A major portion of this last instalment of Global Reinsurance's three-part special report on Asia looks at technological tools for better managing re/insurance business in the region. In the current environment, any advantage should be welcome - while reinsurance supply is tight, many Asian markets continue to suffer from massive problems of primary oversupply. Thus, a painful market realignment is taking place in almost every part of the continent, one which will lead to the transformation of many of Asia's under-developed, overpopulated insurance markets.
No matter what the regional focus, the prognoses delivered by ratings agencies have been generally grim in recent months, as the global insurance and reinsurance sector suffers the combined effects of collapsed investment markets, corporate scandal, a strict new investor focus, and its own sloppy, soft-market underwriting. The Asia-Pacific region was singled out in mid November, when Standard & Poor's (S&P) gloomily predicted: "More Asia-Pacific insurance failures likely in 2003".
The analysts predicted that company withdrawals would accompany the failures, as competition remained heated. "There are no safe havens anywhere in the region," said Ian Thompson, head of S&P's Asia-Pacific Ratings Group. "Competition is so hot that in many markets, even if the number of players were to halve, it would remain a significant issue for those left."
According to data collected by Swiss Re's Sigma research arm, nearly 1,000 insurance companies are licensed in Asia. Premium volume collected by the companies in 2000 was about $647bn, including $504bn by 147 companies licensed in Korea and Japan, the world's second largest insurance market. When they are excluded, the numbers show 849 insurers sharing $85bn, or about $100m each. However, subtract Taiwan and China, and the 764 remaining insurers average $18m each.
Consolidation is already underway. The Philippines is exceeded only by Hong Kong in terms of the number of insurers licensed locally. Currently, local insurer Paramount General is seeking approval to take over the policies of Aegon Life Insurance (Philippines), whose pending withdrawal follows that of New York's MetLife Insurance. Meanwhile, Australian insurer CMG Life looks set to sell its Philippine business to Canadian-owned Manufacturers Life. However, even with the departure of the three, 37 life insurers (including 15 with foreign equity) would remain in the Philippines, where premium per capita was a scant $7.5 in 2000.
The withdrawals and consolidation are not limited to crowded Philippines. Cash-strapped Royal & SunAlliance hopes to float "the majority" of its Asia-Pacific business in the first half of 2003. In Japan, electronics conglomerate Sony has hinted it may withdraw from the life insurance business, while another Japanese life insurer, Dai-ichi Mutual, has withdrawn from China, as has the troubled Gerling Group.
"The need to consolidate reflects in part the fragmented nature of some national markets, and the prevalence of many weak insurers which are kept afloat only by a tightly regulated environment," reported Sigma in its 2001 publication Insurance markets in Asia: sanguine outlook despite short-term uncertainties. "In post-crisis Asia, higher capital requirements, heightened foreign competition, and the willingness of family controlled conglomerates to restructure and shed non-core businesses have fuelled the consolidation drive." In short, progress is limiting the ability of small Asian insurers to survive. However, as Sigma notes, the consolidation process is in its early stages, with the obvious exceptions of the developed Japanese and Korean sectors.
Credit for intervention
Regulators in many Asian countries deserve credit for their willingness to tackle low capital requirements, to intervene in perilous solvency situations, and even to actively encourage consolidation among market insurers. Alongside these regulatory actions, market liberalisation has fuelled the fire.
"The overpopulated markets are further pressured by the fall of the last bastions of protection and pricing tariffs, at a time when reinsurance capacity in the region has dipped dramatically and rates have hardened," said S&P. "Weak equity markets, lacklustre property markets, and credit issues in some local capital markets have added to the region's woes." A flight to quality is beginning in some markets, adding pressure to smaller players. "At the bottom end of the rating scale, we are seeing a number of players fighting to survive, adding to the competitive dynamic."
Yet all is not bad news. As Asia's insurers struggle through a difficult period of development, there are some reasons for real optimism. Regional growth - tempered as it is by the global economic climate - is poised for positive long-term performance, leading to increasing insurance take-up. The dismantling of tariffs and other regulatory controls, while encouraging cyclicality and competition, will bring a wider range of product and pricing opportunities, ultimately leading to insurance markets better able to meet customers' needs.
And the consolidation trend will lead to the creation of stronger, more efficient companies which will have the resources to better harness technological tools and distribution systems, and should be able to manage policy ratings and investments for consistent profitability.
By Adrian Leonard
Adrian Leonard is editor of Global Reinsurance's special three-part report on Asia.