Long considered to be playing second fiddle to Hong Kong, Singapore has emerged as an Asian insurance powerhouse. Liz Booth investigates the country’s rising prominence.
Ask the man in the street about powerful emerging markets and they are more than likely to name China and India. But in the past few years Singapore has been building itself into a significant regional force, able to access markets across South East Asia and spread its wings a little farther afield. Increasing numbers of firms are opening offices, adding to staffing levels and doing business in this well-regulated and respected territory.
The insurance and reinsurance industry has been regulated by the Monetary Authority of Singapore for 30 years, with new entrants reporting a warm welcome for those eager to do business. Speaking earlier this year, Lloyd’s chairman Lord Levene, summed it up: “Singapore is an inspiring place to be. KPMG now cites Singapore as the most competitive place for business worldwide. This small island is doing big things for its economy.”
And it is difficult not to become involved in the insurance and reinsurance sectors. Maurice Burke, a Singapore-based partner of law firm Herbert Smith, says the partnership had not sought out insurance business when he moved there a few years ago but now sees quite a lot of activity. “Insurance and reinsurance follows the path of major investment,” he says, adding “when it comes to risk, inevitably there will be insurance and reinsurance issues and they will be part of any disputes.” Generally speaking, he says, there is a lot of activity out of Singapore, much of it centred on business involving Indonesia. “You have a lot of multinationals investing in large infrastructure and offshore energy projects around Indonesia but much of that work is done from offices in Singapore.”
Putting the growth in perspective, Burke says that when he left Hong Kong in 2003 to move to Singapore, Hong Kong was the stronger of the two centres. But a combination of politics, bird flu and pollution has made many firms reassess their location. The fact that Singapore was a cheaper destination than Hong Kong, geographically closer to South East Asian states such as Malaysia, and the ripe investment opportunities has all meant rapid development for the territory.
“KPMG now cites Singapore as the most competitive place for business worldwide. This small island is doing big things for its economy
Burke predicts Singapore will become the most prominent centre for the region – and may well develop opportunities further afield too. He explains, “The population is 15% ethnic Indian and it is only a three and a half hour flight to Delhi which puts Singapore in an excellent place to benefit from the expected rapid outward development from India in the next five to ten years.”
In terms of choosing between Shanghai and Singapore, Burke believes the major differential is that in Shanghai firms are there purely to do business in China while in Singapore, most firms are there to do business across the region.
Moody’s Global Reinsurance Industry Outlook warns that “Asia Pacific’s reinsurance sector has been a buyer’s market because of the abundant capacity available and a softening rate environment.” It says, “Capacity is being freed up as a result of primary carriers retaining more of their business and utilising more non-proportional reinsurance to protect themselves against large losses. Moreover, a benign 2006 catastrophe year supported lower rates for the recent 1 April and 1 July renewals. Given the pricing, and in certain regions the absence of robust models, a major catastrophe event in selected Asian markets could trigger large losses.”
“Singapore is an excellent place to benefit from the expected rapid outward development from India in the next five to ten years
Moody’s has also pointed to a regional trend in that, historically, the reinsurance business went to large global players, because of their better technical expertise and larger capital bases, which in turn support their willingness to write these risks as compared to domestic reinsurers. But now, Moody’s reports, “Domestic reinsurers have local knowledge and provide stable reinsurance support to the domestic primary carriers.”
It highlights the arrival last year of Asia Capital Reinsurance (ACR) with an initial capitalisation of $620m. The firm aims to underwrite specialist insurance coverage, the demand for which will continue to grow, says Moody’s, although it says the lack of historical data required to accurately price these risks remains a concern. In addition to specialist coverage, Singapore and Malaysia are positioning themselves as Asia’s hub for the development of a regional retakaful market (Shari’ah-compliant reinsurance) on the back of the increasing number of takaful insurance companies in these two countries.
London in Asia
Lloyd’s is clearly in a bid to keep up, with the opening of its offices in both China and Singapore.
“In 2002, the Lloyd's Asia platform had two syndicates and wrote premium of $7m. Today it has eight syndicates, and writes around $100m of premium a year
“From Lloyd’s perspective, our business throughout Asia is extremely important,” explains Levene. “It has grown significantly in the last five years, and will continue to do so.” He stresses that opportunities for the insurance market exist across the region and not just in China or India. Research conducted by Lloyd’s predicted that the marine cargo market would break the $1bn barrier, the product liability market would grow some 27% and that premium from director’s and officer’s (D&O) and professional indemnity (PI) business would reach almost $400m.
He believes that growth in Singapore has been helped by its “modern, liberal, open regulatory regime” and is reflected in the development of the Lloyd’s Asia platform, which is based in Singapore. “In 2002, the Lloyd’s Asia platform had two syndicates and wrote premium of $7m. Today it has eight syndicates, and writes around $100m of premium a year. Business written by syndicates based in Singapore has grown five-fold over the last four years. We expect this growth to continue, and the number of syndicates to reach around 15 by the end of 2008.”
Among the new names is Ascot Underwriting, where chief executive officer Martin Reith is hugely enthusiastic about its new Singapore operation. He sees it as a first foray into the region after closely watching the development of the Lloyd’s platform and as a necessary move to ensure the firm has a presence where the business is. “We had noticed a trend that business is not naturally gravitating to London any longer. We need to go to where the business is.”
The Lloyd’s platform has made it much easier for the syndicates to establish their own offices. Reith is also watching the Chinese development but currently feels “China is a leap of faith as far as I am concerned. I don’t think it is the right timing. The whole world is looking to China as an opportunity. I am concerned Lloyd’s is getting wrapped up in the vogue. Singapore is far more amenable and has a far more experienced way of dealing with insurance and as a regional hub.”
“The only thing Singapore can do is grow...in terms of people, expertise and insurance, it is first-class
Reith expects Singapore to act “as a base to attract business from other countries”. While Ascot has started with a focus on property, energy and cargo with a small amount on hull and terrorism, it is also handling some facultative reinsurance business where the legislation dictates such as in Malaysia.
As with other Lloyd’s entities, Amlin bosses have been watching and waiting for the right moment to add their support to the Asia platform. This has now been reached, according to chief operating officer David Harris, who believes Singapore has matured as a market and “its capacity to write more business is increasing”. Energy will be a key target for Amlin, with a limited amount of cargo and property. “We already see an element of offshore energy in the London market so it is business we know about.”
But Harris stresses that this move in no way detracts from London as a leading global market. “One does need to recognise regional markets, whether Singapore or elsewhere as their capacity to write more complex business increases. Our view is that it is better to be part of that and to support that development.” Singapore, he believes, now has sufficient momentum for new opportunities to increase. Harris says there is now sufficient capacity, backed by the right expertise, for the country to be a rising star in the insurance world.
Markel is another new entrant and Richard Fricker, director for overseas operations, is equally enthusiastic about the insurer’s plans. “You can not go for a scattergun approach with offices in a whole host of countries,” he says, explaining the firm has deliberately chosen a hub from which to operate its Asian strategy. The “plug-and-play” opportunity of joining the Lloyd’s platform also appeals to Fricker because of the ease with which they are able to enter the market. And it is not just the insurance sector that is expanding. “You just get a sense there is a lot of change going on,” he says, with developments in banking, construction and tourism all adding to the buzz.
Energy will be the focus for Markel, as with Amlin and Ascot, but he expects growth in PI and D&O business along with product liability – a product which is much in demand in the region, given the recent Chinese product recall problems. Fricker’s view is the “the only thing Singapore can do is grow. I think it is unlikely to compete with London or Bermuda because they offer global business while Singapore is very much a regional hub but in terms of people, expertise and insurance, it is first-class.”
Singapore: Innovation in Singapore
â€¢ The Singapore authorities are showing every sign of being among the most innovative in the region in terms of alternative structures. Earlier this year Whittington completed the first ever solvent scheme of arrangement for Singapore-based Lion City Run-Off Private Limited (LCR) (formerly the offshore insurance fund business of the Insurance Corporation of Singapore Limited). The scheme, which is a Companies Act process, was sanctioned in April 2006 after approvals from the courts in England and Singapore. The scheme was successfully completed within 13 months of getting these approvals. Whittington bought LCR in June 2004 and operated it as a special purpose reinsurance company to manage the ICS run-off business, which consisted mainly of business emanating from London and the US markets from 1963 to 1993.
â€¢ Meanwhile, Singapore could be among the leaders in creating regulatory framework for insurance securitisation. The Monetary Authority of Singapore (MAS) says, â€œThrough securitisation, insurers can transfer insurance risk directly to the capital market. Recognising the merits of such risk mitigation techniques, especially for managing risks arising from pandemics and natural catastrophes, and the potential demand for insurance linked securities in Asia, MAS is developing a regulatory framework for insurance securitisation.â€ Consultation on the proposals closed in the summer and the responses are under consideration.
â€¢ In August rating agency Moodyâ€™s published a special report and highlighted Singaporeâ€™s â€œinterest and enthusiasm for Islamic productsâ€. It says MAS â€œconstantly works with the industry to ensure the countryâ€™s tax and regulatory framework shows a level playing field between Islamic and conventional financing. Concessionary tax treatment for Sukuk is similar to that for conventional bonds, while Singapore has also waived the double imposition of stamp duties on real estate financing structured under Shariâ€™ah law.â€
Liz Booth is a freelance journalist.