It is no secret that the global reinsurance sector is enduring difficult times, despite improving terms and conditions around the world. However, the way the giants of the risk transfer sector are managing their journey through the trial is evolutionary. They have, for example, adopted a new-found focus on technical underwriting (using tools and technologies unavailable in previous hard markets), cut back radically in areas that have proved consistently unprofitable, worked together to develop data reporting standards, and reassessed the challenge of accumulation in a sector which, following massive consolidation, is almost unrecognisable compared to its predecessor in the hard market of the 1990s.
One side-effect of consolidation has been the creation and dominance of a number of truly global reinsurers. International businesses managed as a cohesive entity have, for the most part, replaced the splintered reinsurance groups that characterised the last decade, and usually comprised local offices in regions around the world operating more or less autonomously. That has led many management eyes in Munich, Zurich, Cologne, Paris and London to focus on the maturing insurance markets of Asia. They are looking east to balance global risk exposures, develop new sources of income and grow while other regional markets are saturated. Meanwhile Asia's developed markets remain vital components of the global risk transfer sector itself, and have not been immune from the trials of the reinsurance industry. As the risk businesses globalises, the impact of international trends on risk carriers throughout the world is remarkable.
Over the next three issues of Global Reinsurance, special sections dedicated to insurance and reinsurance in the markets of Asia will examine in detail the critical issues facing the region, and the opportunities and challenges for those reinsurers active there. In this instalment, five experts look at the Asia context of five important and discrete trends which are characteristic of the global market.
Around the world, liability for injury is becoming a greater and more costly concern. As compensation cultures emerge from the US to Japan, the demands are rising for businesses and governments to pay up when someone has been injured. Thus the burden on insurers rises too. In this context, Kwan-Seok Oh and Eric Cha, solicitors in the practice of Kim & Chang in Seoul, examine Korea's new Product Liability Act, and deliver the stark warning that manufacturers active in the country can expect burdensome and expensive product litigation, and that their chances of prevailing are likely to be noticeably reduced.
Insurers and reinsurers are hungry for growth, and China, the world's most populous country, is an appealing target. Yet the gateway to China's insurance market has not been thrown wide open. As Chao Yang, a director of what then was known as the People's Insurance Company of China (PICC), once said, the door is open, but it is a very small door, and a very long queue. The first reinsurer to pass through (joining only PICC successor China Re in China's `admitted' reinsurance market) was Munich Re, which earlier this year was invited by the authorities to establish a Chinese branch office. Karl Wittmann, a member of the reinsurer's management board, outlines both the potential risk and the possible return that the market could yield to the international reinsurance community - and is careful to point out that doing business in China brings responsibility as well as opportunity.
Underwriting gives the reinsurance sector most of its sex appeal, but in reality insurers and reinsurers sometimes fail. More often, as risk carriers reassess their business profiles in challenging markets, certain portfolios of business are abandoned. The result is a run-off, either solvent or insolvent, depending upon the circumstances. One tool in easing the process is commutation, a practice that has become commonplace in Europe over the past decade. Yet it remains rare in Asia, despite offering advantages in many circumstances. Jim Moran of Cavell Management Services dissects the act of commutation, and explores the reasons behind Asia's reluctance to join in.
In the November and December special Asia sections of Global Reinsurance, experts will look at areas ranging from new techniques in catastrophe risk modeling and pricing to the development of techniques in life reinsurance, risk management, information technology and other areas. The final section will include a special directory of the Asian offices of the world's top ten reinsurers.
In his article about the role of the actuary, Peter Lee of EMB declares: "The process may not be the stuff of catchy headlines, but its influence extends to virtually every area of operation." Mr Lee was speaking of actuarial science, but in fact the sentiment could easily be applied to the entire insurance sector. Despite more often being seen as a necessary evil than an exciting subject, insurance is at the heart of the engines of personal and business development. Without risk transfer, the rewards of progress seem fragile indeed. At the top of the risk mountain are the reinsurers, whose appetite and understanding of risk is unparalleled. Now, more than ever, they are interested in Asia - and they have much to offer.