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AUSTRALIAN FIRMS EXPAND INTO ASIA BUT MANY CONSTRUCTION PROJECTS ON HOLD DUE TO CURRENCY CRISIS

Posted On: Oct. 26, 1997 12:00 AM CST

SYDNEY, Australia-Southeast Asian risk managers are gaining access to a wider market as Australian underwriters and brokers expand into the region.

Brokers and insurers are attracted by the area's long-term need for infrastructure development, despite heavy insurance regulation and a downturn in regional construction projects due to the recent fall in many Southeast Asian currencies (see story, page 69).

With the Australian market soft and highly competitive, Australian underwriters are seeking opportunities offshore. Many Australian brokers and insurers believe the stall in the Southeast Asian construction market and the slump in currencies are temporary and that overall development opportunities are strong.

But some insurers and brokers say it will be 12 months before the construction market lifts and opportunities improve. Many major projects are being put on hold as the region's currency crisis unfolds.

Rodney Adler, chief executive officer of Sydney-based FAI Insurances Ltd., said the "currency meltdown" has forced the value of some Asian currencies down 50% and the stock market down 70%.

But he said he considers the drop in Asia's stock and currency markets "just a little blip" and said FAI would continue to "integrate its operation into Asia."

Terry Paradine, head of Sydney-based broker J&H Marsh & McLennan Pty. Ltd., Asia-Pacific division, said the demand for construction coverage is enormous and growing in Asia, despite many construction projects recently being put on hold.

Mr. Paradine said he expects opportunities for new construction business for insurers to improve in a year.

"When you consider the population bases in India, China and Indonesia, infrastructure needs are increasing, and the industrial base is growing," Mr. Paradine said.

The Philippines, Thailand, Taiwan and Malaysia are providing increased opportunities for insurers as their middle classes and economies develop, Mr. Paradine said.

J&H Marsh & McLennan has offices in Thailand, Malaysia, Indonesia, the Philippines, Taiwan, Hong Kong and China, and a representative in India.

Mr. Paradine said underwriters in Europe also are increasing their focus on construction coverage in Southeast Asia and establishing "operational hubs" from which to work.

But the opportunities in construction and other sectors does not mean access to Southeast Asia is unlimited, Mr. Paradine warned.

"Asia is not a free market and is heavily regulated. Governments are not about to let foreign insurers get a disproportionately large slice of the cake," Mr. Paradine said.

In Malaysia, Mr. Paradine said strong opportunities remain in most classes, but he confirmed infrastructure and other construction projects are on hold because the government has over-extended its debt, a situation the currency fall has exacerbated.

Most infrastructure and development for the 1998 Commonwealth Games, which Malaysia will host, is complete, and few new construction coverage opportunities are available in the country, he said.

FAI's Mr. Adler said he is not planning "intensive expansion," but the insurer has wholly owned subsidiaries in Hong Kong and arrangements with companies in Guam and Saipan that write business for FAI.

The company is holding discussions with companies in Indonesia, Malaysia and Thailand, where it plans to form joint ventures. FAI's primary commercial markets are professional indemnity, marine and construction.

FAI's integration into Asia is prompted by a lack of growth opportunities in Australia's mature market, where FAI holds 5% of the non-life market, Mr. Adler said.

Annual gross written premiums in Indonesia are $450 million and growing every year, he said.

Sydney-based insurer MMI Ltd. has insurance operations in Asia, including Guam and Saipan, and has signed a memorandum of understanding with India's Alpic Finance Ltd. to enter the Indian market, said Angus Mciver, general manager of international.

In May, MMI continued its push into Asia, acquiring 20% of Allianz A.G. Holding's non-life insurance operations in Indonesia, PT Asuransi Allianz Utama Indonesia.

MMI has also bought 20% in Allianz Insurance (Singapore) Pte. Ltd., in a move fundamental to expansion into the Asian insurance market, Mr. Mciver said.

Penetration into the non-life insurance market by Australian companies is still "relatively low" and, compared with corporate and government expenditure, there is still a lot of room to increase market share, said J&H Marsh & McLennan's Mr. Paradine.

The currency fall eventually will affect the insurance business, but he said he does not expect it to "flow on" for some years. Southeast Asian underwriters are protected by tariffs that would buffer them from too many ill effects, he noted.

All Southeast Asian countries except Hong Kong are artificially supported and "have interventionist regulations," he said.

John Parkinson, Lumley General Insurance Co. Ltd.'s Southeast Asian development manager, based in Perth, Western Australia, said the Southeast Asian property/casualty market already is oversupplied and that underwriters must develop points of difference to increase market share.

But J&H Marsh & McLennan's Mr. Paradine said Singapore and Hong Kong are the only oversupplied, mature markets in Southeast Asia.

Neither country is "typical of the Asian market," Mr. Paradine said.

Despite the instability in the construction cover market, Mr. Paradine said companies are relying on diverse products and customer bases to minimize risk and retain business.

Lumley General's Mr. Parkinson said Lumley is "sitting back" and taking a "wait-and-see approach" to Southeast Asia. But he agreed insurers have to develop new products and niches to secure market share.

Lumley General has cooperative partnerships in Malaysia and Indonesia.