Adrian Leonard examines how Asian reinsurers are now focussing on profitability rather than premium growth.

Singapore Re is a success. The island-state's very first reinsurer, SingRe was launched by local insurers in 1973 and listed in 1987. At year-end 2002, it boasted shareholders' funds of S$139m (US$78.9m), assets of S$369m, and an AM Best financial strength rating of A-. It wrote premium income of S$83.5m in 2002, and recorded pre-tax profit of S$10.9m. Like many of Asia's national reinsurers, SingRe's accomplishments can be attributed to the support it receives from local insurers. Although it has no legislative mandate to act as a state reinsurer, all members of the General Insurance Association (and several other insurers) have quota share treaties with SingRe under a voluntary market agreement. According to researcher AXCO, the treaties ensure that SingRe receives 5.0% of all fire risks up to a maximum sum insured of S$5m, 2.5% of construction and engineering risks up to $1.25m, and the same share of all motor, workers' compensation, and GTPL business. The lack of significant catastrophe risk in Singapore is another significant factor in its ongoing success.ASEAN Reinsurance Corp suffered radically different fortunes. It was set up late in 1998 to repeat the success of Singapore Re by drawing from a wider geographical area. Its six equal shareholders included the national reinsurers of Brunei, Singapore and the Philippines, and insurers from Indonesia, Malaysia and Thailand. It was managed by SingRe, which had proven its abilities, but the company failed shortly after its tenth birthday. It was unable to attract the business it needed to be viable as a stand-alone entity, and when the Monetary Authority of Singapore insisted that it increase its capital, the shareholders proved unwilling to reach into their pockets.

Central ReSingRe and ASEAN Re are two among many home-grown, south-east Asian reinsurers. While a number have gone the way of ASEAN Re, others continue to play an important role in local markets. Taiwan's Central Reinsurance Corp stands out. Established by the government as a national retention vehicle in 1968, it remained state-owned until it was bought by the transportation conglomerate Evergreen Group in 2001. Today Central Re is attempting to pull the Taiwanese market out of a counter-cyclical slump. "Taiwan's retail insurance market was misled into believing that a soft [reinsurance] market was coming," Captain Solomon Chiu, Central Re's President, told delegates at the seventh Singapore International Reinsurance Conference. "Policy prices fell 30% in the first quarter of 2003. Deductibles fell dramatically." Why did the Taiwan market crash? "Insurers had romantic views. All of them expected bottom line growth, which triggered price competition. Brokers are the driving force in the over-competition, and they are doing what they can to satisfy their clients." Captain Chiu sees two possible solutions: the voluntary restraint of short-term competition, and the permanent improvement of risk quality. Central Re is working on both. It has approached the former through reinsurance terms and conditions designed to "confine managements' aggressive ambitions," he reported. Measures include increased retentions and the absolute elimination of second retentions and side treaties. The restraint process is formal. Representatives of Taiwan's non-life insurance association and leading reinsurers have formed a working party which, Captain Chiu declared, have engaged in "friendly dialogue and reached agreement on some terms and conditions so far." On the risk quality front, Central Re sees the key elements as establishing a risk management environment for insureds, insurers, reinsurers and brokers, and ensuring that primary underwriters "properly respond to the quality of risks" presented to them. Busy Mr Chiu is Chairman of the Taiwan Risk Management Association, which is primarily educational. Meanwhile, Central Re has established a risk management department with goals including the provision of risk management tools and advice to insurers, fostering a risk management culture in Taiwan's underwriting offices, and enhancing risk management technologies in local industry. Captain Chiu pledged that Central Re "will keep a collective dialogue with the market and with policyholders to improve risk management, and with cedants to improve transparency and trust."

Labuan ReLabuan Re is another success story. It too was established to maximise local capacity and retention, but it has grown beyond its borders. Today only about half its business is Malaysian. "We wanted to be a trusted leader for the local market and a visionary follower in the region," said Chief Executive Majid Mohamad, who expanded the company in 2001 by expanding into Lloyd's and opening a Bali office. His approach is somewhat different from that of Captain Chiu, however. "There is no paradox of reinsurance price and affordability if increased prices can be passed down," he said, referring to the conference theme, "but within a tariff regime or a very competitive market, that can be very difficult to do, because others will take your market share." The same is true of reinsurers, he said. "We worry about the reality that we would lose market share if we increased our rates," he admitted. "Other reinsurers would come in and take it as expiring." He said that Labuan Re will be a "saviour in the national interest", although that too presents paradoxes. "If we charge too little and can attract no followers, then we lose credibility. But the shareholders in national companies [which typically are local insurers] expect help during hard markets, in the national interest." However, Labuan Re is affected by international markets. "We are also buyers of capacity, and we are facing stricter terms, more exclusions and higher deductibles." Some reinsurers will not quote Labuan Re's treaties because it underwrites Iranian business, for example. "Sometimes alternate leaders will not quote against expiring leaders," which he said suggests that a cartel is operating in the international retrocession market. He also complained that many reinsurers also compete, directly or indirectly, as insurers in some lines, and therefore will not grant treaty capacity to Labuan Re. Sometimes brokers will demand security from Labuan Re based on the ratings of its retrocessionnaires.None of that is impeding Mr Mohamad's ambitions for his reinsurer. "We are now focussing on profitability and the bottom line, and not premium growth," he said. "We have explained to cedants that we can no longer be very flexible. We will be flexible, but not very flexible," he said. "Hopefully in 15 or 20 years' time we can stand tall among the leading reinsurers of the world," he concluded. While many of the home-grown, south-east Asian reinsurers have been successful, to do so would be a first.By Adrian LeonardAdrian Leonard is a freelance insurance journalist and a regular contributor to Global Reinsurance.