Japanese and Chinese insurers' overseas acquisitions driven by different challenges at home
The increase in acquisitions by insurers in Japan and China, especially in the last couple of years, mirrors the dynamics of the two markets and is increasing diverging credit risks. In a report called "Insurance M&As by Japanese and Chinese Insurers: Acquisition Targets and Credit Impacts Vary", Japanese acquisitions were described as being driven by stagnant operating conditions and little investment opportunities at home, with life insurers focusing on yield enhancements, while non-life insurers focus on franchise expansion. In China, insurers' are driven by the desire to diversify and by opportunities to launch into new markets and lines to complement their domestic growth. A review of key recent M&A deals highlights that Japanese insurers often invest in highly rated, niche companies that occupy leading positions in mature markets. This strategy has enabled them to keep their credit profiles against potential dilution, even though such overseas exposures now make up a substantial part of franchises. In Japan, there are a number of challenges, including low interest rates, weak economic and premium growth, high asset allocations to equities and Japanese government bonds and concentrated natural catastrophe exposures. This means risk diversification through expanded overseas investments are a key objective in outbound M&A initiatives. Japanese insurers operating in a slow growth, low interest rate environment and the strong market positions of the acquisition targets mitigate some of the risks associated with the rapid expansion.
2017-18 insurance growth driven by emerging markets
Emerging Asia is set to have the strongest growth in non-life premiums over the next two years, predicted to be almost 8% in 2017 and 9% in 2018. Swiss Re published its analysis saying, “A contributing factor will be the investment opportunities presented by China's One Belt One Road programme, which is expected to generate an increase in demand for commercial insurance.” The One Belt One Road programme is China's strategic outreach scheme targeted at countries lined from Asia to the Middle East and Africa. Globally, non-life insurance sector premium volumes are predicted to grow by 2.2% in real terms in 2017, after 2.4% in 2016 and by 3.0% in 2018. Premium increases in the emerging markets are forecast to grow steadily from a predicted 5.3% in 2016 to 5.7% in 2017 and 6.7% in 2018. An improvement in commodity prices and strengthening economic activity will stimulate increased demand for insurance from the emerging regions.
Updated MAT insurance rules to be implemented in Singapore by January
The Monetary Authority of Singapore (MAS) has revealed that it has updated regulations for marine, aviation and transportation (MAT) insurance and is aiming for them to be implemented by 1 January. Lee Keng Yi, director and head of the insurance department of the MAS, confirmed that the amended regulations will be implemented in Singapore before the end of the year. These regulations are part of the Seventh Package of Financial Services Commitments, one of the initiatives of the Asean Economic Community (AEC) designed to liberalise the insurance sector within the region and promote cross-border trade. Regulators in other nations said they were working on updating regulations in order to meet the Seventh Package requirements. Member nations of the AEC penned an agreement on the Seventh Package in May. The deal enables insurance companies to offer MAT insurance across ASEAN’s borders and will help to lower the cost of insuring cross-border business risks and spur intra-ASEAN trade.
UK insurers target 8 priority markets for business
China and India have been identified as two of the top priority markets for UK insurers, with a steady approach required to secure improvements in the ease of doing business there. Another six Asian markets have been highlighted where members of the association of British insurers (ABI) are presently active but there is high potential for growth. The remaining six are, Hong Kong, Indonesia, Japan, Malaysia, Singapore and South Korea. The eight markets were picked on market size, growth potential and the presence of existing commercial and regulatory relationships. The ABI has submitted an industry paper to the UK government on the potential of the markets, highlighting the main practices, including key protectionist or discriminatory practices that need to be looked at if insurers are to expand further.
The issues include:
- Getting in place workable rules on investment, such as whether foreign insurers can set up subsidiaries or branches overseas.
- Easing restrictions on foreign direct investment, or limits on equity stakes in domestic insurers.
- Tackling discriminatory measures, such as reinsurance collateral requirements.
- Ensuring UK holding companies of international companies can carry out financial functions such as lending money to overseas subsidiaries, subscribing for shares in overseas subsidiaries, and receiving repayments, distributions and other returns of value back to the UK from overseas.
- Addressing barriers to moving skilled people into overseas markets.
Asean's gross written premiums up 2.9% to US$96.3m in 2015
Gross written premiums penned in Asean grew 2.9% to US$96.3 million, with total insurance penetration also growing 3.8% in 2015. Singapore, Thailand and Malaysia boast the most developed insurance markets, making up 33%, 23% and 21%, respectively, of Asean's insurance premiums. Cambodia, Vietnam and the Philippines recorded the highest growth in gross premiums. The region chalked up a 3.9% rise in net written premiums to US$68.7 million for life insurance business, with Singapore, Malaysia and Thailand as top contributors. The largest growth was seen in Cambodia, followed by Vietnam and the Philippines. The region's general insurance business grew 2.9% in gross written premiums, led by Singapore, Thailand and Indonesia. Cambodia and Vietnam recorded the highest growth in general insurance business at 16.4% and 13.9%, respectively. AIC secretary-general Evelina Pietruschka said, "Several markets like Singapore and Thailand have comparable penetration rates to mature markets like the United States or Europe, nearly in the double digits, but the overall Asean insurance penetration rate still measures just 3.8 per cent, indicating there is still plenty of room for insurance to grow in this region."
Brexit to have little impact in Asia but there are lessons for the region
Britain's decision to part from the European Union will have only a small impact on the insurance sector in ASEAN, but the sentiment behind Brexit should come as a warning for countries in the grouping, experts in the industry warned. Steven Dewhurst, a partner at law firm DAC Beachcroft said, "The mood in the UK amongst the population was one of dispossession." He was speaking at the 2nd ASEAN Insurance Summit in Yogyakarta on Wednesday. Dewhurst said the EU was an easy target for people with a sense of dispossession because the political elite in the UK failed to present the positives of being in the bloc. Dewhurst went on to suggest possible questions that might be raised in Asia, "What are the tangible benefits of membership of ASEAN, for your citizens of ASEAN, something they can touch, feel and identify? If you are struggling to identify those benefits in a convincing way, then I would say that the ASEAN could become vulnerable to the same negative sentiment which now affects the EU.”
10% of smallest Singaporean firms have no insurance
Nearly 10% of the smaller SMEs in Singapore do not carry any insurance to protect against risks in the economy, sales and profitability despite nearly a third identifying such risks as a worry for the future. More than half of SMEs are happy to continue with only the most basic, mandated levels of insurance. The biggest concerns among SME’s were unfulfilled client payments and business interruptions, such as the loss of key staff, the loss of income due to BI and damage to/loss of inventory. Karl Hamann, chief executive officer of QBE Insurance Singapore said, “While there was a slight improvement in the number of smaller SMEs who do carry at least some insurance compared to 2015, there continues to be a disturbing disconnect between the issues SMEs are most concerned about and the insurance cover that some of them actually carry.” QBE’s survey last year discovered that one in seven smaller SMEs did not have insurance. SMEs make up 99% of all enterprises in Singapore and provide half the country’s GDP. With 6% of SMEs saying they do not hold any insurance, this finding concludes that 11,400 firms do not have any protection when this statistic is extrapolated across Singapore. “With volatility expected to persist through much of 2017, SMEs should seriously consider mitigating their business risk through comprehensive risk management, ensuring they continue to positively contribute to Singapore’s economic success, while operating their businesses with peace of mind,” Hamann said.
Allied World Asia-Pacific adds two to its casualty team
Allied World Assurance Company Holdings revealed two appointments to its General Casualty Division in Asia. Daphne Boon will take up the position of vice president, head of general casualty and Christie Huang Shuying will become assistant vice president. Senior Vice President, Head of General Casualty, Jota Shohtoku said, “These appointments demonstrate Allied World’s continued ability to attract and grow talent and are another positive step forward in building our regional casualty portfolio. Both Daphne and Christie will be based in our Singapore office and bring extensive knowledge of the Singapore market, adding breadth to Allied World’s regional casualty expertise across both South and North Asia.” Boon joins Allied World from AIG where she served as the Head of Casualty Department, managing one of the largest casualty portfolios in Singapore with additional leadership responsibilities for Indonesia. Huang also joins from AIG, where she worked for eight years, initially as an underwriter before progressing up to a Casualty Underwriting Manager last year.
