Global insurance and reinsurance markets have undergone dramatic changes in the last decade. Deregulation, globalisation, e-commerce, and the focus on core business and the bottom-line result are some of the issues that will dominate business in the decades ahead.
Combining local presence and experience with an international office network appears to be the key message given by many insurers, reinsurers, and brokers aiming to further attract potential clients, but to “go local” naturally depends on the attractiveness and business potential a market place has to offer. Singapore, with its open door policy towards foreign trade, investment, and the free flow of capital has already attracted a large number of insurance and reinsurance companies, as access to capital, debt markets, asset management, and the banking industry is easily available. Besides that, the Monetary Authority of Singapore (MAS) is fully supportive of initiatives aimed to further strengthen the importance of Singapore as the leading insurance hub within Asia.
Of the world's top 25 reinsurance groups, 20 are currently present in Singapore. In total, 46 professional reinsurers are domiciled here, and the number is expected to rise in the near future. In addition, seven of the world's ten largest reinsurance brokers have an office in Singapore, and overall it is host to about 60 registered broking houses, which account for about 40% (or S$600 million) of gross domestic premium production.
Although some neighbouring countries are still suffering from the Asian crisis, the Singapore economy experienced GDP growth of 5.4% in 1999, followed by growth of 8.8% in the first half year 2000. The insurance industry, including direct and reinsurance, grew by 20.5% in 1999, to S$9,260 million of total gross premium for general business plus life business. Total gross premium production, including both domestic and offshore, for the general insurance industry amounted to S$2,753 million, an increase of 3% compared to 1998. During the same period, life business increased by almost 30%, to S$6,507 million.
Non-life reinsurance business increased by 22.2% in 1999, to S$1,143 million, and life reinsurance business is showing similar growth: 21.1%, to S$33 million. Direct non-life insurance business can be divided into domestic (Singapore) and offshore insurance business; domestic business has decreased by 3.6%, while offshore business fell 36.9%, to S$1,285 million and S$120 million respectively. Domestic reinsurance business is following above-trend, with a marginal negative growth of 0.36%, to S$194 million. Contrary to that development, offshore reinsurance business has grown by 28% to S$949 million.
Despite the economic recovery, general direct insurance business continues to be characterised by strong price competition, leading to a further reduction in premium rates, which will most probably be reflected in a negative growth of the domestic insurance business. Domestic reinsurance is expected to perform similarly in 2000, following consecutive drops in 1998 and 1999. Offshore business is expected to continue to grow in 2000, mainly due to the gradual economic recovery of the region. Life insurance business within Singapore and the region is expected to grow by about 30% in 2000, and is largely fuelled by sales of investment-linked products, often through new distribution channels such as bancassurance and the internet.
Since March 2000 the MAS has fully liberalised the market, aiming to further strengthen the importance of the financial sector. Mergers and acquisitions, as well as strategic alliances, are encouraged in order to reach greater economies of scale, to facilitate investment in new technology (particularly for e-commerce), and to create an environment that attracts high potential individuals due to outstanding career path prospects. The following measures have been introduced:
No restrictions exist for reinsurers and captives. The 49% cap on foreign shareholdings of locally-owned direct insurers has been lifted.
Open admission policy; admission of new insurance brokers is based on world ranking, their reputation and financial standing, suitable business plans and objectives, as well as their commitment and ability to further contribute to the development of the financial sector.
Multi-line insurers and reinsurers have been encouraged, through legislative amendments, to engage in financial guarantee business. Specialised financial guarantee insurers are now allowed to open a branch in Singapore.
Paid-up capital requirements for captives have been reduced to S$400,000. Approval has been given to write certain non-captive risks.
Various tax incentives have been introduced, aiming to encourage insurance companies, professional reinsurers, and captives to establish operations in Singapore, and to write offshore business. In addition, incentives are given to insurance companies writing marine hull and liability insurance, thus paying attention to the regional importance of Singapore as a shipping hub. Initiatives in new technologies are supported by financial grants, with the aim of encouraging insurers, reinsurers, and captives to upgrade their knowledge base and expertise.
MAS is encouraging the introduction and promotion of Alternative Risk Transfer (ART) techniques and solutions that require access to specialised risk management skills and financial expertise. A framework was developed and disseminated by MAS in 1999, aiming to facilitate the development of financial reinsurance, to avoid ambiguity, to ensure consistency in accounting treatment, and to provide users with financial statements including adequate information to assess the financial position of insurers.
Taking into account the size of the market, the prevailing fierce price competition, declining profitability, static premium development in non-life business, and other factors, the future growth prospects for the general insurance sector are limited. However, good growth potential is expected with regard to life business. From a reinsurer's point of view the overall business potential is closely linked to the performance and innovation of the direct insurance market on the one side and, on the other, on reinsurers' ability in exploring new market segments and developing advanced risk management solutions designed to the specific requirements of their customers.
As an island city-state, with easy access to neighbouring countries and a liberalised economic environment, Singapore has a lot to offer, and will certainly continue to play an important – if not leading – role as the financial centre of the region.
Werner G. Bugl is Chief Executive Officer of Munich Re Singapore.