Lower interest rates expected to help insurers

Lower interest rates should benefit the Thai insurance industry this year, but challenges remain in terms of geopolitical instability, election-related uncertainties in several countries, and an expected decline in the margin of retirement savings, according to Allianz Ayudhya Assurance.

Thomas Wilson, president and chief executive of the life insurance company, said lower interest rates are generally positive for asset valuations, including real estate and equities.

The trend also helps corporate credit, especially for companies that have debt that needs to be rolled over in the near term, while the financing of corporate investment as well as private and public consumption becomes easier, Mr Wilson said.

“These effects will generally be beneficial to the insurance industry through premium growth and capital gains on real assets,” he told the Bangkok Post.

However, the margins for new retirement savings should become more challenging because of the lower interest rate levels, said Mr Wilson.

He said he anticipates Thai economic growth of slightly more than 3% in a baseline scenario for 2024, a modest increase from a projection of 2.7% growth last year.

“Growth this year will come from the same areas as last year, led by international tourism and domestic consumption. But this will be complemented by the expansionary impact of lower interest rates and a modest increase in manufacturing and exports driven by the growth of our trading partners,” Mr Wilson said.

He identified two factors that could adversely affect economic growth rates in Thailand and globally.

The first is geopolitical instability, referring to the Russia-Ukraine war and Israel’s efforts to destroy Hamas in Gaza, which could have an impact on global supply chain realignment and cause volatility in the financial markets as well as potential supply-side inflation.

“The second factor is election-related uncertainty,” said Mr Wilson, as more than 50 countries with a combined population of more than 4 billion people are set to hold elections this year, including Bangladesh, India, Pakistan, Taiwan, the US, as well as nine European nations.

“As seen in Thailand last year, election and public policy uncertainty can weigh heavily on consumer and investor confidence,” he said.