insurance in asia - actuaries institute of new types of competitors. second largest market in the...

INSURANCE IN ASIA

Angus Milgate

Aon Re Asia Pte Ltd

Singapore

CONTENT

• Issues and trends for doing business in

Asia

• Premium Income vs Profit

• Adapting to different business practices

• Who will the winners be ?

Issues and Trends for Doing

Business in Asia

The Insurance Market

Insurance in 2005 - Non life premium

USD Non-life Premium (millions) 5 year compound growth (%, constant prices)

Source: Swiss Re, IMF

Insurance in 2005 - Non life premium Non-life premium 5 year compound growth

(%, constant growth)


Non-life premium growth vs GDP growth

(% based on 5 year compound growth)

3.2

3.2

2.9

2.2

1.7

1.6

1.2

1.1

1.0

0.9

0.7

0.6

0.6

0.5

0.5

4.5New Zealand

Australia

South Korea

Taiwan

Japan

Malaysia

Thailand

Hong Kong

Singapore

PR China

Sri Lanka

Vietnam

Indonesia

India

Philippines

Pakistan

591

450

760

103

50

332

341

19

13

5

9

5

8

4

1,192

1,156New Zealand

Australia

South Korea

Taiwan

Japan

Malaysia

Thailand

Hong Kong

Singapore

PR China

Sri Lanka

Vietnam

Indonesia

India

Philippines

Pakistan

Insurance in 2006 - Non life premium Penetration (Premiums as % of GDP) Density (USD Premiums per capita)


As If Forecast Increased Penetration / Density

-

20,000,000,000

40,000,000,000

60,000,000,000

80,000,000,000

100,000,000,000

120,000,000,000

Japan

Aus

tral

ia NZ

Kor

ea

Vie

tnam

Chi

na

Thaila

nd

Pak

ista

n

Indone

sia

Phi

lippi

nes

India

USD Actual 2006

Penetration at 3.20%

2.20%

3.20%

4.50%

3.20%


-

20,000,000,000

40,000,000,000

60,000,000,000

80,000,000,000

100,000,000,000

120,000,000,000

140,000,000,000

Japan

Aus

tral

ia NZ

Kor

ea

Vie

tnam

Chi

na

Thaila

nd

Pak

ista

n

Indone

sia

Phi

lippi

nes

India

USD Actual 2006

Density at USD100 pc

760

1191

1155

591


-

100,000,000,000

200,000,000,000

300,000,000,000

400,000,000,000

500,000,000,000

600,000,000,000

700,000,000,000

Japa

n

Aus

tralia N

Z

Kor

ea

Vietn

am

Chi

na

Thailand

Pak

ista

n

Indo

nesi

a

Phi

lippi

nes

Indi

a

USDActual 2006



760

1191 1155

591

Number of Non-life insurers - 2005

Source: Axco

Insurance – Market concentration

High

Country Trend

Australia

Japan

Korea

New Zealand

Vietnam

Pakistan

China

India

Medium

Country Trend

Singapore

Taiwan

Indonesia

Malaysia

Thailand

Low

Country Trend

Hong Kong

Philippines

Source: Axco

Insurance – Foreign access

High

Country Trend

New Zealand

Singapore

Hong Kong

Malaysia

Medium

Country Trend

Taiwan

Australia

Thailand

Low

Country Trend

China

India

Indonesia

Pakistan

Philippines

Korea

Vietnam

Japan

Source: Axco

Insurance – Market regulation

High

Country Trend RBC

China

Australia

New

Zealand

Vietnam

Malaysia 2009

Medium

Country Trend RBC

Thailand ?

Korea

Taiwan

Philippines

India

Indonesia

Singapore

Japan

Low

Country Trend RBC

Pakistan

Hong Kong

Source: Axco

Premium Income vs Profit

34.03%

24.09%

31.41%

38.94%

20%

22%

24%

26%

28%

30%

32%

34%

36%

38%

40%

2002 2003 2004 2005 2006

% o

f N

et

Ea

rne

d P

rem

ium

Vietnam Non Life

Year 2002 - 2006

5 year Compound Growth: 26.20%

Tariff Rates for Fire and Motor

97.80%

93.70%

90%

92%

94%

96%

98%

100%

102%

104%

106%

108%

110%

2002 2003 2004 2005 2006

Co

mb

ine

d O

pe

rati

on

s R

ati

o

China Non Life Combined Operating Ratio

1st half 2005 – 1st half 2006


Thailand Non Life

Year 2002 – 2006

5 year Compound Growth : 17.60%

95%

92%

96%

94%

85%

87%

89%

91%

93%

95%

97%

99%

2002 2003 2004 2005 2006

Co

mb

ine

d O

pe

rati

on

s R

ati

o

Source: S&P

22.00%

21.00%

10%

12%

14%

16%

18%

20%

22%

24%

26%

28%

30%

2002 2003 2004 2005 2006

% o

f N

et

Ea

rne

d P

rem

ium

Pakistan Non Life Pretax Results

Year 2004 - 2005


0.10%0.10%

9.40%

14.20%

-5%

0%

5%

10%

15%

20%

2002 2003 2004 2005 2006

% o

f N

et

Ea

rne

d P

rem

ium

India Non Life Pretax Results

Year 2003 - 2006

NB: Underwriting losses were sustained on all years. Investment Income on large historical

reserves returned Pretax Profits.

: Market De-Tariffed 1st January 2007


63.86%

61.43%

67.31% 67.47%68.31%

55%

60%

65%

70%

75%

2002 2003 2004 2005 2006

Co

mb

ine

d O

pe

rati

on

s R

ati

o

Malaysia Non Life Insurance Companies

Combined Ratio: Year 2002-2006


NB: Tariff Market


Premium Income

vs Profit

Concentration

Regulation

Growth

Penetration

Tariff

Abnormal

Losses

Adapting to different

business practices

Adapting to different business practices :

Australia

Very competitive market based upon technical underwriting.

Transparency in results, corporate goals and governance.

Equity investors informed and market liquid

Malaysia

Increasing competition but based on historical loss ratios.

Risk Comprehension low

Extremely illiquid equity market. Family / “Group” run Insurance

companies

Adapting to different business practices :

Korea Very competitive, very concentrated,

Sophisticated companies with strict hierarchy.

“Group” owned Insurance companies

Relationship and history are significant drivers in decision making

Strong National Identity for companies

Thailand Large number of privately owned companies.

Relationship and history are signiifcant drivers in decision making

Willingness to listen and learn

Adapting to different business practices

Different Business Practices

Commerce

Developed

Language

Culture

Developing

Regulation

Custom Practice

Who will the winners be ?

“Prediction is very difficult,

especially the future”

Neils Bohr

Who will the winning Companies be ?

ERM Framework

Pricing

Optimization

Portfolio

Optimization

Exposure Data

Culture

Controls

Extreme-Event

Risk & Capital

Management

Strategic

Optimization

Enterprise Risk Management

COMPETITION

CATASTROPHE

EXPOSURE

ASSET /

FINANCIALREGULATORY

COMPETITION

CATASTROPHE

EXPOSURE

ASSET /

FINANCIALREGULATORY

Monitoring /

Execution

Predictive

Modeling

Risk Selection

Reinsurance

Equalizer

Measure Risk

Capital

Allocation

Reinsurance &

Cost of Capital

Capital

Adequacy

Accurate determination of

cost of capital by

individual risk

Accurate determination of net

loss cost & reinsurance margin

by individual risk

Existing examples

AIG

Samsung

ICICI Lombard

Marriage between

Global Best Practice and Local Custom and Distribution

Mandarin / Cantonese speakers

with an Insurance / Reinsurance Degree

Who will the winning talent be ?

Qualified Actuaries!

Winning “Talent”

The End

APPENDIX 1

The Economy

Economics in 2006 - GDP GDP 2006 current prices (billions) 10 Year compound growth – Constant prices

Source: IMF

2006 GDP

Source: IMF

Malaysia

1%

Thailand

2%

Indonesia

3%

Hong Kong SAR

2%

Taiwan, ROC

3%

Pakistan

1%

Vietnam

0%

New Zealand

1%

Philippines

1%Singapore

1%

China

23%

Australia

7%

Japan

39%

Korea

8%

India

8%

GDP 2006 for the

region USD13,146tr

Economics in 2006 – GDP per capita GDP per capita 2006 current prices (USD) 10 Year compound growth – Constant prices

Source: IMF

Economics in 2006 – Inflation Inflation 10 Year compound growth %

Source: IMF

-18.1

-9.8

-6.7

-6.1

-4.4

-3.0

-1.5

-1.2

1.4

4.3

7.3

8.6

10.1

13.7

31.4

Japan

Hong Kong

China

Korea

Pakistan

India

Thailand

Singapore

Philippines

Malaysia

Taiwan

Indonesia

Vietnam

New Zealand

Australia

0.8

3.2

1.7

1.8

3.0

3.0

2.5

0.9

2.0

1.3

0.9

15.9

3.5

1.1

1.4

Japan

Hong Kong

China

Korea

Pakistan

India

Thailand

Singapore

Philippines

Malaysia

Taiwan

Indonesia

Vietnam

New Zealand

Australia

Economics in 2006 – Demographics

Population (millions) 10 Year compound growth

Source: IMF

Economics in

2006 –

Demographics

Total population

for the region:

3.3bn

Source: IMF

Economics - Outlook

Country Average growth rate 07-11 Trend

Vietnam 7.7 Up

China 7.2 Down

Philippines 6.5 Up

India 6.5 Down

Indonesia 5.4 Down

Singapore 5.4 Up and Down

Malaysia 4.7 Down

Thailand 4.6 Up and Down

Korea 4.5 Down

Hong Kong 4.5 Down

Australia 3.7 Stable

Taiwan 3.2 Down

New Zealand 2.8 Stable

Japan 1.5 Down

Source: IMF

Economics - Outlook

Short term outlook

• Similar growth in 2007/8 as in 2006/7 and growth forecasts remain positive

• Export growth for the region to slow a little in line with the slowing growth in industrial countries

• Interest rates probably peaking

• Stronger domestic demand

• China’s dominance will continue to grow.

• Stronger growth in Japan and India

• Reduction in barriers between markets

– Vietnam FTA 2007

– China Asean FTA 2010

Risks

• US slowdown

• Oil prices

• Market volatility

• Sustainability and reliance on China

growth

• Organisational Structure of Asia/Pacific

Operations

• Talent shortage

• Costs rising faster than revenue

APPENDIX 2

COUNTRY COMMENTARY

Country Commentary

Country Negatives Positives

Australia Financial results at the top, will

probably be turning soon. Rates

being driven down by competition.

Recently very successful time, Net Loss

Ratios under 60%, ROE over 20%, only

one recent catastrophe, good practices

China Virulent competition, poor public

recognition, don't want to pay for risk,

control increasing, lack of talent

Size of the potential opportunity, Govt

support, insurance consciousness

increasing, financial clarity improving

Hong Kong Over-supply, soft market, strong rise

of salaries -> increase costs,

competition from Singapore, poor

public recognition, lack of talent

Natural base for Asia-Pacific underwriting

operations

India Poor agents' professional skills.

Important catastrophe risk. Intense

competition following dertariff, lack of

talent.

Size of the potential opportunity

Indonesia Over-capacity, under-capitalisation

and irrational competition

Size of the potetial opportunity

Source: Axco

Country Commentary


Japan Declining non-life premium income,

introduction of new types of

competitors.

Second largest market in the world

Korea Nearly 50% of premium income is

made up of long-term business. Falling

premium in short-term sector

Potential growth

Malaysia Continued softening of rates in many

lines, lack of talent to deal with RBC

Good motor insurance sector growth, as

well as marine, aviation and transit sectors.

Takaful insurance double digit growth, RBC

regime 2009

New Zealand Economy slowing, rating decline

through strong competition, property

damage claims costs rising at faster

rate than premium income, regulatory

changes

Historical good performance, Combined

ratio around 90%, all major lines profitable

except household buildings

Pakistan Political instability risk Booming economy, strong foreign

investment, privatisation

Source: Axco

Country Commentary


Philippines Non-life market saturated with too many

undercapitalised companies chasing too

little business, competition drives prices

down.

Low insurance penetration = size of potential

opportunity

Singapore Small mature market, overcapacity, strong

competition.

Motor market improvement, Strong industry

association to promote insurance, Singapore

wants to be seen as the main insurance centre

in Asia

Taiwan Closed insurance market, overcapacity,

intense competition, little new business in

the market

Reinsurers have taken steps to impose

restrictions, growing professionalism

Thailand Saturated market, too many small

companies, lack of talent to deal with RBC

Authorities trying to increase regulation around

solvency and capital requirement

Vietnam Insurance market remains small,

undeveloped and heavily reliant on

reinsurance support. Very strong

competition pushing down rates.

Some changes taking place, government push

to develop the market and continue the policy of

opening up to foreign investment. Strong growth

in last 5 years

Source: Axco

APPENDIX 3

“some more”


New Zealand Non Life Companies –

Combined Ratio

Year 2002 – 2006

95.38%

90.72%

90.56%

93.26%

89.28%

80%

82%

84%

86%

88%

90%

92%

94%

96%

98%

100%

2002 2003 2004 2005 2006

Co

mb

ine

d R

ati

o

102%

84%81%

83%

75%

80%

85%

90%

95%

100%

105%

110%

2002 2003 2004 2005 2006

Co

mb

ine

d R

ati

o

Australia Non Life Companies –

Combined Ratio

Year 2002 – 2006

Korea Non Life Companies –

Combined Ratio

Year 2002 – 2006

97.82% 100.35%98.70%

101.40%

99.12%

90%

92%

94%

96%

98%

100%

102%

104%

106%

108%

110%

2002 2003 2004 2005 2006

Co

mb

ine

d R

ati

o

Philippines

Year Pre Tax Profit

(USD)

% of Net Earned

Premium

2004 69,490,000 21.72%

2003 46,250,000 15.71%

2002 50,020,000 19.14%

Source: Axco

China

Year Underwriting Profit

2005 164,750,000

2004 41,200,000

Year COR

1st half of 2006 97.80%

1st half of 2005 93.70%

Source: Axco

insurance in asia - actuaries institute of new types of competitors. second largest market in the...

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