed joint venture with MI. Yasuda and MI have signed a memorandum of understanding and agreed a draft joint venture agreement to be submitted to the Myanmar Investment Commission.

Finally, Mitsui Fire and Marine Insurance has also signed a memorandum of understanding to undertake a joint venture with MI. However, the negotiations are still in the preliminary stages and the details remain to be worked out.

Myanma Insurance
MI underwrites all classes of life and non-life insurance and cedes a portion of its liability to foreign reinsurers under a tender system in which foreign reinsurers are permitted to bid on the fire, marine, engineering, oil and gas and aviation portfolios. MI enjoys a commission of a certain percentage on the reinsurance.The insurance policies underwritten by MI provide for payments in freely convertible currencies, provided that the premiums are paid in like currency.MI has been enjoying success in recent years. The company registered an increase in net profit from Kyat 1,047.37 million in 1996/97 to Kyat 1,331.05 million in 1997/98, despite the downturn in regional economies. The table below follows a breakdown of the contributions of the various areas of insurance.

Regulatory framework
Singaporean law provides the basis for much of the legal framework of the insurance industry in Myanmar. The government's initiative to liberalise the insurance industry is reflected in the Insurance Business Law 1996 and the Ministry of Finance and Revenue Notification No. 116/97. The Insurance Law establishes the Insurance Business Supervisory Board, which is responsible for a range of activities including:
• screening and approving applications for business licenses to undertake the activities of an insurer, underwriting agent or insurance broker;
• setting the amount of paid up capital required by an insurer, underwriting agent or insurance broker;
• setting the criteria by which the value of the assets and liabilities are to be determined;
• setting the limit of investment for any insurance fund;
• establishing the deposit, licensing fees, and annual fees of an insurer, underwriting agent or insurance broker; and
• permitting direct insurance to be effected abroad for those classes of insurance which are not handled within the state.
MI is responsible for the expenses as well as the administrative responsibilities of the supervisory board. Moreover, the managing director of MI serves as its chairman and the deputy general manager (general insurance) serves as its secretary. Thus, the two organisations are essentially one and the same. However, liberalisation of the insurance industry will eventually result in their separation into independent entities.

The board presently provides licences for the following classes of insurance:
life insurance;
fire insurance;
comprehensive motor insurance;
cash in transit insurance;
cash in safe insurance; and
fidelity insurance.
Note, an insurer or underwriting agent that holds foreign exchange acceptor and holder license issued by the Central Bank of Myanmar may transact business in any of the above mentioned classes in a foreign currency.

The Ministry of Finance and Revenue notification has clarified some of the details under which a licensee is required to operate. It sets out the financial commitments required by licensees. A local insurer or underwriting agent shall be required to have a paid up capital of Kyat 30 million for life assurance and Kyat 200 million for general insurance. Ten per cent of the paid up capital must be held with the Myanma Economic Bank as a deposit that is returned upon the winding up or liquidation of business, provided that there are no reasons to withhold it. The licensee is entitled to receive the interest that may accumulate on the deposit.In addition to the deposit, a licensee is required to purchase government treasury bonds worth 30% of the paid up capital. The purpose of this requirement is to provide some assurances to the government that the company has set aside a fund to secure any obligations that may not be handled by the company's assets in the normal course of business. Ultimately, the board is empowered to encash the bonds should a company incur liabilities that may render it insolvent.

In addition, there are nominal licensing fees that also have to be met. The business license fees are Kyat 15,000, while the annual fees are Kyat 5,000.

Finally, the board has mandated that an assurance fund with the Myanma Economic Bank be established for both life and non-life insurance, as a form of security for the payment of claims. In addition, the board also requires the companies underwriting life insurance to set up a life assurance policyholders' protection fund as a sort of collective reserve pool for the industry.

These commitments will apply both to local and foreign companies. However, the above rates apply to local companies. MI has not yet established the rates that will apply to foreign parties yet, but will do so prior to the liberalisation of the market to foreign participants.

Apart from the financial commitments, there are general requirements that a licensee will be required to meet. Some of these are administrative, but most notably, premium rates and the investment programmes of the licensee must be pre-approved by the Insurance Business Supervisory Board.

Conclusion
Though Myanmar enjoys a long tradition of insurance, much effort will need to be directed towards educating the general public. Third party motor insurance is compulsory, but as in any developing country, personal insurance is viewed as somewhat of a luxury rather than a necessity. Presently, life insurance policies are only taken out when mandated by the government or company and in most instances, premiums are deducted from an individual's salary rather than paid for by the employer. It will take some effort to bring this practice in line with international practices which places much of the burden of insurance upon the institution or company. The transfer of a part of the burden of insurance from the individual to the institution or company would go far in stimulating the demand for personal insurance.

In addition, it will be important for the government to consider the long-term benefits of foreign investment in the insurance industry. Apart from the immediate benefits of knowledge and experience, foreign investment into the insurance industry will have an indirect effect in stimulating the economy. It will create reserves that will be held by the government and used for re-investment.

Darin Kobatake is a lawyer working with Bangkok International Associates/Myanmar Asean Focus Group Limited. Tel: +662 231 6201 ext. 110; fax: +662 231 6204. He would like to thank Maung Maung Thein for his help in preparing this article.