Powered by: Thursday October 13, 2016 EAIC TODAY · Kara Raiguel would replace Tad Montross at its...

3 A LTERNATIVE CAPITAL IS READY TO INNOVATE: AON

4 CYBER RISK HIGH ON COMPANIES’ AGENDA

6 INNOVATION KEY TO SUCCESS IN ASIAN MARKETS

8 CHINA INDUSTRY ENTERING ‘GOLDEN PERIOD’

10 FIERCE COMPETITION BUT ALSO GREAT OPPORTUNITY IN ASIA: QATAR RE

12 S&P: OPPORTUNITIES BUT ALSO RISKS IN INDIA

14 M&A AND ANTI-CORRUPTION HAVE AN IMPACT

14 MOVE TO SPECIALTY LINES FUELS COMPETITIVE PRICING

15 NEW TECHNOLOGIES CREATE NEW OPPORTUNITIES

16 GLOBAL SLOWDOWN DRIVES TRADE GROWTH

16 CYBER GROWTH TO CONTINUE IN ASIA-PACIFIC

18 THE BIGGEST INSURERS IN ASIA—AND WHAT THEY CEDE

EAIC TODAYThursday October 13, 2016

1DAY 2: Thursday October 13 2016 | EAIC TODAY | www.intelligentinsurer.com | www.bermudareinsurancemagazine.com

DAY 2

What’s inside

Rainer Schuermann

Change in Gen Re’s hierarchy means period of transformation and opportunity for Asia unitIn May this year, Gen Re revealed that

Kara Raiguel would replace Tad Montross at its helm, a move that triggered a phase of reassessment and change at the company. For Rainer Schuermann, Gen Re’s regional manager, P/C Treaty Asia, this can bring exciting opportunities to the region he is responsible for.

“What the new top management is asking of us is that we turn over every rock internally and externally to make sure that we are not missing out on profitable business,” he said. “That encompasses everything about how Gen Re is participating in the market, while being paid the right price for the exposure we take on our books is still absolutely key to everything we do.

“It is, however, fair to say that Gen Re is in change mode. We therefore invite our clients and reinsurance buyers across the globe to ‘un-think’ some of the conceptions they may associate with Gen Re. It is too early to comment on very specific issues, but I would expect to see changes in our risk appetite in some Asian markets.”

Looking at the Asian market as a whole, Schuermann sees growth potential in several geographical areas.

“What is needed for growth, both in

The unique set of forces driving Asian companies to acquire insurers and

reinsurers with a global reach shows little sign of abating and will lead to more mergers & acquisitions (M&A) in the future, analysts have told EAIC Today.

Two more deals this month illustrated this trend with Sompo Japan Nipponkoa Insurance buying Endurance Speciality for $6.3 billion, while two investment corporations owned by the Chinese state—Shenzhen Qianhai Financial Holdings

insurance and reinsurance, is a stable regulatory, economic and political environment. We see this happening in a number of countries in South East Asia, so I would not want to single out a particular market. Obviously, in the more mature markets like Japan, Korea or Singapore, we cannot expect much growth of the primary markets.”

Gen Re has been present in many markets in the region for a long time, and Schuermann

(QFH) and Shenzhen Investment Holdings (SIHC)—are set to acquire ACR Capital Holdings, the holding company of Asia Capital Re.

These recent deals follow Mitsui Sumitomo Insurance acquiring Amlin for £3.5 billion, Fosun International buying Ironshore for some $1.8 billion, and Tokio Marine paying $7.5 billion for HCC Insurance, all in 2015. In addition, China Minsheng Investment bought Sirius for $2.6 billion earlier this year.

Sid Ghosh, vice president and senior analyst

at Moody’s, said the rationale many Asian buyers use when considering acquisitions is different from that of many companies in the west and means that such deals look attractive despite the considerable pressures on re/insurance globally.

“Over the past few years, there have been a number of acquisitions by Asian buyers, including the Sompo/Endurance deal, which appear to be less sensitive to the high price to book values and (Continued bottom of page 2)

More deals forecast as Asian firms open their wallets

says that key achievements have been the company’s continuous investment in the market infrastructure and its commitment to building great relationships and know-how over time.

“We have been very successful on the life/health side of the house. Market research that is being carried out regularly by professional third parties suggests (Continued top of page 2)

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News 13.10.16THURSDAY

(Continued from top of page 1) that Gen Re is rated as the number one life reinsurer in the Asia-Pacific region for a number of consecutive years now,” he said.

“Our business model there, very generally speaking, is based on the development of primary life/health products and, in return, the reinsurance coverage of such products.”

While the company certainly benefits from these achievements on the life side, building

(Continued from bottom of page 1) place more value on reinsurers as a way to add meaningful US/European cash flows to their businesses,” Ghosh said.

“In the case of Japanese buyers, they have been aided by a strengthening currency, and incentivised by tepid growth prospects in their home markets. Therefore, while pressures on the reinsurance industry will encourage more consolidation, it is more likely that we will continue to see more deals where a larger diversified company is buying a reinsurer, as opposed to mergers among reinsurance peers.”

Sompo Japan Nipponkoa Insurance indicated quickly in the aftermath of the Endurance deal that it is open to further deals and that Endurance may represent only the start of an acquisition spree.

It has said it wants to become one of the ten biggest corporations globally. “We are trying to become one of the top ten global enterprises. To do that we still have a gap and the Endurance transaction is not enough to fill it,” a senior executive said in the aftermath of the deal being revealed. “In terms of mid-term perspective we do not deny the possibility of further acquisitions.”

Brian Schneider, global head of reinsurance at Fitch, said these recent deals are confirmation of a trend that has been in place for several years now.

“The Sompo and ACR deals are really more of a continuation of the existing global dynamic of reinsurance, which extends outside only Asian buyers.

“We have seen several recent reinsurance

a larger P/C portfolio in the region has been more of a challenge, he said.

“We’ve always offered great value on the individual risk side through our excellent facultative teams. On the treaty side the market is somewhat more commoditized, so the experience when offering our high value based direct treaty product in a softening market environment was a bit of a mixed bag.” n

Change in Gen Re’s hierarchy means period of transformation and opportunity for Asia unit


2 | EAIC TODAY | DAY 2: Thursday October 13 2016 www.intelligentinsurer.com | www.bermudareinsurancemagazine.com

deals driven by global diversification, including Fairfax’s purchase of Brit in July 2015, Sumitomo’s purchase of Amlin in February, Exor’s purchase of PartnerRe in March and China Minsheng Investment’s purchase of Sirius in April, all this year.”

More M&AGhosh said that Moody’s expects more M&A activity in

the reinsurance sector driven by this dynamic, although not at the same pace as 2015, when nine large M&A deals were announced.

The main reasons it is forecasting consolidation include the soft market and the resulting need to find cost synergies; a desire to diversify into different lines of business, including specialty lines and primary insurance which are relatively less affected by margin compression; and the need for scale to provide coverage across many lines and geographies in order to serve the needs of global primary insurers.

Ghosh added that the pace of consolidation has slowed in 2016 compared to 2015 partly because of the rich price to book values for many reinsurers and the relatively small number of high quality reinsurers franchises left to be acquired.

“Moody’s currently has a negative outlook for the global reinsurance sector due to the abundance of capital and tepid demand for reinsurance, which together continue to place pressure on reinsurance pricing and drive reinsurers’ profitability lower. We believe the smaller and less diversified reinsurers will be potential targets for future acquisitions.”

The rationale behind QFH and SIHC

acquiring ACR Capital Holdings is a little different. They are looking to increase their investments in the reinsurance industry more generally but also to develop Shenzhen Qianhai into a regional reinsurance hub.

Li Qiang, chairman of QFH, said: “On the one hand, QFH would utilise ACR’s platform and professional advantages, consolidating global insurance capital or resources and developing professional insurance products and services, to provide comprehensive risk management solutions for the ‘Going Global’ Chinese enterprises.

“On the other hand, we would open up the Qianhai–Asia–international insurance industry chain to form a strong agglomeration and demonstration effect, and make Qianhai the national centre for reinsurance.” n

Brian Schneider

INTELLIGENT INSURER’S EAIC TODAY IS PUBLISHED BY NEWTON MEDIA LIMITED. Registered Address: Kingfisher House, 21-23 Elmfield Road, Bromley, BR1 1LT, United Kingdom Telephone: +44 203 301 8201 www.newtonmedia.co.uk

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3 A LTERNATIVE CAPITAL IS READY TO INNOVATE: AON

4 CYBER RISK HIGH ON COMPANIES’ AGENDA

6 INNOVATION KEY TO SUCCESS IN ASIAN MARKETS

8 CHINA INDUSTRY ENTERING ‘GOLDEN PERIOD’

10 FIERCE COMPETITION BUT ALSO GREAT OPPORTUNITY IN ASIA: QATAR RE

12 S&P: OPPORTUNITIES BUT ALSO RISKS IN INDIA

14 M&A AND ANTI-CORRUPTION HAVE AN IMPACT

14 MOVE TO SPECIALTY LINES FUELS COMPETITIVE PRICING

15 NEW TECHNOLOGIES CREATE NEW OPPORTUNITIES

16 GLOBAL SLOWDOWN DRIVES TRADE GROWTH

16 CYBER GROWTH TO CONTINUE IN ASIA-PACIFIC

18 THE BIGGEST INSURERS IN ASIA—AND WHAT THEY CEDE

EAIC TODAYThursday October 13, 2016


DAY 2

What’s inside

Rainer Schuermann

Change in Gen Re’s hierarchy means period of transformation and opportunity for Asia unitIn May this year, Gen Re revealed that

Kara Raiguel would replace Tad Montross at its helm, a move that triggered a phase of reassessment and change at the company. For Rainer Schuermann, Gen Re’s regional manager, P/C Treaty Asia, this can bring exciting opportunities to the region he is responsible for.

“What the new top management is asking of us is that we turn over every rock internally and externally to make sure that we are not missing out on profitable business,” he said. “That encompasses everything about how Gen Re is participating in the market, while being paid the right price for the exposure we take on our books is still absolutely key to everything we do.

“It is, however, fair to say that Gen Re is in change mode. We therefore invite our clients and reinsurance buyers across the globe to ‘un-think’ some of the conceptions they may associate with Gen Re. It is too early to comment on very specific issues, but I would expect to see changes in our risk appetite in some Asian markets.”

Looking at the Asian market as a whole, Schuermann sees growth potential in several geographical areas.

“What is needed for growth, both in

The unique set of forces driving Asian companies to acquire insurers and

reinsurers with a global reach shows little sign of abating and will lead to more mergers & acquisitions (M&A) in the future, analysts have told EAIC Today.

Two more deals this month illustrated this trend with Sompo Japan Nipponkoa Insurance buying Endurance Speciality for $6.3 billion, while two investment corporations owned by the Chinese state—Shenzhen Qianhai Financial Holdings

insurance and reinsurance, is a stable regulatory, economic and political environment. We see this happening in a number of countries in South East Asia, so I would not want to single out a particular market. Obviously, in the more mature markets like Japan, Korea or Singapore, we cannot expect much growth of the primary markets.”

Gen Re has been present in many markets in the region for a long time, and Schuermann

(QFH) and Shenzhen Investment Holdings (SIHC)—are set to acquire ACR Capital Holdings, the holding company of Asia Capital Re.

These recent deals follow Mitsui Sumitomo Insurance acquiring Amlin for £3.5 billion, Fosun International buying Ironshore for some $1.8 billion, and Tokio Marine paying $7.5 billion for HCC Insurance, all in 2015. In addition, China Minsheng Investment bought Sirius for $2.6 billion earlier this year.

Sid Ghosh, vice president and senior analyst

at Moody’s, said the rationale many Asian buyers use when considering acquisitions is different from that of many companies in the west and means that such deals look attractive despite the considerable pressures on re/insurance globally.

“Over the past few years, there have been a number of acquisitions by Asian buyers, including the Sompo/Endurance deal, which appear to be less sensitive to the high price to book values and (Continued bottom of page 2)


says that key achievements have been the company’s continuous investment in the market infrastructure and its commitment to building great relationships and know-how over time.

“We have been very successful on the life/health side of the house. Market research that is being carried out regularly by professional third parties suggests (Continued top of page 2)

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13.10.16THURSDAYInterview:

Paul Schultz, Aon Securities

Alternative capital is ready to innovateAlternative capital grew again last year but at a slower pace. Paul Schultz, chief executive of Aon Securities, suggests to EAIC Today this growth will continue but innovation will also be needed in the long term.

By the end of the first half of 2016, alternative capital in the re/insurance

industry had reached $75 billion, and while its pace of growth has slowed compared to recent periods, it is noticeably becoming ever more intertwined and integrated with traditional re/insurance. However, experts point out that the long-term growth of alternative capital will depend on its ability to innovate.

These observations and other findings form part of Aon Securities’ recently launched annual insurance-linked securities (ILS) report. This year, the report is aptly titled Alternative Markets Find Growth Through Innovation.

The report reveals that $72 billion of alternative capital was deployed in the industry in 2015—12 percent more than a year earlier. Paul Schultz, chief executive of Aon Securities, says that while this growth is meaningful, it is somewhat lower than that of the 2014 calendar year, during which third party capital increased by 28 percent.

“Growth is slowing a little but the traditional market is increasingly seeing this capacity less as competition and more as a complement to its growth objectives. Re/insurers are using it for their own means as an efficient form of capacity, and changing the mix of how they fund their own balance sheets,” Schultz says.

He says most of the growth in the market has been through the increased use of collateralised structures as opposed to the issuance of ILS.

Schultz also notes that although the cat bond market has not grown year on year, innovation has been occurring within the sector, with a greater variety of perils now being covered and terms of coverage moving ever closer towards those offered by traditional reinsurers.

“The terms and conditions have changed and the wordings are converging with the traditional markets. That makes it easier for clients to match risk transfer solutions and take a more integrated approach,” he says.

He notes that there remain ‘frictional’ costs around ILS transactions, which will inhibit their use for routine hedging transactions. In contrast, it is much easier to procure collateralised reinsurance via a fund or sidecar.

“It is simpler and easier for clients to utilise collateralised reinsurance, meaning its usage will likely continue to expand,” he says.

He says that for the bond markets to grow, these frictional costs will need to be reduced and the product will need to be priced in a way that is comparable with the collateralised product.

“There is a tremendous amount of capital available in this space should the demand side increase,” Schultz says.

He notes that his team’s ILS annual report also reveals that total returns of cat bonds

in the 12-month period to June 30, 2016, outperformed almost any other benchmark or investment available, including US Treasuries and the S&P 500. He says that only high yield bonds were able to match the returns available from cat bonds. “But the uncorrelated nature of cat bonds increases their appeal over other asset classes. This means there remains capital willing to move into this space,” he says.

Innovation neededGoing back to the theme of the report, Schultz says that he expects the alternative market to continue to grow as long as there is continued innovation around the types of products available and the perils they cover.

“It is very likely that the market will begin to broaden in terms of the perils covered and the structures used,” he says. “As a market, it has always focused heavily on property catastrophe business and notable short tail risks. In this regard, it has been well matched to the capital requirements of investors, but we believe that alternative capital will now start to move into specialty lines, including marine and aviation risks, and even into forms of operational risk or casualty risks in some instances.

“We also anticipate more focus on creating financial solutions for clients as well as offering capacity.”

He adds that this situation will increasingly mean a greater choice for buyers and a willingness on their part to create more holistic solutions than in the past.

“The choice available to them will be greater than ever and their sophistication will continue to increase,” Schultz says. “We will see more capital entering this space and more innovation around how that capital is put to work. We believe that a situation where different markets compete for capacity will also deliver to clients the best product and the best price, as well as offering diversification.” nPaul Schultz is the chief executive of Aon Securities. He can be contacted at: [email protected]

Paul Schultz

“We believe that alternative capital will now start to move into specialty lines, including

marine and aviation risks, and even into forms of operational

risk or casualty risks.”

13.10.16THURSDAYNews

Cyber risk, terrorism and D&O risks are high on the agenda for companies in

Asia, Chin Feng, Hong Kong & Greater China CEO for Allianz, told EAIC Today.

“Companies are concerned about the data they hold for their clients and employees; they are concerned about hacking and the disruption they could face as a result of that. Cyber crime, business interruption and reputational risk are all concerns,” he said.

Terrorism is another important emerging risk, added Feng, with concerns ranging from kidnap and ransom to crisis management in general.

Also emerging as a key issue in Asia is D&O claims, which are due to rise as a result of tougher legislation. There is a focus on the ability to manage or improve internal controls, protect customer data, and to ensure compliance with the correct food and safety regulations, said Feng.

These new risks are emerging against a landscape in which there is a great deal of overseas expansion by mid to large size companies, particularly in China, where companies have been investing and buying companies in different parts of the world.

Cyber risk high on companies’ agendaa cleaner environment so a lot of private companies are jumping on the bandwagon.

“Then you have corporate social responsibility; for most companies the end game is to improve their reputation in the market. Additionally, because of the growth in the population, the business-to-consumer online business is Asia is growing quite a lot as well.”

In the short term Feng expects the market will see contingent business interruption become a growing issue due to disruptive scenarios from terrorism to food safety and cyber issues having negative effects on companies.

“Even a simple property explosion can cause a negative impact on global supply chains,” he added.

He also expects cyber claims to become more prevalent.

“There is more awareness; there have been a lot of claims in the US but in Asia we are also seeing an increase of cyber-related issues.

“Risk managers are becoming more concerned about how to detect and understand this kind of exposure in their companies. In time I believe they will be buying insurance to cover that gap as well.” n

Chin Feng

Ashish Jain

Insurers are currently presented with huge opportunities for growth in the Asia market,

and AIR Worldwide is working to support them by continuing its expansion in the region, said Ashish Jain, vice president and managing director of AIR Worldwide.

“There is a large gap between insured and insurable exposures in certain countries and insurance penetration is as low as 5 to 8 percent,” he said.

“We are talking about billions of dollars of untapped premium for the insurer. There is a great deal of effort required for the industry to gather all the information and work to reduce this so-called protection gap.”

AIR Worldwide has four offices in the region, in Singapore, India, Japan, and China. AIR currently provides catastrophe modelling solutions for many areas (territories/countries) in Asia-Pacific, including Japan, China, India, the Philippines, Indonesia, Thailand, Malaysia,

Vietnam, Singapore, Brunei, Australia, and New Zealand.

“Asia is certainly an important part of our global strategy as there is significant need and

growth in the use of sophisticated modelling solutions like AIR’s,” said Jain.

“AIR is committed to bringing new and scientifically advanced models for this region, and in 2016 alone we have released more than 10 new and updated models for Asia, including models for earthquake, tsunami, typhoon wind, flood, and storm surge risk.”

Following on from a successful 2016, AIR’s scientists and engineers will continue to focus on bringing the most reliable models to the market, next year focusing on delivering state-of-the-art solutions for markets including Japan and Australia, said Jain.

“Flood continues to be a critical area of model development and we project forthcoming releases for flood risk modelling solutions covering India and South East Asia. We also continue to focus on emerging risks and are looking ahead to launches of models for cyber and supply chain risks.” n

www.intelligentinsurer.com | www.bermudareinsurancemagazine.com| EAIC TODAY | DAY 2: Thursday October 13 20164

Protection gap fuels opportunities for risk modelling firms

“Another hot topic is high technology and digitisation in Asia and especially in greater China,” said Feng. “Pollution is another. In China the government wants to invest in

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The coming year will see more insurers in Asia consolidating their positions and

looking for more innovative ways to offer their products, Li Shan Yeo, CEO of Antares Asia, told EAIC Today.

“Barring any unforeseen changes, rates are expected to be flat in the coming year,” she said. “We are seeing increased level of mergers and acquisitions in the industry this year and expect this level of activity to continue. With softening of rates and reduction in top line, many companies are reviewing their operating models to improve efficiencies and manage their costs.”

Cyber insurance is clearly one of the hottest topics in the Asian industry, following several incidents of cyber attacks on banks in Asia this year, Yeo added.

“Companies now have a greater awareness of cybersecurity incidents in this region and are becoming increasingly concerned about cyber risks and the resulting reputational damage.”

She said the region is still showing potential for growth, given the relatively low insurance penetration rate against a large population

Innovation key to success in Asian marketsand healthy economic growth. Sectors such as accident and health will be the key drivers for most countries in the region.

“Increased severity in cat losses will also drive consumer buying behaviour for home insurance. Cat capacity will come at a cost for most corporations.”

China and India will lead the growth rates in this region; both markets have the population and geographical size plus a rising awareness of insurance. “The regulators in both countries are focusing on promoting the risk culture in their countries and building the insurance framework to facilitate market growth,” Yeo said.

The prolonged depression of the price of oil will have a pronounced impact on the global economy in the coming year.

“Brexit and the result of the US presidential election will also affect this market as these are key trading partners.” n

Li Shan Yeo

Aaron Le Marquer

For global insurers and reinsurers operating in Asia, a significant challenge is the wide

disparity between regulatory environments in which they are required to operate, Aaron Le Marquer, partner with law firm Tilleke & Gibbins, told EAIC Today.

“Asia is probably the most diverse region in the world, in terms of culture, economic development, and legal and regulatory systems,” he said. “This means that the hurdles to selling products in one country may be entirely different even between neighbouring countries, so there is never a ‘one size fits all’ solution.”

Thailand has for a long time been a relatively closed market from a regulatory perspective, with strict controls on foreign ownership, as well as an absolute requirement for all policy wordings to be approved by the local regulator before being offered for sale.

“We are often asked to assist international insurers to localise their policy wordings and assist with the regulatory approval process,” said Le Marquer. “In recent years there has been a growing awareness that liberalisation of the market is required so it can develop at an adequate pace.”

Limits on foreign ownership are therefore being gradually relaxed, and proposals

Regulatory environments among the biggest challengeshave been put forward to dispense with the requirement for regulatory approval of policy wordings in relation to commercial business.

“This would enable international players much greater freedom to work with local partners in introducing innovative and bespoke specialty lines of business to the market,” he said.

Tilleke & Gibbins is seeing some interesting conflicts arising in reinsurance disputes at present. In Thailand for example, significant portions of risk are reinsured to the international markets.

“Reinsurance contracts may be subject to local Thai laws, but drafted based on common law principles which conflict with the laws applicable to the underlying contract and the reinsurance contract itself. So we find that frequently the risk transfer process is not realised in the way intended by the local cedant.

“On the local claims side, new class actions legislation in Thailand means that we can expect to see increasing numbers of third party consumer claims, including environmental liability, product liability and securities class actions. These will be new to the local insurance market (as well as the local legal community), and insurers will need to draw on experience from affiliates or parent companies in other jurisdictions in order to

manage them effectively.”Le Marquer said that in Thailand the

anticipated liberalisation of the market means that there will be increased opportunities for insurers to enter the market to do locally licensed business without being subject to such strict restrictions on foreign ownership.

“The regulator has also clarified that it is open to the possibility of granting new licences in the near future. Likewise, if the product approval process can be eased, there will be more immediate opportunities for insurers and brokers to introduce more sophisticated specialty products to the market, to address the risks faced by local businesses.” n



The next five to 10 years will be a golden period for the Chinese insurance industry,

Jianzhong Pan, chairman & CEO of China Zenith Insurance Brokers, told EAIC Today.

As an underinsured country with a large population and a large GDP, he believes China offers substantial opportunities for growth.

“We believe the insurance industry will maintain the momentum of steady, rapid and profitable growth and deliver more cooperation and benefits to the reinsurance market,” he said.

In particular he thinks terrorism, cyber risk, account safety, medical product liability, clinical trials, professional liability and fine art will be hot topics and potential development points in Chinese insurance market in the near future.

“There are nearly 200 application documents for the establishment of new insurance companies waiting for approval from the China Insurance Regulatory Commission (CIRC), which shows the strong confidence of social capital for the development of the insurance industry,” he added.

Due to the implementation of the China Risk Oriented Solvency System (C-ROSS) this

year, many offshore reinsurers are applying for the local reinsurance licence in order to better adapt to the rules of the Chinese insurance market, while more and more Lloyd’s syndicates have joined its China platform to further develop their China business.

He also noted that CIRC has further improved regulation standards.

China Zenith Insurance Brokers was founded in November 2004, authorised by the CIRC. Headquartered in Beijing, Zenith is a limited liability company with registered capital of

China insurance entering ‘golden period’Rmb10 million and a branch set up in Shanghai.

“Our company is committed to serving the Chinese insurance market, and in line with the international market,” said Pan. “In addition to our continuing emphasis on traditional businesses, we are dedicated to product innovation and service optimisation, committed to satisfying the diverse and rapidly growing needs of our customers.”

This year is China Zenith’s second time at the EAIC, and Pan is optimistic about what will be achieved at the conference.

“In 2014 we held meetings in Taipei with various companies, expanded our business channels and found potential cooperation opportunities. This year we are speeding up the internationalisation progress, and looking for an increasingly close relationship with the markets of London, Singapore, Hong Kong and Korea; we have successfully registered as a Lloyd’s broker.

“EAIC is a good opportunity for us to meet insurers and reinsurers from all over the world in a couple of days, especially those who mainly focus on Chinese business.” n

Jianzhong Pan

Eduard Held

The rapid growth in the value of assets in the Asia region coupled with rising

concentration levels, means there has been a significant increase in the degree of exposure to natural catastrophes, Eduard Held, head of products at PERILS, told EAIC Today.

“In many Asian markets the penetration of catastrophe insurance coverage is low,” he said. “This, combined with the significant exposure of most regions to natural catastrophes and high concentrations of values and populations, often leaves governments and public entities shouldering most of the financial burden resulting from large events occurring in these countries.”

However, at the same time there is an increasing awareness of the role that the insurance industry can play in providing an efficient and sustainable solution to this growing challenge.

“To reduce exposure levels, and to better manage and finance natural catastrophe risk, policymakers, communities and re/insurers must be able to access high quality data.

Nat cat exposure rises—but penetration remains lowHowever, such information is often in short supply in these highly vulnerable countries.”

With this in mind, PERILS has joined the NatCatDAX Alliance, which has been set up to help increase data availability for natural catastrophe insurance in Asia.

Held says the initiative has been well received by the industry.

“The response from the re/insurance industry has so far been positive, without exception, as they fully appreciate the value of having comprehensive, granular economic and insurance data for the region.

“This market-wide support for the initiative is also evidenced by the range of NatCatDAX partner companies, which includes key representatives from the primary and reinsurance industries, as well as from the intermediary and modelling communities,” he said.

This fits in with Held’s overall impression of the industry as closely following developments in the Asia region and actively seeking not only to find new insurance products suitable for specific

markets and client segments, but also to develop new risk prevention and risk transfer solutions.

Against this backdrop, PERILS is working to cover Asia-Pacific territories where its market data are most relevant.

“This includes not only markets with high catastrophe probable maximum losses, such as Australia or Turkey which we added last year, but also markets with low catastrophe insurance penetration where more data can help to close the protection gap,” he said. n


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13.10.16THURSDAYInterview:

Micky Lee, Qatar Re

Why do you attend the EAIC conference?The biennale conference offers a welcome opportunity to meet up with clients and business partners alike. It allows us to foster existing relationships and build new ones as well as to learn about what is happening in the market. Now that we have just been granted the branch licence from the Monetary Authority of Singapore, we will deepen and broaden these relationships as well as explore new business opportunities.

Our objective is to become a leading reinsurance company in Singapore focused on bringing genuine leadership decision-makers close to the Asian markets. The opening of our Singapore branch affirms Qatar Re’s commitment to these markets and will allow us to have our fingers on the pulse of the dynamic Asian insurance and reinsurance environment. We are here to stay, to listen to our clients and to work with them to deliver tailored solutions that are of mutual benefit.

What is your biggest challenge/concern at the moment?Currently there are a number of issues we are focusing on: capacity is abundant and the frequently forecast stabilisation of rates, terms and conditions is still elusive. The reinsurance trading conditions in Asia remain tough. But we believe that these challenges are outweighed by the many opportunities the region offers. Asia is the world’s most attractive growth market. China alone contributes about one third to global economic growth and its insurance market is set to expand further on the back of strong government support.

Therefore, no aspiring global reinsurer can ignore the region and its potential. But there is also a qualitative dimension: Asia is an exceptionally dynamic and innovative marketplace, with new companies and business models mushrooming at great pace. At Qatar Re, we consider this a particular opportunity given our global track record of supporting insurance entrepreneurs.

Fierce competition but also great opportunity in AsiaIn yesterday’s newsletter we published the results of a survey of EAIC delegates conducted ahead of the conference. Here, Micky Lee, principal officer of Qatar Re’s Singapore branch, answers those same questions in more detail.

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What will be the main talking points at this year’s EAIC?Of course, discussions will be dominated by the softness of markets and the fierce level of competition in reinsurance markets. In addition, the trend towards protectionism in the cross-border trade of reinsurance services will be an important discussion topic. This is an increasing concern for both global reinsurers and local cedants.

Which lines of business do you see the fastest growth in?By far, the single line of business that showed the fastest growth in Asia would be agriculture. In the past years, we saw the explosive growth of agriculture in China and we are seeing this same explosive growth in India this year. A number of other Asian markets are also actively launching their own agriculture schemes and initiatives. The growth of agriculture in Asia is all or mostly state-funded or assisted programmes. We at Qatar Re are active in this space and are actively engaged with our clients in Asia.

The other area of growth we are excited about is what we term project-based reinsurance, which are single one-off transactions tailored to suit the specific requirements of clients. The Asia market environment is very dynamic and innovative, as well as diverse, and in this exciting and challenging market environment, there are great opportunities to have that conversation with our clients on how we can work together for mutual benefits. nMicky Lee is principal officer of Qatar Re’s Singapore branch. He can be contacted at: [email protected]

Micky Lee

“The trend towards protectionism in the cross-border trade of reinsurance services will be an important discussion topic.”

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13.10.16THURSDAYInterview: Philip Chung,

S&P Global Ratings

As new laws offer foreign reinsurers greater access to the Indian market, opportunities

will present themselves for companies with the right approach which are willing to invest for the long term. But there are also many risks in a market that has experienced underwriting losses for over a decade.

That is the view of Philip Chung, director at S&P Global Ratings, who notes that while some foreign reinsurers already have a physical presence in India through service companies or a representative office, the liberalisation of the sector means they can open branches and more proactively operate and hire personnel.

“We believe opportunities exist for foreign reinsurers with sophisticated product development and strong technical underwriting expertise, who are willing to invest for the longer term. These could range from development of longer term health insurance products to insuring underwriting of complex/high severity risks,” Chung says.

But he also warns: “The general insurance industry has been making underwriting losses for many years, partially due to market dynamics.”

He explains that even under the new laws, Indian insurers must cede business to Indian reinsurers (including foreign branches in India) before considering overseas insurers. Having a local presence allows foreign reinsurers to see the business after it is shown to Indian reinsurers, with GIC Re still having the first right of refusal.

He adds that there are also regulatory restrictions limiting cross-border reinsurance cession to a single reinsurer, based on the reinsurer’s rating. There is no such restriction if the reinsurer has an Indian branch.

“Against this backdrop of change, in the medium term, the P&C reinsurance market is expected to grow at a similar pace as that of the primary market, at the low double digits,” he says.

“Over the longer term, with the influx of foreign reinsurers, we expect gradual development of underwriting expertise which

will lead to products better suited for the market as well as a wider range of products being offered based on global experience.”

He stresses that targeting growth in India will not be a walk in the park for reinsurers. The industry will remain extremely competitive with severe pressure on rates as a result.

“The insurance industry in India is very competitive and we expect this to continue in the foreseeable future. For business lines that rely on reinsurance capacity, the influx of foreign reinsurers could drive rates down further,” he says.

He adds that there are additional hazards. First, foreign reinsurers may not have sufficient historical loss information to accurately assess risks. On top of this, because preference is given to local players (eg, right of first refusal to GIC Re) the pool of risk available to foreign reinsurers may be limited.

Opportunities but also risks in IndiaAs the Indian market opens up to foreign reinsurers, it can offer opportunities for long-term growth but also risks for reinsurers that are unprepared. Only players with technical expertise and a long-term plan will prosper, says Philip Chung, director at S&P Global Ratings.

He adds that there are few ways around the current structure, with retrocession restrictions in place designed to maximise in-country retention limiting the benefit of having an onshore presence.

That said, compared with China, for example, the domestic competition facing international reinsurers is relatively limited, with only GIC Re operating on any meaningful scale in the market.

“GIC Re is the only India-based reinsurer of any significance. The reinsurer has been operating internationally for many years and has a strong presence in developing economies. We expect GIC Re to maintain and gradually increase its proportion of international business,” Chung concludes. nPhilip Chung is a director at S&P Global Ratings. He can be contacted at: [email protected]

Philip Chung

“We expect gradual development of

underwriting expertise which

will lead to products better suited for the

market.”



M&A activity in Asia has boosted demand for financial lines insurance across

the region, while the crackdown by many governments on corruption will also have an impact, Ralph Sherbahn, financial lines underwriting manager, Asia for XL Catlin, told EAIC Today.

“Last year we saw a significant increase in mergers and acquisitions in Asia, with $928 billion worth of deals—an increase of more than 43 percent from 2015,” he said.

“These deals have had a major impact on financial lines across the region and we have naturally seen increased demand for initial public offering/prospectus liability insurance, warranty & indemnity insurance, private equity/venture capital professional indemnity and D&O insurance.”

Additionally, Sherbahn noted, economies such as Thailand, Vietnam and India are promised a large amount of investment from their governments over the next five to eight years, which is translating into infrastructure growth. As a result, demand for professional indemnity solutions is on the rise.

“The corruption crackdown coming from many governments in Asia is likely to influence

financial lines in the region over the coming years,” he continued. “We are already seeing increased regulatory pressure on financial institutions.”

Another trend is the rapid digitisation of these companies’ activities and processes that are now much more dependent on IT infrastructures and networks for services and distribution, he added.

In order to succeed, he believes, re/insurers will have to adapt and make sure that their

M&A and anti-corruption have an impact solutions truly address their clients’ needs.

“Insurers have to ask themselves the right questions to stay in the race,” he said. “Does my general cyber coverage meet the needs of my local clients? Operational risk is becoming a major concern for financial institutions in Asia. Do I have a solution for that?”

Ultimately, Sherbahn said, it’s all about innovating to always have a product offering that matches financial lines clients’ risk environment, which means the risk landscape for these companies is evolving.

Financial lines—like most lines in commercial insurance—are experiencing a soft market, but it’s also true that in Asia you can find a range of rate movements depending on the country, type of clients and product, said Sherbahn.

“This is clearly due to the overcapacity we have witnessed in the region. There have been many new financial lines entrants in Asia over the past few years, which either set up an Asian hub in Singapore or started servicing the region from Hong Kong. It is still too early to say whether the consolidation of the market will have a positive effect on rates in the next few years,” he said. n

Ralph Sherbahn

Mark Morley

Given the oversupply of capacity in the core property and casualty lines, more

reinsurers in Asia are targeting specialty lines. But these lines are not growing quickly enough to match the incoming capacity, creating pricing pressure in these lines, said Mark Morley, managing director, Willis Re, South East Asia.

“We see the greatest opportunities in the structured reinsurance sector which is being driven by client appetite and strategic goals and supported by product innovation and a tailored approach to each opportunity,” he said. “These contracts are by definition largely independent of class of business.”

All territories in the region offer growth opportunities but, strictly in terms of absolute percentage growth, Morley thinks that even in this changing regulatory environment the larger ASEAN territories (Indonesia, the Philippines and Vietnam) offer the greatest growth opportunities.

Move to specialty lines fuels competitive pricing

Addressing the challenges in the market, he noted that challenges and opportunities are two sides of the same coin: regulatory developments in the region are both a challenge and an opportunity and so likewise are the challenges presented to the market in terms of more efficient distribution models and market access.

“In a market where margins are likely to remain under pressure the entire industry has to embrace the efficiencies offered through sales and distribution technology,” he said.

Willis Re focuses on understanding and aligning itself with its clients’ strategic objectives in the Asian market.

“We operate a client-centric model which is entirely product and line of business agnostic in the pursuit of the right solutions for our clients, and I believe the market recognises the differentiation in our approach,” said Morley.

“We have invested in and built significant capability around the opportunities in the life and health space which until recently had been the domain of the direct reinsurers. We are naturally very excited about the opportunity presented by our merger with Towers Watson which allows us to deliver a broader range of services to our clients aligned with industry-leading software.” n


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M&A and anti-corruption have an impact New technologies create new opportunitiesEmerging markets in Asia will develop

differently from other markets, with new technologies sparking new types of coverage, David Flandro, global head of analytics at JLT Re told EAIC Today.

“For example, in Singapore you’ve got one of the world’s first full tests of driverless cars—and it looks to us as though countries in Asia are going to pioneer a lot of these emerging technologies,” he said.

“Korea was one of the first countries to introduce telematics, for example. There are a lot of opportunities for new types of coverage.”

Flandro added that certain developing Asian economies have the potential to adopt new technologies more quickly than some of the developed economies in Western Europe or the US because they do not have the legacy issues, systems and ways of doing business.

“They can adopt some of the new technologies very quickly—and this creates

new types of risk coverage, so it’s a massive market with a huge amount of opportunity. Part of JLT’s heritage is in Hong Kong, so we are excited about it and hoping to continue to grow there.”

Asia is JLT Re’s fastest growing region, with the coverage gap creating a lot of room to expand reinsurance coverage.

“We are releasing a report for EAIC in Macau in which we studied several different countries including China and the Philippines,” he said. “We looked at the level of reinsurance penetration and the expected GDP growth.

“The Asian markets and many developing markets have slowed down slightly over the last couple of years; instead of GDP growth figures of 10 percent we are down in the sevens and

sixes, but even at that rate, if we look at other countries that have grown economically in the past like Korea and Japan, we can see that there is likely going to be increased insurance penetration over the next 10 years and a lot of need for reinsurance.”

While several companies in emerging Asia do everything that any big insurance company

would do in a developed economy, there are many companies that don’t—meaning that catastrophe modelling, reserve modelling, and predictive modelling are relatively untapped technologies in some Asia-Pacific firms.

“The application of these technologies to some of the new technology-driven insurance risks that are coming through in Asia is going to provide great opportunities for reinsurance cover,” said Flandro. n

David Flandro


Trade credit insurer Euler Hermes is seeing a growth in demand for trade credit

insurance linked to macro economic trends in the region.

A region characterised by open, trade-related economies with big exporters, it is especially vulnerable to falls in global demand, which have a significant impact on the region’s economies.

“Managing credit and counterparty exposures has become more important than ever,” said Gordon Cessford, regional commercial director of Euler Hermes.

“It has become the number one priority for many manufacturers, distributors and wholesalers. The reasons are clear. Accounts receivable are often the largest uninsured asset on a company’s balance sheet—they are also the primary source of revenue.

“The global economic slowdown and ‘cheap’ growth have put accounts receivable at risk and constrained cash flows. Being the number one trade credit insurer globally and regionally, we see a consistent increase in demand from companies to assist in managing their receivables and to transfer risks through trade credit solutions.”

Besides bad debt and tough credit conditions, the region faces issues resulting from China’s transition from investment and

exports to more domestic-driven growth, said Mahmood Islam, senior economist for Asia-Pacific for Euler Hermes.

“This hinders growth in the region because it means that China is importing fewer products and is relying more on domestic demand to grow,” he said.

In terms of profit, companies are facing tough times because the sales are not growing as fast as they want and pricing is slack, he added.

“In terms of sales, companies are still suffering. Companies are getting credit but not as much as they would like, especially in some markets, for example the commodity market.”

Global slowdown drives trade growthA positive factor in Asia-Pacific is that the

region is seeing demand growth above the average currently seen in many advanced economies and in other markets such as Latin America, where demand growth is low.

“Compared to this market, Asia-Pacific is performing, so we still see some improvements this year and expect to see more next year,” said Islam.

“What is really important is that even if we see development in terms of demand growth, in terms of insolvencies it is more complicated.”

However, issues such as more insolvencies in China do not mean that demand growth will decrease, he said; it is a symptom of China’s current transitional state.

Looking to the future, he does not expect any dramatic changes, but a small improvement.

“What’s really important is that we are not in the same kind of environment as before, where companies used to rely on turnover growth. Now you see more companies in the region relying on the bottom line—so we are more focused on profit, not just on sales, which is a different mindset.

“That means you don’t have more moderation in wage increases because the idea is to keep profit on a good trajectory,” Islam concluded. n

Gordon Cessford

The trend for companies in Asia-Pacific to seek cyber insurance and for more carriers to enter

the cyber market will continue, with ever broader coverage, said Andrew Bart, chief executive officer, Asia-Pacific, Crawford & Company.

Governments in Asia-Pacific are becoming more aware of the risks around cyber following numerous data breaches and are seeking to legislate, typically mandating regulatory notification and substantial penalties.

The Aon Cyber Insights Report 2016–Australia recently suggested that less than one third of companies have an incident response plan which specifically addresses cyber incidents, that one quarter of organisations report their IT systems have been compromised in the last 12 months and that more than 60 percent of organisations in Australia allow BYOD (bring your own device) for work purposes.

Cyber growth to continue in Asia-Pacific“Collectively, as technologies change the

way we operate commercially and choose to live our lives, these changes create new risks as companies struggle to understand and come to terms with their responsibilities,” Bart said.

Having a cyber incident plan that is able to respond if the worst happens is good business practice and Bart expects more company boards to recognise that risk by demanding best-in-class incident response plans. Against this backdrop, cyber insurance will continue to gain ground in the region.

Addressing another hot topic for Asia-Pacific, he noted that it is impossible to predict what the rest of the year may hold in store from a catastrophe prospective, warning that the recent below average claims experience should not lull risk managers into a false sense of security.

“Major catastrophes of the past decade including the Thai floods, Christchurch earthquakes, Superstorm Sandy, Tianjin explosion and Fort McMurray wildfires have demonstrated that the unexpected does happen,” he said.

Satellite imagery and drone usage will continue to grow for disaster events, predicts Bart.

“Tianjin was an almost perfect situation for satellite imagery. There were rows and rows of cars and the satellite photography was so good that you were almost able to count the number of vehicles, so you could come up with a total loss number from that exercise.”

Technology can be used in this way to make initial damage assessments, but Bart added that it does not replace on-the-ground expertise.

“While satellite images and drones are here to stay and they are very helpful, you cannot replace having somebody actually on site.” n


Cyber growth to continue in Asia-Pacific

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13.10.16THURSDAY


Opinion

The biggest insurers in Asia

—and what they cede

The reinsurance industry—and everything at conferences such as the EAIC—exists,

operates and turns on the back of the internal strategies, business plans and risk appetite of the world’s insurers. They generate the risk, and the reinsurance industry protects them against the big losses.

At least, it was once that simple. These days, insurers are also reinsurers—and vice versa—and a plethora of risk transfer mechanisms exist from the simple yet innovative to the downright opaque, all so often these days with the pervading influence of alternative or third party capital also being put to work in some form.

The markets in Asia are less complex in this sense than in other parts of the world. Nevertheless, while it used to be relatively straightforward to establish who the biggest users of reinsurance are, this is no longer true.

It is, however, possible to rank the region’s biggest insurers and look at their ceded ratio, which is what S&P Global Market Intelligence has done in supplying these numbers.

The insurers here were selected and initially ranked by their P&C net written premiums. While a good starting point for this data, it also means that there may be some companies

outside the 25 companies featured here which cede more than those included, but which do not appear.

S&P has also detailed the P&C gross written premiums and the cession ratio of these companies. It should be noted that, because of the way they report their results, this is not available for Japanese players but we have included the figures that are available to give a sense of their size and importance in the Asian markets.

It should be noted that some vagaries will underpin this data and ceded premiums don’t necessarily reflect conventional reinsurance spend.

Quite often fronted business (ceded 100 percent) will be included as well. This particularly applies to some of the big primary insurance groups.

Equally, switching from non-proportional to proportional cover, or vice versa, can

have a significant influence on the reported numbers. Other inconsistencies exist because some companies only report gross earned premiums—including Japanese companies, which don’t report gross premiums at all.

It should also be noted that life insurers often have very low ceded ratios and there are several examples in this list.

Nevertheless, these figures will make interesting reading for reinsurers. There are a few trends worthy of note.

One is that while the majority of insurers’ reinsurance spend is relatively stable, there are a few examples of its increasing substantially. Without a thorough interrogation of insurers’ results and corporate strategy, it is hard to say exactly why, but it could be a mixture of taking advantage of opportunities delivered by the soft market and/or increased premiums in the aftermath of losses.

The other possibility is that in some cases this number may well be skewed by fronting arrangements or other risk transfer instruments; for some of these companies it may also be attributed to new risk transfer strategies they have implemented in recent years. nSource of data: S&P Global Market Intelligence

Shutterstock / Nattee Chalermtiragool

“While it used to be relatively straightforward to establish

who the biggest users of reinsurance are, this is no

longer true.”

Every reinsurer and broker will want to know how much reinsurance insurers are buying and whether this might increase. S&P Global Market Intelligence has ranked 25 of the biggest insurance groups in the region and detailed, where possible, their cession ratio.

13.10.16THURSDAY

www.intelligentinsurer.com | www.bermudareinsurancemagazine.com 19DAY 2: Thursday October 13 2016 | EAIC TODAY |

Opinion

The biggest insurers in Asia—and what they cede

P&C net premiums written($million)

P&C gross written premiums($million) P&C cession ratio** (%)

Institution name Most recent financial year Previous year Most recent

financial year Previous year

1 People’s Insurance Company (Group) of China 40,214 44,855 41,089 10.72 13.24

2 Ping An Insurance (Group) Company of China 29,153 26,096 23,233 12.56 15.28

3 Tokio Marine Holdings ^ 27,222 NA NA NA NA

4 MS&AD Insurance Group Holdings ^ 25,665 NA NA NA NA

5 Sompo Holdings ^ 21,276 NA NA NA NA

6 China Pacific Insurance (Group) 13,217 15,074 15,112 12.3 15.19

7 QBE Insurance Group 11,773 15,092 16,332 17.48 14.75

8 China Reinsurance (Group) Corporation 8,898 9,328 8,698 4.7 4.79

9 China United Property Insurance Company 5,790 5,809 5,232 8.09 11.78

10 Insurance Australia Group * 5,552 8,279 9,573 34.03 10.38

11 Sunshine Property and Casualty Insurance 3,613 4,117 3,438 13.72 11.58

12 China Taiping Insurance Holdings Company 3,551 4,248 3,317 14.07 12.05

13 Allianz Australia 2,737 3,293 3,662 17.63 18.15

14 Fuji Fire and Marine Insurance Company ^ 2,327 NA NA NA NA

15 General Insurance Corporation of India ^ 2,092 2,401 2,114 13.79 10.03

16 Lotte Insurance Co 1,690 1,928 1,935 12.15 11.85

17 Toa Reinsurance Company ^ 1,347 NA NA NA NA

18 Seoul Guarantee Insurance Company 1,123 1,276 1,298 9.1 8.54

19 Viriyah Insurance 938 952 1,035 1.4 1.72

20 Fubon Insurance Co 885 1,175 1,128 NA NA

21 Meritz Fire & Marine Insurance Co 838 1,058 1,048 22.57 20.91

22 ICICI Lombard General Insurance Company ^ 831 1,269 1,135 35.63 36.11

23 Sony Financial Holdings ^ 797 NA NA NA NA

24 Bajaj Allianz General Insurance Company ^ 699 902 867 NA NA

25 Cathay Century Insurance Co 544 707 702 23.1 24.08

* Company with the most recent financial year ending on 30/06/2016.

^ Companies with the most recent financial year ending on 31/03/2016. All others have the most recent year ending on 31/12/2015.

** Cession ratio defined as ceded earned premiums/gross earned premiums

Source: SNL Financial, an offering of S&P Global Market Intelligence

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