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Reinsurers look to Southeast Asia for growth opportunities


Reinsurance buyers in Southeast Asia continue to benefit from soft rates as reinsurers target the region's fast-growing economies.

With insurance premiums growing by double digits in several countries in the region, reinsurers and insurers expect more growth as the middle class expands.

As a result, Singapore has developed into a reinsurance hub for Southeast Asia, with many international reinsurers starting operations in the city-state.

Regulators in Singapore and elsewhere are introducing risk-based capital rules and other regulations associated with mature insurance markets.

While pricing varies depending on the risk, reinsurance rates generally are flat in the region, experts say.

At the same time, exposures are rising, with the markets seeing billions in losses from the 2011 floods in Thailand.

Most claims have been settled from the floods, but a few business interruption claims still are being finalized, said Duncan Buchanan, CEO of Marsh PB Co. Ltd. in Bangkok.

But the losses have not stifled the region's overall growth.

Thailand had the fastest nonlife premium growth in the region in 2013 at 17.2%, followed by the Philippines at 12.8%, Indonesia at 7.7% and Malaysia at 2.7%, according to Swiss Re Ltd. Much of that growth has been in personal lines, but commercial insurance penetration is still growing slowly.

Insurance penetration rates in Asia remain low (see chart page 15).

“With the rising accumulation of wealth of the middle class and the impact of urbanization, we expect insurance penetration to increase at unprecedented levels in the coming 15 to 20 years,” said Francis Savari, Singapore-based head of client portfolio management in Southeast Asia at Munich Reinsurance Co.

Reinsurance pricing remains relatively soft, much like other markets around the world.

“The market is still softening, as there is more than adequate capacity for most lines of business” across Southeast Asia, said Malcolm Steingold, CEO of Asia Pacific for Aon Benfield Group Ltd. “As a consequence, we would not expect to see any rate increases other than those driven by loss experience within a specific country in relation to a specific treaty.”

As the market remains competitive and coverage demand increases, regulators are updating and introducing regulations. Countries in the Association of Southeast Asian Nations have taken steps to harmonize their insurance laws including instituting risk-based capital regulations.

Implementing risk-based capital laws in Thailand and Malaysia in 2011 led to consolidation in the markets, but also to a more financially sound industry, said Sharon Ooi, managing director of client markets Asia in the Singapore office of Swiss Re.

“A number of companies are stronger now on a capital basis and they are also stronger from a balance-sheet perspective,” Ms. Ooi said. “That's allowed them to be more efficient in reinsurance buying.”

Reinsurers are keen to expand their portfolios, but challenges remain, Ms Ooi said, such as insufficient rates in the primary insurance markets, limited access to accurate data to gauge exposures and insufficient modeling of catastrophe exposures.

The region is exposed to typhoons, earthquakes, tsunamis, inland flooding and volcanic eruptions. Prior to the 2011 Thai floods, however, few natural disasters resulted in significant insured losses due to low insurance penetration rates. The floods hit hard, causing $30 billion in damage, of which about $12 billion was insured, according to Aon Benfield. Most claims paid went to multinational companies operating factories in Thailand.

The Thai floods were a watershed moment for the insurance industry in Southeast Asia.

“The Thai floods had not been modeled and they caught reinsurers and insurers unprepared,” said Kent Chaplin, CEO of Lloyd's of London (Asia) Pte. Ltd. in Singapore. “Asia-Pacific is probably one of the most cat-exposed regions in the world. That's both an opportunity and a challenge.”

“One issue that's common to Southeast Asian nations is concentrations of exposures in industrial parks,” said James Nash, Tokyo-based chief executive of the Asia-Pacific region for reinsurance brokerage Guy Carpenter & Co. L.L.C. “We have built our own suite of catastrophe and flood models and also developed a database to identify exposures in the industrial parks across the region.”

To tap the region's premium growth, global reinsurers have opened offices in centrally located Singapore, which is quickly evolving into a reinsurance hub thanks to its favorable regulatory and tax environment. They include Lloyd's of London, Munich Re, General Re Corp., Allianz S.E. and XL Re Ltd.

The Monetary Authority of Singapore says 31 reinsurers operate in the country; 20 are general reinsurers, eight are multiline reinsurers and three are life reinsurers. Combined, they wrote 3.8 billion Singapore dollars ($3.04 billion) in offshore premiums in 2013, up 44% since 2009. China accounted for most of that with 15.7%, followed by Australia at 15.2%, Japan at 11.6% and India at 11.2%.

As economies grow, Singapore likely will continue playing a central role for reinsurance in Asia.

“There is very much an agenda to develop Singapore into a reinsurance hub akin to Bermuda,” said Aon Benfield's Mr. Steingold.

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