The April renewals in Korea signalled a wider trend in Asia, writes David Banks. International reinsurers are establishing themselves in the local market. But what is driving this change of attitude?
Reinsurance renewals in Korea took a different tone this year. Companies from around the world are going directly to the domestic market and building relationships with insurers there.
Although it is a subtle shift, it provides a tangible contrast to previous renewal seasons where brokers presented mainly big-ticket items to the international markets and where there was little effort by global brand names to herald their presence. Now foreign reinsurers are keen to place their feet firmly in the domestic market and the trend is not only being seen in Korea, but is reflected across Asia, from Japan to Thailand.
So why have international reinsurers suddenly become so much more proactive in Asian markets?
A combination of the economic crisis and the relatively fast pace of recovery in Asia means that reinsurance groups based in Europe, Bermuda and the USA are rethinking where their resources should be deployed and where next year’s profits will be gained. In addition, a change in the regulatory backdrop across many of the larger Asian markets, including proposals for new solvency capital requirements, has meant there is a demand from cedants for a more tailored approach to reinsurance.
Chaucer’s Singapore chief executive, Christopher Wildee, who has led his company’s underwriting growth in Southeast Asia, said reinsurers are no longer relying on the possibility that they might see business shown to the market by international brokers. The Korean domestic market has also seen the benefits of a closer relationship with specialist foreign reinsurers, he believes. “It’s often only when a cedant says: ‘I have a problem with this’ or ‘if only we could do that’ that you start to perceive gaps in the market. When you scratch the surface you realise there are things that can be done. Reaching that stage requires a lot of work but we think it’s worth doing.”
A further motivation for foreign reinsurers to put feet on the ground in Korea and other Asian markets is the chance to cement longer-term relationships. Wildee says building a partnership with the Korean market was never going to be a short-term project. “It will take four or five years to bed in. It’s going to get better over time and the relationship will improve as more syndicates move into the region, bringing more lines of business.”
Risk management and ratings are further driving factors behind establishing a local presence, as underwriters will inevitably understand risks better. Guy Carpenter’s head of global intelligence, Chris Klein, says Korea offers excellent diversification for international reinsurance groups, as it has many non-clashing, non-correlated, non-catastrophe business lines. “Korea is quite attractive from a fac point of view. There are a lot of global corporate groups in Korea that require that sort of capacity.”
Pricing at the April renewals appeared to benefit from the high level of competition in the Korean market. Klein says: “In the liability market, prices were down 10%-20%, reflecting light loss experience that is attractive to reinsurers. It’s interesting to see the different reactions in the property catastrophe segment. A spread of 10 points from decreases of 7.5% to increases of 2.5%, reflected a variety of changes and experience including increased aggregates, deductibles and, in some cases, limits.”
Head of market analysis for AM Best’s global financial services division, Yvette Essen, has also witnessed more foreign reinsurer engagement in parts of Southeast Asia, but adds that the change does not necessarily spell an immediate increase in reinsurance premium.
The changes are principally due to more regulation in risk-based capital. It means that smaller insurers, in particular, need the backing of reinsurers for capital relief. Essen confirms that foreign primary insurers are increasing their involvement in Southeast Asian joint ventures due to that region’s “exciting and rapidly developing insurance markets”.
Where do brokers stand?
The closer link between international reinsurers and domestic markets in Korea and other Asian markets could have striking repercussions for brokers. Some will have to ask themselves where they stand in the relationship with the international markets if those international underwriters are present on the ground in Asia.
Brokers who have focused in the past on merely bringing big-ticket deals to the international markets will have to shift towards a distribution-style service.
Wildee says brokers will still have a prominent role, however. “There’s always an argument to say that a direct relationship with cedants is preferable,” he says, “but brokers are part of the game and they provide a buffer that can ultimately be of benefit to the business.” GR