Singapore may be an attractive location for any international insurer or reinsurer that wants to become a force in the Far East, but being here does not guarantee success. The number of professional reinsurers in Singapore has fallen as a result of consolidation and companies choosing to withdraw, from a peak of 55 in the mid 1990s to today's total of 33. We believe that the number will continue to decline.

It remains an excellent place to do business, however, and will be the main insurance and reinsurance hub of the Far East for the foreseeable future. The political stability, freedom from bureaucratic interference, high level of skill, and wide use of English make it uniquely placed in the region. The fact that 20 of the world's top 25 reinsurers and seven of the top ten reinsurance brokers are active here speaks for itself.

The island has changed beyond measure since the mid 1970s when Copenhagen Re was among the first batch of overseas reinsurers to set up here. It has acquired a financial infrastructure and degree of industry knowledge that would have been unthinkable then. Inevitably, however, Singapore's reinsurance sector reflects the worldwide industry, of which it is an integral part.

The years between 1988 and 1992 saw the biggest influx, with 15 professional reinsurers opening offices in Singapore, the vast majority from West Europe or North America. Some of these new entrants found conditions here tougher than they had expected, or perhaps they simply did not anticipate the years of overcapacity, mergers, and acquisitions that were to follow. The Far East is a difficult market to crack and, while the long-term prospects are excellent, the economic performance has been volatile, to put it mildly. Establishing and making a success of your reinsurance business in the region requires patience and a long-term commitment.

The impulse that leads overseas reinsurers to set up in Singapore – a need to get closer to their customers – has a logical next step. Viewed from Europe or North America, the Far East may seem like one giant market, but that is misleading. In practice, it is a series of different national markets with different needs, expectations, regulatory environments and cultures. Becoming and remaining established here is not easy - especially as most of the reinsurers located in Singapore have other offices to write Japanese, Korean, Chinese, and Australian business. What is left of the Asian market is then a lot of geography, but not all that much premium income.

Success in this environment requires a good territorial spread, a sound knowledge of the individual countries and their business practices and, just occasionally, a little bit of luck. Companies that lack well-developed franchises will have difficulty. Most of these are likely to join the others who have already been forced to make a tactical retreat from the island.

Relationship factor
In many ways the Far East market for reinsurance resembles West Europe ten or fifteen years ago. Electronic commerce and alternative risk transfer have not made much headway. This may change as larger insurers buy from increasingly global reinsurers, but there is very little desire to change the way we conduct business until and unless there is an imperative to do so. Even in West Europe and North America, the two regions that are supposed to be leading in this respect, traditional reinsurance and distribution methods continue to dominate.

In the Far East's primary market, there remains a large number of small, often family-run companies. Although many of these have a high degree of local knowledge and enjoy tremendous customer loyalty, it is difficult to see how all of them can remain in business. Consolidation, fuelled by globalisation, and sometimes aided by government persuasion, is the almost inevitable outcome. We will have to wait to see what effect this has on the way reinsurance is conducted in the region.

The business currently remains relationship driven, even more than in other parts of the world. This is especially true in the less sophisticated markets. Partly as a result, it is common to find insurers placing a portfolio of very small treaties with a range of reinsurers, which is not an efficient means of transaction, whether from the point of view of supplier or buyer. As companies grow, and as they come increasingly into contact with international reinsurance providers, it is likely that more technical considerations will gain greater prominence, and that there will be higher retentions, as people seek economies of scale.

Still reeling
Singapore's reinsurance community is, like the rest of the sector around the world, still reeling from some horrendous results caused mainly by under-pricing. That is fortunately beginning to change, though there is still some way to go before prices reach commercially acceptable levels.

Most of the operations here are under instructions from their head offices to go for profit rather than growth. Underwriters in Singapore have added a new word to their vocabulary - ‘No'. There have been many instances where they have turned down substantial premiums rather than write at technically unsound rates. As a result, rates are finally moving upwards across all classes of business in facultative, proportional treaty and excess of loss.

Larger types of risk are experiencing an especially strong upward lift. Petrochemical plants and semi-conductor factories, for example, are seeing their premiums rise significantly. Current growth areas for both insurance and reinsurance include health, professional indemnity, Bankers Blanket Bonds and Directors & Officers.

The increases are far from uniform, however, and vary depending on the territory and class of business. Prices have risen substantially in countries badly affected by natural perils, such as windstorms, floods, earthquakes and volcanoes, most notably in Indonesia, the Philippines, and Taiwan. In contrast, Singapore, Malaysia, and Thailand have been relatively unscathed, and their insurance and reinsurance rates have risen much more slowly.

Floods have become a particular problem to underwrite. Unlike earthquakes or windstorms, which have zoning or wind-maps, it is difficult to predict the likelihood of a flood coming to a particular area. Climate changes, made worse by human destruction such as unscrupulous widespread deforestation, have made past records irrelevant. Floods can occur in areas that have previously been flood-free. To make matters worse, underwriters are often indiscriminate when covering this peril, knowingly or otherwise, sometimes even throwing it in for free.

Work smart
It remains, therefore, a tough environment, and it is important to be able to offer your customers more than just a competitive price and good security, essential as these are. The key is to define the added value that you are able to provide. By getting to know the circumstances of individual insurance companies, identifying their potential, and also where they most need help, it is possible to build up more than a buyer-seller relationship.

A proven record as a consistent, long-term business partner able to respond rapidly to sudden needs is an invaluable asset, and helps a company to accommodate the downward cycle. Customers look to their reinsurers for knowledge and skill transfer. Training and reinsurance seminars are also an important part of the added value that we are able to bring. Covering a region the size of East Asia is challenging, but it is not enough simply to work hard – you must work smart as well. Success requires a sound knowledge of each of the markets in which you are active. The differences between, say, the Thai and Indonesian or Japanese and Chinese reinsurance markets are immense, almost certainly greater than you will find in Europe or Latin America. The distances to be travelled can also be huge. An understanding and ability to work with this diversity will provide the foundations for success. You will see more business and, equally important, you will be better positioned to avoid the bad business.

The future
The Far East has started to overcome its recent financial difficulties, and it is widely accepted that the long-term prospects for growth are excellent. Although the so-called Tigers may have lost a bit of their growl, the region's demand for reinsurance will continue to expand rapidly, whatever temporary setbacks there may be along the way. As economies get bigger, so does the proportion of income spent on insurance.

We believe, furthermore, that restricted markets will inevitably start to open up, even though some governments continue to see it as part of their duty to protect their own national industries. Reinsurance has much to offer developing countries in terms of economic certainty and efficient use of capital, and the message that reinsurance is an integral part of any modern economy is a powerful one.

Singapore is ideally placed to benefit from this growth, and to accommodate competition from other centres. Certainly, Hong Kong provides excellent access to China. Japan is a unique market that is best served internally.

The competition from Malaysia can also be expected to increase. Singapore, however, will remain the reinsurance capital of the region, because it has the necessary infrastructure, communications and critical mass. Although, we expect there to be fewer reinsurers writing more business, there will still be more than enough reinsurers here to meet the needs of our customers.