The Effect of the insurance business on the balance of payments

Abstract

This thesis study attempts to analyze the effect of the insurance business on the Balance of Payments by using the fifth edition (1993) of the Balance of Payments Manual (BPM5) which suggested by IMF during the period of 1990-1994. The Department of Insurance Records were used for treatment insurance transactions in the Balance of Payments. From the study, we found that the non-life insurance transactions which related to the international trade in insurance services is reinsurance. Transactions in life insurance which related to the international transactions is profit remittance of each companies. The results of the treatment of insurance services in the balance of payments from 1990-1994 have shown the deficit. The deficit in insurance services amounted to Baht 2,442 million in 1990 and increased to Baht 7,252 million in 1994. The annual growth rate of insurance deficit is about 29 per cent between 1990-1994. Considering non-life insurance business, the deficit amounted to Baht 4,012 million in 1994. This is the result of the high in outward reinsurance especially in fire reinsurance and miscellaneous reinsurance. For life insurance business, the deficit which related to profit remittance of life insurance companies amounted to Baht 3,240 million. The high profit paid back to A.I.A.’s parent company is the major factor in insurance balance of payments deficit. Comparing the result of this research study to Bank of Thailand, we found that there is a Significant difference in insurance balance of payments deficit. The higher deficit is shown form the recording of insurance balance of payments of this study. This is the result of the difference in definition and data coverage. Moreover, insurance companies in Thailand need to increase the equity and inward reinsurance in order to reduce the deficit in insurance business in Thailand.