Directives Issued
In mid-May, the Ministry of Planning, Finance, and Industry issued a series of directives that marked the next step in the government’s liberalisation plans. According to the directives, eight general insurance companies and Myanma Insurance were permitted to sell new insurance products across the country: these were policies for Industrial All Risk, Construction All Risk and Erection All Risk, and Baliee’s Liability Insurance.
Simultaneously the Financial Regulatory Department (FRD), under the Ministry of Planning, Finance, and Industry, issued a reinsurance directive, which allowed domestic insurance companies to arrange reinsurance on the international market.
The aim is to widen insurance coverage throughout the country. “Whether local or foreign, businesses need insurance coverage under these three mentioned categories. FRD have permitted the three new policies nationwide, including in the Thilawa Special Economic Zone,” said U Thant Sin, deputy director general at the FRD.
However, three Japanese Insurers -- Sompo Japan Nipponkoa, Tokio Marine & Nichido Fire Insurance, and Mitsui Sumitomo Insurance -- were already allowed to offer these three insurance policies for sale in Thilawa Special Economic Zone in 2015. Now, the authorities are allowing all domestic insurance companies to sell these products outside the zone and nationwide as well.
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According to the directive, insurance companies can start selling these policies from the beginning of October. Although domestic insurers are able to issue IAR, CAR, EAR and Bailee liability policies from this October, they will still need FRD approval before they can offer these products for sale to the public.
Reinsurance directive #4/2020, allows domestic insurers to arrange reinsurance agreements with international insurers.
The objectives of this reinsurance directive are to maximise retention within the country subject to adequate and proper diversification of risk, securing the best possible reinsurance coverage required to protect the interests of policyholders at a reasonable cost and to develop adequate technical capability and financial capacity.
The government is considering other ways to open the Myanmar insurance market to foreign firms. This includes allowing 100% wholly-owned subsidiaries of international reinsurers or branches of foreign reinsurers to open in Myanmar. The establishment of Joint Venture insurance broker offices is also under consideration.
Cross Border Reinsurer
Cross Border Reinsurer – commonly known by the acronym “CBR” –is defined in the directive as an insurer with a reinsurance business license issued by its own jurisdiction, a reinsurer that is not licensed in Myanmar as an insurance or reinsurance company, a foreign reinsurance branch that carries on reinsurance business with Myanmar insurers or reinsurers or foreign reinsurers.
In order to qualify as a Cross Border Reinsurer, the following eligibility criteria must be met:
- Have a reinsurance business license in its home jurisdiction;
- Have a credit rating of at least BBB from S&P or equivalent;
- Have a minimum solvency margin or capacity adequacy;
- Have the following Compulsory Cession Limits during any financial year, unless the IBRB has granted them an exemption:
| Rating of the CBRs as per S&P or equivalent |
Maximum overall cession limits Allowed per CBR |
| Greater than A+ |
50% |
| Greater than BBB+ and up to and including A+ |
40% |
| BBB & BBB+ |
20% |
These percentages are to be calculated on the total reinsurance premium ceded outside Myanmar.
Whether this cap on CBR is after MI’s retention, 50% of the 90% reinsurance -- which means 45% or 50% of the 100% -- remains unclear.
Compulsory Cession Limits and Fronting Arrangement
This directive gives State-owned Myanma Insurance two privileges: Compulsory Cession Limits and fronting reinsurance arrangement.
Compulsory Cession Limits as stipulated by the Reinsurance directive, every Myanmar insurer or reinsurer and foreign reinsurer must cede a compulsory maximum cession of up to 10% of any insurance segment business to state-owned insurance, Myanma Insurance. Should MI refused to exercise its right to retain any portion of the risk offered, the residual part of the risk may be insured with the CBRs.
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According to directive 4/2020, every Myanmar insurer and reinsurer must ensure that the reinsurance arrangement is not fronting for a Cross Border Reinsurer (CBR).
Fronting reinsurance arrangement: Myanma Insurance can do fronting reinsurance arrangements with international Reinsurers.
Currently in Myanmar, international corporations doing business in Myanmar are able to access international insurers through “fronting” insurance arrangements but only with the state-owned Myanma Insurance Enterprise.
Other insurance products such as Business Irruption Policy (BI), Professional Indemnity (PI), Directors and Officers Liability Insurance (D&O), Cyber insurance protection are currently unavailable through domestic insurance companies, but the FRD is considering issuing a further directive that would cover these policies.
If Myanma Insurance cannot provide the type of insurance required by foreign businesses operating in Myanmar, these foreign corporations can then arrange insurance on the international market, but it must be “fronted” by Myanma Insurance. Fronting is a procedure in which the primary insurer – in this case, Myanma Insurance – acts as the insurer by issuing a policy, but then passes the entire risk through facultative reinsurance arrangement with international reinsurers, in exchange for a commission.
Although international companies can do fronting reinsurance arrangements with international reinsurers through MI, the FRD will closely monitor the fronting reinsurance program. According to FRD’s chief U Thant Zin, this fronting practice remains unchanged and restricted to the state-owned Myanma Insurance (MI): no other domestic insurer is allowed to participate in any fronting practices.
Every Myanmar insurer and reinsurer transaction life insurance business must maintain a minimum retention of 20% of the sum at risk for each life insurance business portfolio. This means Term life and Permanent life are defined as two different portfolio businesses.
All domestic insurance companies must submit monthly, quarterly and yearly reports to the FRD, and FRD will monitor all reinsurance programs.
Further liberalisation in the pipeline
Myanmar’s plans to liberalise its insurance industry is now taking shape and will encourage foreign participation in the country’s insurance sector. This will help increase healthy competition, product creation, provision of better services and improved risk control and management. While permitting foreign insurers to enter the reinsurance market may represent only initial/infant steps, this is an important development in expanding Myanmar’s insurance market and increase insurance penetration.
Read also: Formal insurance licences granted to foreign insurers in Myanmar
Although more is needed to strengthen Myanmar’s insurance industry and promote foreign involvement, the government has hinted further liberalisation is in the pipeline. The government’s plans for the insurance sector will significantly boost the growth and performance of Myanmar’s insurance industry, which in turn will help increase the country’s economic development.
William Aung is author of two analytical books on Myanmar’s fledging insurance industry. He is an independent consultant, covering Myanmar’s insurance, investment and financial sectors. He has also worked as a national insurance expert for the Asian Development Bank project “Republic of the Union of Myanmar: Strengthening Climate and Disaster Resilience of Myanmar Communities”.
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