While the region is considered to be underinsured, profits have yet to materialise for foreign investors who have already taken the leap
The Asia Pacific has been attracting much attention over the past few years, courtesy of the Chinese boom. This year has been no exception and, with reinsurers predicting Asia will account for 45% of global insurance premium growth in the next seven years, it is no wonder that it is such a focus.
Earlier this year Munich Re said China, India and Indonesia would be the top three premium growth countries in emerging Asia until 2020, with average annual growth of 12% in China and India and close to 10% in Indonesia. Other countries, such as Malaysia, the Philippines, Thailand and Vietnam, will see growth of between 6% and 8%.
Attracted by all this growth, reinsurers and insurers from Europe and the US are continuing to expand in the region. Changes in regulation are helping provide access to formerly difficult markets such as China, and even the regulators themselves are looking to expand across the region - the Monetary Authority of Singapore, for example, has opened a representative office in Beijing in a bid to strengthen ties with China’s insurance supervisor, the China Insurance Regulatory Commission.
In April, the Singapore regulator introduced a raft of new rules strengthening its powers at home and increasing penalties for non-compliant insurance entities. Singapore itself remains a pivotal market in the region, home to many reinsurers and insurers using the state as a springboard into China and south into Australia.
Hong Kong, too, is home to many foreign firms, including one of the first new reinsurers in the region. Peak Re was established to capture growing demand in the Asia Pacific region and officially received authorisation to operate from the Hong Kong authorities in January, with an initial capital of $550m.
The firm launched saying it believed Asia Pacific had been underinsured in general. Referring to the major catastrophes of 2011 - including the floods in Thailand, the Tohoku Japan earthquake and tsunami, the New Zealand earthquake and the Australian floods - Peak Re said less than 22% of the total economic loss registered was insured, significantly below the ratio of insured loss to economic loss seen in the US and Europe. In 2010 China suffered its most devastating floods in a decade, which caused about $50bn of losses, of which only $1bn was covered by insurance - another example of low insurance penetration.
Given the low penetration, it is no surprise that growth of the Asia Pacific insurance market is predicted so widely and why US and European firms are keen to get a foothold in the region.
However, so far less than half the foreign firms operating in China are reporting profits on the back of their investment. The question may become one of how long firms are prepared to keep trying. Many European and US operations are caught between a rock and a hard place: stay in China and lose money or pull out and risk a hit to the share price as investors feel that, without China, growth potential is limited.
The decision may become even tougher as the market becomes more difficult - earlier this year the China Insurance Regulatory Commission reported that the market grew just 8% last year, the lowest figure recorded and a warning of a tough year to come. It will be interesting to see how the rest of the year shapes up.
Stuart Beatty, managing director, JLT Re
‘Reinsurance capacity continues to increase - principally in Singapore. Regulatory influence is strong in Australia and evolving in Asia. The property and casualty premium base in Asia is expected to double within five years, so presents a significant reinsurance opportunity as a result’
Clarence Wong, chief economist Asia at Swiss Re
‘The resilience demonstrated by Asian insurance markets in the first half [of 2013] is fuelling optimism about further broad-based growth, particularly in South-East Asian countries. The cascading impact of regulatory changes is definitely one of the top topics in the market.’
Anna Tipping, partner, Norton Rose (Asia)
‘M&As have picked up in South-East Asia in 2013. The driver for the purchases is almost exclusively access to the selling bank’s distribution capability, not the insurance carrier per se. The philosophical ‘fit’ between the partners is paramount and leads to strategic capability winning over more attractive initial offers’