Insurance – Tailwinds from bond yield and co-payments

Tailwinds from higher bond yields. The Thai 10-year government bond yield rose by 36 bps QTD to 2.42%, tracking a rise in the US 10-year government bond yield to around 5%. Higher bond yields will be positive for life insurers in four ways. First, premium inflows and maturing debt instruments can be reinvested at higher rates. However, the benefit will materialize gradually with a lag as existing low-yield bonds roll off. Both BLA and TLI will see a positive impact over the medium term, with BLA being more rate sensitive. Second, higher bond yields support endowment products, as higher reinvestment rates allow insurers to offer more attractive guaranteed returns. Third, higher yields will be positive for contractual service margin (CSM) and value of new business (VNB), thereby enhancing long-term profitability. BLA is likely to benefit more than TLI because it has greater exposure to traditional endowment products and higher rate sensitivity with a minimal negative duration gap (liability duration exceeds asset duration). BLA’s endowment proportion is around 60%, higher than TLI's roughly 45%. We expect a gradual rise in yields on investment in 2026 and 2027. 

Tailwinds from co-payment scheme. Both TLI and BLA saw lower loss ratios YoY in 1H26, partly due to the introduction of a co-payment scheme in 2Q25. The co-payment scheme reduces unnecessary hospitalizations, lowering both claim frequency and severity to structurally improve the loss ratio. In 1H26, the loss ratio decreased 57 bps YoY to 43.1% for TLI and 563 bps YoY to 50.2% for BLA. We expect a gradual easing in the loss ratio to enhance insurance service results in 2026 and 2027.

7M26 premium: Down at TLI, up at BLA. In July, the change in annual premium equivalent (first-year premium plus 10% of single premium) was -35% YoY for TLI but +14% YoY for BLA vs. +2% YoY for the sector. In 7M26, the change in annual premium equivalent was -24% YoY for TLI but +10% YoY for BLA vs. +6% YoY for the sector. TLI’s YoY drop in annual premium equivalent was due to an unusually high base in 2025, partly driven by a surge in medical rider sales prior to the implementation of co-payment conditions. We expect TLI to see a HoH rise in annual premium equivalent in 2H26 backed by the launch of a new product called LifeVerse under the "One Account for a Lifetime" concept, which serves as a flagship product innovation for 2H26 targeting urban and mass-affluent segments. We maintain our forecast of growth in CSM balance at +3% (vs. +3% YoY in 1H26) for TLI and +7% (vs. +11% YoY in 1H26) for BLA.

Earnings outlook. We expect both TLI and BLA to see improvements in insurance service results and net investment profit in 2026 and 2027, driven by easing loss ratios and better investment yields. For TLI, we expect earnings to grow 11% in 2026F and 5% in 2027F. For BLA, we expect earnings to grow 8% in 2026F and 6% in 2027F.

Decent dividend yields. We expect TLI’s 2026F DPS to be Bt0.69 (60% payout ratio) with a dividend yield of 6.0% and BLA’s 2026F DPS to be Bt1.33 (30% payout ratio) with a 5.4% dividend yield.  

Prefer BLA to TLI. We rate both TLI and BLA as Outperform. However, we prefer BLA over TLI because 1) BLA has a more attractive valuation (5.5x PE, 0.7x PBV vs. 13% ROE, and 0.55x P/EV for 2026F) than TLI (10x PE, 0.9x PBV vs. 9% ROE, and 0.65x P/EV for 2026F) and 2) BLA is expected to benefit more from rising bond yields than TLI.

Risk considerations. Key risks: 1) pressure on customer purchasing power from inflation headwinds, 2) capital market volatility, and 3) bond yield movement.