Analysis: Foreign insurers enter Myanmar market with hope, caution

By Clare Baldwin

HONG KONG | Wed Nov 7, 2012 3:52am EST

HONG KONG (Reuters) - 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 (PRU.L), AIA Group Ltd (1299.HK) and Manulife Financial Corp (MFC.TO) 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.

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.

SOUTHEAST ASIA

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 (UOBH.SI) 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)

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Analysis: In the end, Obama won on the economy

U.S. President Barack Obama, who won a second term in office by defeating Republican presidential nominee Mitt Romney, waves as he addresses supporters during his election night victory rally in Chicago, November 7, 2012.

Credit: Reuters/Jim Bourg

By Andy Sullivan

WASHINGTON | Wed Nov 7, 2012 2:27am EST

WASHINGTON (Reuters) - In the end, President Barack Obama won re-election on the issue that was supposed to send him packing: the sluggish U.S. economy.

The United States is still digging out from the deepest recession in 80 years, and employers are barely adding enough jobs to keep pace with population growth. Trillions of dollars of household wealth have vanished in the housing bubble, while the gap between rich and poor widens.

But historically, voters have given a second term to incumbent presidents who preside over even modest economic growth during an election year.

That pattern appears to have held for Obama. If the economy is not exactly roaring ahead, it improved steadily over the course of the year.

"It was never going to be a landslide," said John Sides, a political science professor at George Washington University. "But it was always his race to lose."

The Democratic president took major steps to boost the economy, but they did not seem to help him much in the eyes of voters. Polls show deep divisions on the merits of his 2009 stimulus, his Dodd-Frank financial reforms and the auto industry bailout.

But they made a difference in one important place. Obama campaigned heavily on the auto bailout in Ohio, where 1 in 8 jobs is tied to the industry.

That may have helped him limit his losses there among white men, a slice of the electorate that Romney won heavily elsewhere.

According to Reuters/Ipsos exit polls, Obama lost white men nationwide by 21 percentage points. In Ohio, he lost white men by only 12 points.

Obama was also helped by the fact that voters largely blame the recession on his Republican predecessor, President George W. Bush. Obama made that a central part of his campaign message as he argued that Romney would bring back policies that precipitated the crash.

If the Romney campaign wanted to focus the election on Obama's economic stewardship, the Obama campaign wanted to make it a choice between two candidates.

Obama's campaign attacked early with a barrage of negative advertising that painted the multimillionaire former private-equity executive as a corporate raider with little concern about the fortunes of ordinary people.

The attacks drew unflattering comparisons to Obama's historic 2008 run for office, but they discredited Romney in the eyes of many voters.

"A lot of middle-class white people who don't have a college degree came to the conclusion that Romney's just not one of us," said Potomac Research Group analyst Greg Valliere.

GRIDLOCK AHEAD

Obama's narrow re-election victory will not strike fear in the hearts of Republicans, who remain in control of the House of Representatives. Obama's Democrats held on to the Senate, but fewer moderates of either party will be in the mix.

That is a recipe for more gridlock and white-knuckle showdowns over taxes and spending. Reaching consensus on even the most routine legislation will be difficult.

"There's not going to be a lot of goodwill on the Hill," said Princeton University history professor Julian Zelizer. "The party lines will be hardened after this election."

The increased polarization may make governing more difficult, but it made campaigning easier for Obama. In an age of intense partisan sentiment, Obama enjoyed more reliable support from members of his own party than his Democratic predecessors Jimmy Carter and Bill Clinton.

"There are just a lot fewer people who are going to shift from one candidate or another. They're just a lot more hardened on either side," said Taylor Griffin, who advised Republican nominee John McCain during the 2008 campaign.

For Republicans, Obama's re-election poses uncomfortable questions.

For the second election in a row, the Republican presidential candidate has been unable to win more than 1 in 3 Hispanic voters, and the party could have an increasingly difficult time competing in national elections if it fails to make inroads among that rapidly growing slice of the electorate.

The party's gravity center now rests in the House of Representatives, where many lawmakers represent solidly conservative districts. They face little incentive to compromise on issues like immigration reform that could anger their base of older, white voters.

Romney had to overcome lingering suspicion from conservatives during the drawn-out battle for the Republican nomination, and he was unable to appeal to independent swing voters until the campaign's closing month.

But many in the party are likely to conclude that they will be better off nominating a more conservative candidate next time, said Brookings Institution fellow John Hudak.

"The party is going to move right," he said. "The line is going to be, 'See, we shouldn't have nominated a moderate.'"

(Editing by Marilyn W. Thompson and Peter Cooney)

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Analysis: Victory puts Obama in position to expand government's reach

U.S. President Barack Obama, who won a second term in office by defeating Republican presidential nominee Mitt Romney, waves as he addresses supporters during his election night victory rally in Chicago, November 7, 2012.

Credit: Reuters/Jim Bourg

By David Lindsey

WASHINGTON | Wed Nov 7, 2012 3:41am EST

WASHINGTON (Reuters) - Both sides called it a generation-defining race for the White House: a choice between Democrat Barack Obama's brand of government activism and Republican Mitt Romney's commitment to reducing Washington's role in Americans' daily lives.

Obama's victory, however, did not settle that question.

Instead, the hard-fought battle for the White House exposed an electorate deeply divided by race, age and party.

Tuesday's elections - in which Republicans kept control of the U.S. House and Obama's Democrats held on to the Senate - suggested that bitter partisanship would likely remain very much alive in Washington in the new year. They also revealed that there was no broad mandate for much beyond the broadly shared goals of improving the economy and reducing government debt.

That means that undertaking bold new initiatives comparable to healthcare reform, financial regulation and economic stimulus programs will be a great deal more complicated for Obama 2012 than they were for Obama 2008.

Even so, Obama - now unfettered by not having to face voters again - is in position to pursue an ambitious agenda that could leave his mark on government for a generation or longer, including a move to revamp the nation's immigration laws.

Some analysts believe Obama is likely to spend much of his second term "locking down the achievements of his first term," including ensuring that "we will have a functioning national healthcare system," said Cal Jillson, a political science professor at Southern Methodist University in Dallas.

For some, that would be enough to secure his place in history.

"Just by re-electing Obama, that means the Affordable Care Act will continue to be implemented, and that's very important because that's one of the most important pieces of legislation in half a century," Theda Skocpol, a political scientist at Harvard University, said of the law that helps extend health coverage to millions of uninsured Americans.

"Most of the action will occur between the president's administration and states, and my guess is a lot of the Republican governors will find ways to accept parts of the Medicare expansion," Skocpol said.

A BOOST FROM THE BAILOUT?

In at least one respect, Tuesday's election results vindicated Obama's belief in an activist government.

By supporting an $85 billion federal bailout of the auto industry in 2009, a measure that was not particularly popular at the time, Obama may have helped to save not just the industry, but his presidency.

The auto bailout - and the Obama campaign's attacks on Romney over his opposition to it - appeared to be key factors in the president's victory in the crucial battleground state of Ohio, where 1 in 8 jobs is connected to the auto industry.

Nationwide, Obama - the nation's first black president - trailed Romney among working-class white male voters by 17 percentage points, according to Reuters/Ipsos Election Day polling.

But in Ohio, white men with incomes of $75,000 or less were split 49-49 between Obama and Romney in Reuters/Ipsos polling. Analysts said the disparity indicated that the auto bailout - which saved nearly 1.5 million jobs nationwide, according to the Center for Automotive Research - likely gave Obama a critical boost in just the right place.

"While Romney enjoys a large advantage among lower-income white males nationally, the trend reverses in Ohio," Ipsos pollster Julia Clark said. "This underlines the importance of the auto bailout in Ohio, and perceptions of Romney as unsympathetic to the challenges faced by the working class in this state."

SECOND-TERM AGENDA

Political analysts and strategists expect Obama's second-term agenda to be layered with increased federal spending for education, job and energy programs.

But such an agenda will be complicated by the government's $16 trillion debt and the looming "fiscal cliff" - a $600 billion tax increase scheduled to take effect along with mandatory spending cuts at the start of the new year unless Obama and Congress can agree on a deficit reduction deal.

Obama's commitment to immigration reform - a key goal for Democrats who want to solidify their hold on the growing Latino vote - would seem to have an increasingly clear path to success, especially as Republicans seek ways to improve their appeal to that minority group.

But the biggest, most immediate challenge is the looming showdown with Republicans in Congress over spending and taxes, during which Obama will press to keep his campaign promise to raise taxes on the wealthy while retaining lower tax rates for others.

Obama has signaled he may try to force Republicans to accept his demand to increase taxes on those making $250,000 or more a year by threatening to veto any legislation aimed at preventing the tax increases and massive spending cuts that are slated kick in automatically at the end of the year.

The notion that one of Obama's boldest second-term moves could be reinstating Clinton-era tax rates on the wealthy suggests that the president's agenda could be significant but limited, some analysts say.

"It's not like you're going to have a new, New Deal," said Julian Zelizer, a professor of history and public affairs at Princeton University, referring to the broad array of social programs enacted by President Franklin D. Roosevelt to help the nation recover from the Great Depression of the 1930s.

During the presidential campaign, "the rhetoric is so dramatic, you think you're deciding between FDR and a (staunchly conservative) candidate from the 19th century," Zelizer said. "I'm sure most Republicans see Obama as a big-government liberal and most Democrats see Romney as a right-wing, Tea Party zealot."

In fact, Zelizer said, both Obama and Romney were "relatively in the middle of the political spectrum, with limits on what they (could) achieve in a gridlocked Washington."

CHALLENGE FOR REPUBLICANS

It may be too soon to tell whether the 2012 election will be a turning point in how Americans view the role of government in society. But the election does appear to mark another type of political transition.

Romney, 65, could be the last Republican of his generation to make a serious bid for the White House. The Republicans who appear to be in position to run for president in 2016 represent a new generation of leaders who generally are more conservative than their predecessors.

They include Romney's running mate, Wisconsin Representative Paul Ryan (42), Florida Senator Marco Rubio (41), Louisiana Governor Bobby Jindal (41), former Pennsylvania Senator Rick Santorum (54), New Jersey Governor Chris Christie (50) and House of Representatives Majority Leader Eric Cantor of Virginia (49).

For them and any other Republicans who might consider a run for the White House, Tuesday's election results brought a sign of potential trouble ahead.

Obama won about 66 percent of the vote among Hispanics, who make up about 17 percent of the U.S. population and are projected by the Pew Research Center to account for nearly 30 percent by 2050.

The Republican Party's harsh stance on immigration has hurt its ability to attract Latinos, according to analysts who say the new generation of Republican contenders will need to tone down the party's harsh rhetoric on immigration or risk certain defeat in several states because of Hispanics siding with Democrats.

"We certainly seem to be at the end of something, and at the beginning of another, when it comes to Republican candidates," SMU's Jillson said. "The Republican Party is untenable in its current form and in serious trouble as a viable governing vehicle (because) the Democratic Party is more attractive to growing constituencies - anyone who feels vulnerable and as if they may need support."

During the campaign, Obama signed an executive order granting temporary legal status and work permits to young undocumented immigrants brought to the United States as children. He also has said he would push Congress to pass the DREAM Act, which would make the order permanent and create a path to citizenship for many undocumented workers.

Romney said he opposed the DREAM Act and that he favored harsh immigration policies that would lead illegal immigrants to "self-deport." He later seemed to back away from that stance, and said he would seek some form of immigration reform that tied U.S. citizenship to education and jobs.

If Republicans do not improve their image among Latinos, Jillson said, some solidly conservative states might not be that way much longer.

"The Republican Party absolutely will have to soften its message," Jillson said. "Texas (now dominated by Republicans) is 15 years away from a two-party system" because of its growing Hispanic population.

(Additional reporting by Gabriel Debenedetti; Editing by Jim Gaines and Peter Cooney)

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