Several stories in this edition of Business Insurance Europe will remind insurance buyers of the risks involved in emerging markets.

Insurers and reinsurers have been keen to grow their businesses outside mature—saturated and competitive—markets in Europe and the United States. This has taken many of the big companies-Swiss Reinsurance Co., Munich Reinsurance Co. American International Group Inc. and Allianz S.E. to name but a few—into emerging markets in Asia, the Middle East, Eastern Europe and Latin America.

The problem for insurers and reinsurers—that want to make a long term investment in the potential insurance markets of tomorrow—has been that these markets also can prove highly competitive and not particularly profitable.

Soft markets are particularly evident in Russia, Eastern Europe and China.

Buoyed by plenty of reinsurance capacity, the primary commercial market in China is developing, but it is also very competitive.

This month Lloyd's of London announced that it had successfully received a license to open a reinsurance company in Shanghai. But when commenting on Munich Re's preliminary results in late February, Jörg Schneider, board member at the Munich based reinsurer told BIE that his company had turned away business in China due to high levels of competition. "Two years ago we announced the acquisition of quota share treaties in China worth €300 million to €330 million as part of our expansion drive into China. But the primary rates there have been under substantial pressure and continue to be so therefore we have given up about €210 million in premium volume of that business accepted only two years ago," he said.

Equally, Eastern European markets—notably the Czech and Slovak Republics—are also proving to be highly competitive, a fact born out by falling rates for corporate insurance. A similar story is being played out in Russia—where many foreign insurers have entered the market—and some primary insurers of industrial risks are said to be reconsidering their position in the country (BIE Feb. 12).

The experience of insurers is a stark reminder of how looking to emerging markets for growth is not without risk. Asia and Eastern Europe may offer growth potential for increased revenues, but companies should not ignore the risks in their haste to find new markets or ways in which to cut costs.

China, in particular looks promising on the surface, but cultural, political and legal issues can produce a multitude of potentially huge and damaging risks, which can have implications outside of China itself.

Risk managers have an important role to play in helping companies make the best of growth potential without taking ill considered risks.