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4 SUCCESS IN ASIA DEPENDS ON BUILDING TRUST

4 ON-THE-GROUND CONTACT KEY TO SUCCESS IN MARINE MARKET

6 OVER-REGULATION POSES CHALLENGES FOR REGION

8 GROWTH AND PROFITABILITY CRITICAL IN CHANGE

10 QATAR RE GOES BACK TO BASICS IN ASIA

12 STARTUPS WILL CHANGE LANDSCAPE IN ASIA: S&P

14 SOLVENCY II MAY DRIVE CAPTIVES TO MOVE TO ASIA

15 UNDERDEVELOPED MARKETS WILL CATCH UP

16 INNOVATION AND TALENT KEY IN ASIAN MARKET

17 INSURERS MUST WORK TO CLOSE PROTECTION GAP

18 REINSURERS PLUNGE INTO INDIA SEEKING GROWTH

19 THE SURETY BOND MARKET IS GROWING IN CHINA

EAIC TODAYFriday October 14, 2016

1DAY 3: Friday October 14 2016 | EAIC TODAY | www.intelligentinsurer.com | www.bermudareinsurancemagazine.com

DAY 3

What’s inside

Kent Chaplin

Weak economy triggers creditclaims but Lloyd’s Asia boss remains bullish on potentialThe persisting economic uncertainty, which

has hit some sectors particularly hard, is leading to an increase in credit claims on a scale not seen since the 2008 financial crisis, Kent Chaplin, chief executive officer, Lloyd’s Asia-Pacific, told EAIC Today.

He noted two recent examples of large companies getting into difficulties, which could lead to more claims. Swiber, the Singapore-based offshore oil and gas services group, hit financial problems in recent months partly due to low oil prices; and Hanjin, South Korea’s biggest shipping company, sought bankruptcy in September leaving hundreds of ships and their crew stranded at sea.

“In Singapore, Swiber is a prime example of difficulties in the oil and gas sector, as is Hanjin in South Korea for the transportation industry,” Chaplin said.

“At Lloyd’s there has already been a steady rise in claims among our credit risk portfolio in recent years. As commodity prices have fallen, most notably in oil, aluminium and steel, there has been a material increase in the number of claims notified to the market in trade credit insurance not seen since the 2008 financial crisis.”

Since 2013, the average number of new claims advised under the credit risk code has

A key theme for discussions at this year’s EAIC is the increasingly outward-looking

attitude of the Asian re/insurance industry, Aon Benfield’s Asia-Pacific CEO Malcolm Steingold told EAIC Today.

“Globalisation is a theme, and related to that is the latest potential reinsurer on the horizon, Nine Merchants Re, the founders of which have had their capital confirmed at half a billion dollars,” he said.

Nine Merchants Re was recently formed in

increased by around 40 percent year on year. In the same period, the average value of claims paid by Lloyd’s has increased by around 70 percent year on year.

More broadly, the market in Asia is facing similar pressures to those seen in other regions of the world, said Chaplin, who highlighted the wider pressures facing re/insurers.

“We continue to see soft market conditions with low interest rates, increased regulatory

Hong Kong by investment management company First Seafront Financial with initial capital of $500 million. The company has said it will operate a total return model with a focus on delivering efficient risk capital to clients by leveraging its shareholders’ asset management capabilities.

It will initially underwrite treaty reinsurance emanating from Asia-Pacific with a focus on China and other developed markets such as Korea, Japan and Australia/New Zealand. It will also underwrite business emanating from

the rest of the world for selected clients but it expects more than 60 percent of its portfolio to come from Asia-Pacific.

“I expect there will be quite a bit of discussion around not only what its agenda will be but also about this as a reflection of what is happening in this part of world, where if people have the necessary expertise, they have the ability to raise half a billion dollars in China to support a global reinsurance strategy,” Steingold said. (Continued top of page 14)

Launch of Nine Merchants Re shows ambition of investors

oversight and excess capacity putting pressure on pricing,” he said.

Opportunity aheadThat said, the combination of low insurance penetration rates in many countries within the region and high risk exposures particularly from nat cats, (Continued top of page 2)

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News 14.10.16FRIDAY

(Continued from page 1)with the good economic growth forecasts and increased awareness of insurance and the growth of the middle class, means there remain significant business opportunities for growth.

Singapore is a successful underwriting hub for Lloyd’s in Asia, with more than 200 underwriters representing 23 syndicates (22 service companies). Premium income has tripled since 2009 to reach $680 million in 2015, with a combined ratio of 93.6 percent last year.

Four new syndicates (Antares, Aspen, Brit and Standard) have joined the Lloyd’s Singapore platform in the last 12 months. Lloyd’s Asia offers local underwriting authority in 47 classes of business—property, marine, energy, cargo, and terrorism are Lloyd’s largest lines.

Chaplin said that while Lloyd’s is well placed in the region from a licence perspective, he also warned that regulatory protectionism is on the rise and that the regulatory burden and cost of doing business have been increasing.

As part of Lloyd’s International Vision 2025 strategy, Malaysia and India were two countries identified as having opportunities for growth for the Lloyd’s market.

In India, the government has taken steps to further liberalise its insurance market and this year passed regulations to allow Lloyd’s to establish its market structure in India.

“This will enable Lloyd’s managing agents to set up service companies in India and access Indian reinsurance business. Lloyd’s has submitted an application for an onshore reinsurance licence and we hope to receive approval shortly. Following receipt of our approval, we will be working with our managing agents to establish their presence locally,” Chaplin said.

In Malaysia, Lloyd’s has applied for a tier 1 onshore reinsurance licence this year which will enable Lloyd’s to contribute greater capacity and specialist underwriting expertise in emerging and complex risks to serve the growing demands of the domestic insurance sector.

“Lloyd’s sees the potential for Malaysia to develop as a commercial re/takaful hub and construction insurance market, especially driven by infrastructure projects resulting from the country’s Economic Transformation Project initiatives,” he said. “Lloyd’s unique market structure makes Shariah compliance possible.”

Lloyd’s currently serves the Malaysian market as a tier 2 reinsurer through its nine

Labuan Service Companies and as a cross-border reinsurer primarily from London and Singapore.

“Lloyd’s onshore presence will help to protect Malaysia’s economic growth by supporting the expansion of insurance penetration and, in so doing, limit the economic impacts of catastrophes and other major events that can otherwise result in substantial costs for the state and the taxpayer,” said Chaplin.

Long-term visionRegarding Lloyd’s future in the Asian market, Chaplin says its approach is multifaceted.

“Lloyd’s has a long history of paying every valid claim, but we see our role as larger in identifying new and emerging risks, quantifying these and providing a market environment conducive to new product development to help address the underinsurance problem in many countries in the region,” he said.

In a fast-changing world, businesses are facing new risks and are seeking new insurance products from the insurance industry to protect their assets. Lloyd’s believes the first step in new product development is to identify new and emerging risks and quantify those risks, and that is the rationale behind Lloyd’s emerging risk report series.

“The Lloyd’s City Risk Index has proved to be an invaluable source of data since its launch in September last year. We partner with institutions to look at different emerging risks; we are part of a cybersecurity initiative in Singapore called CyRIM, and have just completed a project with the UK Met Office that analyses the extent of the interconnections between extreme weather events,” Chaplin said.

“In a separate study with the UK Met Office and Guy Carpenter we are looking to develop index-based insurance solutions for natural hazards such as drought, combining scientific understanding of natural hazards with sophisticated risk modelling capabilities.”

Lloyd’s has also launched a disaster risk facility, a working group comprising a number

Weak economy triggers creditclaims but Lloyd’s Asia boss remains bullish on potential

2 | EAIC TODAY | DAY 3: Friday October 14 2016 www.intelligentinsurer.com | www.bermudareinsurancemagazine.com

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Intelligent Insurer – ISSN 2041-9929

4 SUCCESS IN ASIA DEPENDS ON BUILDING TRUST

4 ON-THE-GROUND CONTACT KEY TO SUCCESS IN MARINE MARKET

6 OVER-REGULATION POSES CHALLENGES FOR REGION

8 GROWTH AND PROFITABILITY CRITICAL IN CHANGE

10 QATAR RE GOES BACK TO BASICS IN ASIA

12 STARTUPS WILL CHANGE LANDSCAPE IN ASIA: S&P

14 SOLVENCY II MAY DRIVE CAPTIVES TO MOVE TO ASIA

15 UNDERDEVELOPED MARKETS WILL CATCH UP

16 INNOVATION AND TALENT KEY IN ASIAN MARKET

17 INSURERS MUST WORK TO CLOSE PROTECTION GAP

18 REINSURERS PLUNGE INTO INDIA SEEKING GROWTH

19 THE SURETY BOND MARKET IS GROWING IN CHINA

EAIC TODAYFriday October 14, 2016


DAY 3

What’s inside

Kent Chaplin

Weak economy triggers creditclaims but Lloyd’s Asia boss remains bullish on potentialThe persisting economic uncertainty, which

has hit some sectors particularly hard, is leading to an increase in credit claims on a scale not seen since the 2008 financial crisis, Kent Chaplin, chief executive officer, Lloyd’s Asia-Pacific, told EAIC Today.

He noted two recent examples of large companies getting into difficulties, which could lead to more claims. Swiber, the Singapore-based offshore oil and gas services group, hit financial problems in recent months partly due to low oil prices; and Hanjin, South Korea’s biggest shipping company, sought bankruptcy in September leaving hundreds of ships and their crew stranded at sea.

“In Singapore, Swiber is a prime example of difficulties in the oil and gas sector, as is Hanjin in South Korea for the transportation industry,” Chaplin said.

“At Lloyd’s there has already been a steady rise in claims among our credit risk portfolio in recent years. As commodity prices have fallen, most notably in oil, aluminium and steel, there has been a material increase in the number of claims notified to the market in trade credit insurance not seen since the 2008 financial crisis.”

Since 2013, the average number of new claims advised under the credit risk code has

A key theme for discussions at this year’s EAIC is the increasingly outward-looking

attitude of the Asian re/insurance industry, Aon Benfield’s Asia-Pacific CEO Malcolm Steingold told EAIC Today.

“Globalisation is a theme, and related to that is the latest potential reinsurer on the horizon, Nine Merchants Re, the founders of which have had their capital confirmed at half a billion dollars,” he said.

Nine Merchants Re was recently formed in

increased by around 40 percent year on year. In the same period, the average value of claims paid by Lloyd’s has increased by around 70 percent year on year.

More broadly, the market in Asia is facing similar pressures to those seen in other regions of the world, said Chaplin, who highlighted the wider pressures facing re/insurers.

“We continue to see soft market conditions with low interest rates, increased regulatory

Hong Kong by investment management company First Seafront Financial with initial capital of $500 million. The company has said it will operate a total return model with a focus on delivering efficient risk capital to clients by leveraging its shareholders’ asset management capabilities.

It will initially underwrite treaty reinsurance emanating from Asia-Pacific with a focus on China and other developed markets such as Korea, Japan and Australia/New Zealand. It will also underwrite business emanating from

the rest of the world for selected clients but it expects more than 60 percent of its portfolio to come from Asia-Pacific.

“I expect there will be quite a bit of discussion around not only what its agenda will be but also about this as a reflection of what is happening in this part of world, where if people have the necessary expertise, they have the ability to raise half a billion dollars in China to support a global reinsurance strategy,” Steingold said. (Continued top of page 14)

Launch of Nine Merchants Re shows ambition of investors

oversight and excess capacity putting pressure on pricing,” he said.

Opportunity aheadThat said, the combination of low insurance penetration rates in many countries within the region and high risk exposures particularly from nat cats, (Continued top of page 2)

Powered by:

of syndicates pooling capital and expertise aiming to provide capacity and expertise to develop reinsurance solutions to address nat cat risks in emerging economies.

“The group is working to coordinate with underwriters operating in the Lloyd’s market in Singapore to identify strategic initiatives in Asia-Pacific,” said Chaplin.

In addition, Lloyd’s has partnered with Parima (the Pan-Asian Risk Manager Association) to host the Lloyd’s-Parima Professional Development Programme, a series of two-day masterclasses designed to build knowledge and expertise for risk managers.

“The programme launched in Singapore in August, the next masterclass will be held in Hong Kong in November. It is similar to the dedicated Lloyd’s programmes run for brokers and regulators,” he concluded. n

“Lloyd’s onshore presence will help to protect Malaysia’s economic growth.”

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14.10.16FRIDAYNews

Building client trust is a key ingredient for success in Asia, Laurence Cheng, Peak

Re’s head of underwriting, told EAIC Today.“Whether it’s building trust between the

reinsurer and the reinsurance buyer or between the insurer and the policyholder, this is a key to healthy growth and increasing the penetration rate,” he said.

In order to do this, Cheng believes is vital to pay claims promptly—an area in which Peak Re excels, he claims.

“We believe that it’s very important that we settle our claims very quickly. About 80 percent of our claims are paid in the first five working days. That proves we are doing that right—and I think that is really the key to building trust.”

As an Asian-focused international reinsurer domiciled in Hong Kong, Peak Re’s growth will be predominantly driven from Asia, and the company will grow as Asia grows, said Cheng.

“Different territories within Asia present

Success in Asia depends on building trustdifferent opportunities but generally we do see a lot of potential across the region. Within each region we have different types of clients and each one will need different types of solution, so it’s important to be client-focused, not offering the same solution to every client.”

In order to build client relationships effectively and to fully understand their needs, Peak Re prides itself on having a truly international team.

“We have 15 different nationalities working within Peak Re, and that helps us to know our market, and to tailor our solutions to fit what the client needs,” Cheng said.

While he sees growth potential across the board in Asia, there are certain areas where Peak Re has particularly excelled.

“These include trade credit, agriculture and microinsurance. Microinsurance life products are helping developing countries to grow, which is something we have worked on over the last couple of years.” nLaurence Cheng

Simon Saunders

Asia is a huge region with many territories undergoing a period of significant

economic expansion. This potential generates opportunities for marine re/insurers and also continues to attract new entrants into the sector, said Simon Saunders, division head, marine, aviation and transport, Barbican Insurance Group.

“For Barbican, Asia is already a relatively mature market for us as we were among the first wave of Lloyd’s practitioners to invest the time to properly understand and develop business in Asia,” he said.

“In recent years we have built a lot of strong relationships in Asia and it is a very interesting and important region for us.”

Saunders attributes Barbican’s success to working with experienced practitioners on the ground in each of these locations.

“You need that close contact with the market and an in-depth understanding of the buying nuances of each particular region. These can vary significantly from country to country, with the way in which the original business is written and the levels of risk appetite often very specific to each territory.

“That is why we look to spend so much of our time working directly with companies and with brokers, so that we fully understand the business dynamic in all the territories in which we operate.”

In Saunders’ view, Barbican’s greatest

success in the region to date has been to establish a diverse portfolio of business, from territorial, client and product line perspectives. This stems from the strength of the relationships Barbican has built with brokers and clients across Asia.

“The standing of our marine re/insurance division in the region also means that we now lead an increasing amount of the business which we write in the region. The team is well known and respected by the markets that we operate in, and we are viewed as an experienced and dependable practitioner,” he said.

The reputation of the Lloyd’s market has been hugely important in opening doors, he added; but you cannot simply sit in London and expect that business to come to you.

“You have to be hands-on and on-site as much as possible, building and strengthening relationships with the local markets wherever you provide re/insurance programmes.

“We have been able to achieve strong sustainable growth in Asia and we will continue to focus on bolstering existing relationships and looking for areas to expand our capabilities in response to the increasing buying sophistication that we see in the region.” n

www.intelligentinsurer.com | www.bermudareinsurancemagazine.com| EAIC TODAY | DAY 3: Friday October 14 20164

On-the-ground contact key to success in marine market

14.10.16FRIDAYNews

The over-regulation of some markets is the hottest topic in Asian insurance at

present, Alamgir Kabir senior vice-president of the Asian Reinsurance Corporation, told EAIC Today.

“Many insurers in the territory have been struggling to comply with the regulatory requirements, such as minimum capital requirements or the risk-based capital regime,” he said. “Mergers and acquisitions and winding-up are seen as common. Regulators have also been stringent in some of the countries by limiting reinsurance placement in the overseas markets. Many reinsurers, having sufficient capacity, are not allowed to write their reinsurance business, despite prerequisites being met.”

Over the coming year Kabir expects that penetration will increase in Asia for new products such as health, crop and cyber. The greatest opportunity for re/insurers in the region is disposable income-related insurance buying.

“Tourism is one of the biggest and fastest-growing industries in this region, so personal accident, travel and health can be the greatest opportunities for re/insurers,” Kabir said.

He added that motor is the lead portfolio in most of the countries in the region, and is

believed to have potential for further growth. Other than motor, health and crop are the fastest growing portfolios.

Asked about the main challenges for the market, he identified price slashes and additional capacity as key issues.

Over-regulation poses challenges for region“It is observed that the primary premium

rates of traditional classes are falling. This is due to the abolition of tariffs, unhealthy competition for acquiring business and the fact that many players are bringing additional capacity into the market,” Kabir said.

The Asian Reinsurance Corporation is an intergovernmental organisation established in May 1979 under the auspices of the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP). Membership is open to all state members or associate members of ESCAP. Since July 9, 2005 associate membership has been open to non-ESCAP member countries of the UN, private organisations, private corporations, non-government organisations and multilateral institutions.

Kabir said the corporation’s biggest achievement to date has been its response to the catastrophic flood loss in Thailand in 2011.

“We are based in Thailand, and 2011’s catastrophic flood loss was the biggest ever cat loss for the region, amounting to nearly $20 billion. Most of the global reinsurers were affected badly by this event. We were also affected badly, but we were able to manage this mega event well and settled the loss without any complaint from the cedants.” n

Alamgir Kabir

Stricter regulations rolled out by the Chinese Insurance Regulatory

Commission (CIRC) in 2016 have created a more competitive environment in China’s life market, according to an AM Best briefing, Asia-Pacific Reinsurance Movement.

Increased competition has prompted small and medium-sized life insurance companies to offer higher interest rate guarantees in universal life products in order to increase their market share, according to AM Best.

But in March, the CIRC ordered life insurance companies to stop offering one-year term-savings-type life insurance business.

Also—within a period of three years—they must reduce one-to-three-year term-savings-type life insurance business sales to 90 percent, 70 percent, and 50 percent of total sales in each consecutive year (and to not more than 50 percent after three years).

Stricter rules create competition in China’s life market

The bancassurance channel, according to industry sources, is the main form of distribution for selling savings-type life insurance business as part of a wealth management service, particularly in promoting universal life products.

Universal life products offer expected returns at 4 to 6 percent per annum over a two-to-three-year term. Following regulatory intervention, the sales activity of such products has cooled down, but it is still promoted as a “limited time offer” sales strategy.

In August, CIRC introduced further supervisory measures on life insurance

companies, extending its focus to savings-type life insurance business across all maturity terms, whereas previously it was on maturities of three years or less.

CIRC will look into the product term, asset allocation, asset and liability matching, investment return of the underlying assets, and valuation of insurance liabilities, for each of the four categories (less than three years, three to five years, five to10 years, and longer than 10 years).

According to AM Best, the focus of the supervision is to scrutinise the universal life business interest margin and risk of loss.

“These regulatory actions are part of the growing pains of a fledgling marketplace and the depressed global interest rate environment,” said AM Best.

“The stricter regulatory oversight and intervention will create additional pressures for life insurance companies in China.” n


“These regulatory actions are part of the growing pains of a fledgling marketplace.”

Over-regulation poses challenges for region

Stricter rules create competition in China’s life market

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14.10.16FRIDAYNews

Digitisation, new technologies and big data are changing the risk landscape and

creating new challenges and opportunities for insurers and reinsurers, Dr Tobias Farny, Munich Re’s chief executive Asia-Pacific, responsible for reinsurance non-life in Greater China, Korea and South East Asia, told EAIC Today.

“Customers’ needs and expectations are changing and the industry is also changing to meet those needs,” he said. “But despite this shift in the environment, the main topic remains growth and profitability and how to achieve them.”

In the coming years Farny expects to see substantial profitable growth since most markets in Asia-Pacific still have low insurance penetration.

“Munich Re believes that the emerging markets of Asia in particular will continue to be key drivers of insurance sector growth in the medium term. This year and next, premium volume in life primary insurance in this region is likely to see double-digit growth, with property-casualty insurance only slightly behind.

“Within the context of comparable low investment returns in combination with remarkable fire and nat cat losses in the recent past, we expect a return to more risk commensurate prices in the next year,” he added.

Asia-Pacific is important for Munich Re, says Farny; most markets still have low insurance penetration, including China, South East Asia and India, as well as some areas in mature markets including Japan and earthquake cover.

To Farny, the market is still dominated by three ‘traditional’ areas: first, auto business remains a very important part, with new technologies such as driverless cars or telematics.

“Munich Re is shaping the future jointly with our clients,” he said.

Growth and profitability critical in change Second, he sees opportunities in nat cat,

which is one of Munich Re’s core competencies and where the insurance density is still extremely low in Asia.

“For example, in 2015 Asia accounted for 39 percent of all loss events recorded worldwide, 80 percent of global fatalities and 44 percent of overall losses, but only 12 percent of insured losses. Three out of the five biggest nat cat events in 2015 happened in Asia.”

Regulatory changes in several areas including China, South East Asia and India will increase the need for some insurers to restructure investment portfolios in order to de-risk, added Farny.

“This would be positive for P&C insurance, as it would raise the awareness for property protection to prepare for catastrophes, which eventually shall support insurance penetration and premium growth.”

On the other hand, he notes that extensive digitisation and new technologies are changing the risk landscape and channels, services, processes and demands in the industry rapidly.

“The cyber insurance market, for example, has tremendous potential for growth. Today roughly 1 percent of cyber risks are insured; we estimate this market will grow from $3 billion in 2015 to $8 to $10 billion in 2020.” n

Dr Tobias Farny

Growth prospects in Asia-Pacific are still appealing to many reinsurers even with

the prevailing soft markets, according to an AM Best report.

The rating agency said that many global reinsurers see Asia-Pacific as an opportunity to diversify, particularly in big emerging markets such as China and India.

Amid these growing markets, regulators within these countries are devising reinsurance strategies, and AM Best believes there will be a trade-off between nourishing local players with favourable policies and promoting open markets.

However, AM Best holds the view that reinsurance in the region supports overall financial strength and helps reduce volatility against big losses for primary insurers.

Asia-Pacific accounted for 14.9 percent

Asia-Pacific prospects remain a lure for reinsurers

of global non-life reinsurance gross written premiums, according to AM Best’s Global Reinsurance Review.

China Re, Korean Re, and GIC Re of India are positioned within the top 20 global reinsurers, and the retention ratios of countries in Asia-Pacific remain in the range of about 50 percent to 90 percent.

Business retention capability of direct players varies across the region and AM Best believes that

reinsurance is still in an early stage of development in many Asian markets, which are marked by the domination of national reinsurers.

While many countries are on the track of open access, AM Best suggested that regulatory trends have been mixed across the region, and some countries would rather restrict external reinsurers.

Emerging countries usually do not have a sizable reinsurance market locally and their national reinsurers ultimately rely on international markets for retroceding their risks, said AM Best.

“Economic growth is a driver for changing re/insurance regulations and regulators do understand the need for a functioning market in the long run,” said AM Best.

“Most markets appeared to be moving toward deregulation in reinsurance, but recent regulatory changes in some countries moved the emphasis back to localisation.” n


“Economic growth is a driver for changing re/insurance regulations and regulators do understand the need for a functioning market in the long run.”

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14.10.16FRIDAYInterview:

Micky Lee, Qatar Re

What is the company’s strategy for Asia-Pacific?We believe in what we consider ‘back to basics’: being close to clients, in the same time zone, emphasising face-to-face interaction, ideally in local languages. Our response to current market conditions is to tailor our client approach around three distinct propositions: first, we provide capacity to insurance entrepreneurs; second, we offer client, geographical and class intimacy, where relationship reinsurance still matters; and third, we adopt a portfolio-managed approach to commoditised reinsurance, and thereby offer sustainable and competitive pricing.

The portfolio approach is vital to our multi-line treaty strategy, as opposed to a silo mentality with an exclusive focus on class-specific technical characteristics. It is our ambition to grow with our clients and steadily enhance our understanding of their needs.

What foundation are you building on?Qatar Re does not start from scratch in Asia as we opened our representative office in Singapore in 2005 and have been serving clients out of Doha and Zurich for a number of years. Our underwriters enjoy a long track record and high recognition across the region.

Based on this foundation, we will deepen and broaden existing client relationships as well as explore new business opportunities. Examples of the latter include start-ups and innovative schemes in Asia’s emerging and frontier markets.

What will Qatar Re in Asia focus on specifically?We are excited to have received the branch licence from the Monetary Authority of Singapore. Singapore has established itself as

Asia’s leading reinsurance hub, recognised for its rule of law, political stability and regulatory environment. 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.

Qatar Re will write non-life business out of its Singapore branch with a primary focus on treaty. The initial team consists of three senior underwriters, led by me. We will focus on property, casualty, marine & energy and specialty lines such as aviation, engineering, credit & surety as well as boutique business. Further appointments will follow in due course, as we intend to provide more tailored reinsurance solutions for the increasingly complex risks underwritten in Asia’s reinsurance markets.

How can Qatar Re differentiate itself from other reinsurers serving the Asian markets?Our analytical approach to portfolio management enables us to offer more flexibility. In addition, we operate based on a long-term perspective, backed by long-term capital, and a strong commitment to clients whom we believe have the potential to grow and prosper over time.

Qatar Re’s renowned specialty expertise in lines such as agriculture, motor casualty and engineering makes us a reinsurance partner who can address complex client needs, including those which require tailored solutions.

Back to basicsA personal approach underpinned by good analytics defines the approach of Qatar Re in Asia as Micky Lee, principal officer of Qatar Re’s Singapore branch, explains to EAIC Today.

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Our small and nimble global setup ensures that we respond to client needs as they arise.

What is your outlook on the Asian markets?First and foremost, Asia is a 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. 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.

Having said this, the reinsurance trading conditions in Asia are tough. Capacity is abundant and the frequently forecast stabilisation of rates, terms and conditions is still elusive. Therefore, risk and client selection, based on geographical proximity and face-to-face interaction are key. nMicky Lee is principal officer of Qatar Re’s Singapore branch. He can be contacted at: [email protected]

Micky Lee

“We consider this a particular opportunity given our global track record of supporting insurance entrepreneurs.”

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14.10.16FRIDAYInterview: Philip Chung,

S&P Global Ratings

The profusion of reinsurance startups emerging from Asia in recent years is

being driven by a mixed bag of factors that mean the trend is unlikely to abate any time soon, and will ultimately change the reinsurance landscape in Asia.

That is the view of Philip Chung, director at S&P Global Ratings, who outlines four key factors driving the formation of startups.

The first is government initiatives across Asia to develop insurance hubs and strengthen the development of reinsurance capabilities to support domestic growth and demand. For example under the New Nation Ten Guidelines, the Chinese government signalled a focus to accelerate the development of reinsurance markets to enhance domestic insurance companies’ ability to provide insurance coverage for onshore activities such as agriculture, energy and infrastructure projects.

The second factor is simply the growth opportunities that are apparent in the region. “As insurance penetration within Asia increases, we believe the demand for reinsurance will likely follow suit,” Chung said.

The third is the wider attraction of the industry to investors because it is uncorrelated with other investments.

“Reinsurance had often been regarded as one of the investment strategies that bears little correlation to the financial markets. As an outcome, it provides diversification benefits to investors amid volatile capital markets conditions,” Chung said.

Finally, he notes that some governments have another objective in encouraging such startups. “The development of local reinsurers also facilitates ‘maximum local retention’ objectives of governments, retaining premiums and capital within the economy,” he said.

Chung stresses that the backers of these ventures are mixed. They often involved a combination of state-owned enterprises and the private sector. “This reflects the joint effort of both private and public sectors in the establishment of insurance hubs,” he said.

Beyond the factors outlined above, there is also the wider picture of anticipated growth on the back of an expected increase in insurance

penetration in the region. “That also serves as an attractive lure for investors,” Chung said.

He added: “In our view, reinsurance provides diversity from capital markets volatility and is highly attractive to private investors as it allows the investors to benefit from potentially higher returns amid market sell-off.”

Governments, as investors, may also have another way of looking at reinsurance ventures, he said. “We speculate that governments may consider the float from the insurance industry as a good funding source for economic development. Additionally, having capital and assets in the country may be seen to enhance policyholder protection.”

A focus on ChinaChung notes that China in particular has seen a lot of new companies registered, with three new reinsurance companies—PICC Re, Taiping Re (China) and Qianhai Re—being formed since November 2015. He also expects more players to be granted reinsurance licences by the China Insurance Regulatory Commission.

S&P considers PICC Re and Taiping Re (China) to have had prior exposures into the Chinese reinsurance markets, reflecting their already established insurance parent shareholders. Only Qianhai Re is a truly new player in the market at the moment, he said.

“We expect these players to remain focused on the domestic Chinese reinsurance market

Startups will change landscape in AsiaThe proliferation of startups in Asia shows no sign of abating and will change the reinsurance landscape in the region for the long term, says Philip Chung, director at S&P Global Ratings.

given their stronger knowledge on the local market. While they may have aspirations for international businesses, some investors have resorted to purchasing international reinsurers to gain quick international access and facilitate knowledge transfer.”

For global reinsurers previously eyeing Asia as a land of growth and opportunity, this should not curtail those ambitions in the short term, Chung said. He stressed that the new players will need to develop their systems, process and procedures as well as relationships with brokers.

“However, these startups will expand reinsurance capacity and as such we see higher competition for international players who are interested in local Chinese business,” he added.

“Under C-ROSS, the new solvency system, the use of offshore reinsurers by the direct insurer is subject to higher risk charges. We expect this to weigh heavily on the choice of reinsurers by the direct insurance companies. We believe this will lead to more international players establishing local operations within China to remain as an attractive reinsurer.”

The long term is a different picture. S&P believes the reinsurance landscape in Asia will change dramatically as insurance penetration increases.

“The Chinese economy is massive and growing at a healthy pace compared to developed economies. Together with the strength and connections of the backers of these startups, we believe these reinsurers could become sizable competitors in the global landscape,” said Chung.

“While there are currently ample opportunities for startup reinsurers to prosper in China, we believe that these reinsurers have regional or global growth ambitions which they will execute when the circumstances are ripe,” he added.

“Given the size of the market and the focus on governments to create financial centres, we could see the emergence of insurance hubs across the region which will feature a concentration of insurance companies as well as insurance professionals—lawyers, underwriters, actuaries, loss adjusters, etc—in these respective locations.” nPhilip Chung is a director at S&P Global Ratings. He can be contacted at: [email protected]

Philip Chung


14.10.16FRIDAYNews

Malcolm Steingold

Companies with captives based in Europe are likely to consider redomiciling them

to Asia, due to the higher capital charges they will incur under Solvency II, according to a report from Marsh, Asia Insurance Market Report 2016.

The captives affected by Solvency II, which generally only write the risk of their associated group and subsidiaries, may relocate to obtain a more appropriate regulatory structure for the risks they assume.

Marsh suggested this move would be a particularly attractive option for “reinsurance” captives that already have fronting arrangements in place for writing European-based risk.

Singapore, which is considered the hub for Asian captives, has experienced growth with the number of captives increasing by 6 percent from 64 in 2014 to 68 in 2015.

Solvency II may drive captives to move to Asia

The report stated that most of the growth in this market has come from captives owners outside Asia, for example in Mexico or Australia.

However, Marsh suggested that captives have also been affected by the highly competitive global insurance market and current pricing environment, with organisations potentially finding it hard to justify using a captive internally when rates externally are so cheap.

In spite of this, Marsh has seen a developing trend of organisations seeking to minimise their external spend taking more business into their

captives, notwithstanding that the payback periods are longer.

According to Marsh, another challenge captives face is that many Asian countries are seeing some form of economic slowdown, which can have implications for companies considering forming captives.

“With businesses less able to suffer the volatility of losses, combined with a ‘cheap’ insurance market, there are considerably less-compelling arguments for assuming additional risk within your insurance programme,” said Stuart Herbert, captives leader for Asia at Marsh.

“Of course, it does also present some opportunities for captives in that it can also focus organisation on the level of external spend for their insurance and they may take a more critical view of the spend and whether they can place more risk into their own captives.” n


Launch of Nine Merchants Re shows ambition(Continued from bottom of page 1)

“Like Peak Re, Nine Merchants Re from day one will be looking to write a global reinsurance book. This part of the world is no longer inwardly focused but is looking beyond the opportunities within the Asia-Pacific region.”

He also expects to see discussion around the related topic of M&A activity, in the light of Sompo Canopius’ recent acquisition of Endurance.

In terms of reinsurance business in the region, Steingold sees all geographical areas as offering growth opportunities, and warns against ignoring the potential still present in mature markets.

“The region comprises both mature and developing markets and some of our biggest growth comes from mature markets—so don’t assume that just because a market in the region is mature there is no growth opportunity. I think sometimes that is a misguided approach to strategy.”

From a reinsurance perspective he believes companies are reaping the benefits of an increasingly client-focused approach.

“There is a lot more listening to clients and understanding what they need rather than trying to impose vanilla reinsurance products on them. This is important because the region sometimes has very different needs from the

rest of the globe, in terms of perils and the pace of development,” Steingold said.

Aon Benfield has seen growth in certain key areas in the region, especially agriculture in China, India, Thailand and Vietnam.

Others are credit and surety, and life reinsurance—a market that is starting to become dynamic as more reinsurers show an interest, said Steingold.

“In the past there was a very small club of the large reinsurers dealing directly with life companies; that dynamic is changing quite considerably. There is a lot of opportunity within life companies that have embedded liability in the form of long term liabilities that

may cause them solvency issues in future.” One of the biggest areas of growth for

Aon Benfield has been the development of its new software, PathWise, which enables life companies to assess these embedded liabilities.

“Prior to PathWise this was quite difficult for them: you had a huge amount of data, and you could use this to understand your embedded liability only on a quarterly or yearly or half-yearly basis,” Steingold explained.

“With PathWise, life insurers are able to understand this on a real-time basis. That’s a huge change.”

Growth also comes from taking a broader view of the opportunities available within the market, said Steingold.

“Reinsurers and reinsurance brokers are used to annuity business—treaties renewing every year. We are finding a lot of potential in non-recurring opportunities, such as advising on capital management or M&A; we have a very successful M&A practice based in Hong Kong.”

Looking to the future, Steingold is proud of the talent Aon Benfield has brought into the industry and nurtured. He sees this talent as a vital ingredient for future growth.

“My focus is very much on our talent—developing young people within the group to be future leaders.” n

“Captives have also been affected by the highly competitive global insurance market.”

14.10.16FRIDAYAd proof

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News

Launch of Nine Merchants Re shows ambition Underdeveloped markets will catch upEconomic growth and a low insurance

penetration compared to advanced economies is set to drive re/insurance growth in developing countries in Asia such as China, India and Thailand, according to a JLT Re report titled Emerging Markets: Moving Ahead.

China continues to offer considerable opportunities for domestic and foreign carriers, with several classes of business—such as property and general liability—remaining untapped, the authors wrote.

China has achieved double-digit non-life insurance premium growth in recent years, driven in large part by a rapidly expanding middle class in urban areas. The country continues to experience strong economic growth as it transitions from manufacturing and industrial production to a more service-based economy.

The country’s official statistics show current growth within the government’s target range of 6.5 to 7 percent as spending on infrastructure

projects and a buoyant property market offset the manufacturing slowdown.

Motor insurance is the largest non-life class of business for all emerging markets included in the study and makes up close to 75 percent in China. While motor has been crucial in driving the growth seen to date and is likely to remain so in the future, other non-life lines remain underinsured or uninsured, presenting alternative areas of focus for foreign companies looking to expand their presence, according to JLT Re.

For example, property insurance in China, currently accounting for around 10 percent of all non-life premiums in the country, represents a small portion of the non-life market whereas property premiums can be three times as high in some developed countries. This goes a long way to explaining why insurance absorbs such small fractions of total losses when catastrophes strike China, according to the report.

Marine, aviation and transport and general

liability are underdeveloped, the study claims. Innovation and collaborative partnerships with governments will be crucial in narrowing such protections gaps and, ultimately, increasing insurance penetration, according to the authors.

In India, JLT Re expects strong re/insurance premium growth in the non-life market. India is experiencing solid economic growth of above 7 percent. Several factors are expected to boost growth in the near future.

In Thailand, non-life insurance growth is likely through to 2021 due to increasing disposable income levels and expected higher spending from the public and private sectors, according to JLT Re The country is showing signs of a sustained economic recovery after two years of subdued growth following the military coup d’état in 2014. Gross domestic product is currently growing at its fastest rate in over three years, although recent data suggest the country’s vital tourism sector is slowing, JLT Re said. n

14.10.16FRIDAYNews

As companies grapple with new and emerging complex risks including cyber, terrorism

and D&O, this also presents an opportunity for insurers if they can innovate to address clients’ needs, Chin Feng, Hong Kong & Greater China CEO for Allianz, told EAIC Today.

“That means investing in risk consulting for clients to help them understand their exposures better, while mitigating the risk on their portfolio,” he said.

“In order to do that, companies like us are investing in innovation, hiring the right talent and expertise and investing in the right tools to help underwrite the risks, and to provide guidance to our clients on these new emerging risks. Basically you need to invest in your client as the end game—it’s customer-centricity.”

Cyber insurance, product recall and crisis management are all areas of growing opportunity that Allianz is addressing, as well as working closely with its sister company on terrorism and political risk insurance policies. Trade credit insurance to help customers in the current tougher economic environment is another area of focus.

“We also have a very comprehensive international insurance solution policy,” said Feng. “By being able to issue the policies and service the claims via our global network, we

can provide solutions for companies with overseas interests.”

In terms of geographical growth opportunities for insurers, Feng sees Hong Kong and Greater China as high on the radar, and increasingly intertwined in terms of business relationships.

“They are going to be so interconnected in the future, and they complement each other because China has the ability to tap funds for overseas expansion—such as the One Belt, One Road initiative. On the other hand, Hong Kong has a more fluid legal system and a lot of the professional services, accountants and

Innovation and talent key in Asian marketlawyers that can help our China offices service these risks.”

Feng also notes China’s infrastructure growth as an area of opportunity, along with Myanmar, where Allianz has just opened an office, encouraged by a more transparent system that is making it easier for foreign companies to expand there.

Vietnam is another area of interest, especially in terms of infrastructure development.

Allianz will also be applying for a Beijing licence in the coming year, he added.

Looking to the future, he anticipates that an environment of stagnation—caused by low pricing, excess capacity and consolidation—has created the necessity for companies to have a stronger balance sheet to withstand the current headwinds.

“We have to be able to add a value proposition to the market—we need to differentiate ourselves with value-added services to offset the price wars,” he added. “The challenge is, how do we win and retain clients and remain profitable in a tougher operating environment?

“We are in a strong positon with our capital strength and solvency and our innovation to dive into new areas; that is hopefully going to help us through the tough windstorms ahead.” n

Chin Feng

Strategic advisory services are coming into their own in Asia: ratings, Solvency II and

regulatory issues are all big topics in the region, David Flandro, global head of analytics at JLT Re told EAIC Today.

A big concern of some of JLT Re’s clients, particularly in the developing regions, is the rigorous and optimal quantification of risk.

“There are still companies which underwrite and buy reinsurance without detailed modelling, so some of those companies are getting a bit concerned. They’re saying ok, we’ve got more risk exposure now; what happens if there’s a Chinese typhoon, how do we quantify that?” said Flandro.

“We can bring some of those technologies to bear—even catastrophe modelling technology is relatively new to some companies.”

Flandro said Asian clients are very anxious to implement new technologies, including the best

Demand for advisory services driven by Solvency IIand most up-to-date economic capital modelling, the most comprehensive cat and flood models and the right kind of cover pursuant to that modelling.

“This enables our clients to grow in the right way, and that’s a big part of what we will be talking about at EAIC.”

Another concern in Asia is the ability to expand, said Flandro. Regional players in Asia have regional concentrations, so there is a desire to expand internationally. In order to do so, carriers often need a rating, they may need Solvency II equivalence or capital backing—and those are all areas in which JLT Re is very active.

“Of course, reinsurance can also help—it’s a form of capital so it can enable companies

to expand internationally if they have the rating and the commercial reputation. If you are a medium-sized Asian company in a developing economy, international expansion is often a priority.”

He sees a whole spectrum of opportunities in Asia springing from issues such as new technology, low insurance penetration and regulatory changes.

“In India some of the regulatory restrictions on foreign ownership of insurance companies have changed recently, which is enabling certain large, global players to enter in more significant ways than they were able to a couple of years ago,” he noted. n


David Flandro


14.10.16FRIDAYNews

There is insufficient insurance demand in Asia because of a lack of trust between

policyholders and insurers, Franz Josef Hahn, CEO of Peak Re, told EAIC Today.

“If insurers can provide greater transparency in their information provided, design simpler and more customer-friendly insurance products and buying channels, and keep regular contacts with their clients, this will help build understanding, trust and loyalty among customers,” he said.

“When there is trust, customers will be more willing to buy insurance, and this will close the protection gap.”

The protection gap is a hot topic in Asia, with insurance growth failing to keep pace with economic development.

“It is alarming to note that about 75 percent of the losses incurred by natural catastrophes in Asia so far this year were not insured,” said Hahn.

“Millions of people across our region are either underinsured or not insured at all. The social and economic effects on communities with no insurance are enormous as these unfortunate events will force people back into poverty. The insurance protection gap in Asia is a societal issue which we can help change.”

Faced with a declining appetite for insurance (evidenced by shrinking global insurance penetration since 2007), Hahn believes it is vital for reinsurers to find solutions on how to grow the overall market by generating new business and tapping unserved or underserved segments of the market—be it through product innovation, geographic expansion or simply by

bringing new cedants or risks to the market. “This will require long-term investments,

commitment and, in particular, an entrepreneurial and hands-on approach. Microinsurance in frontier and emerging markets is a great example for providing protection to previously uninsured markets or parts of society,” he said.

Reinsurers, based on their product expertise and knowledge of local market conditions, are well positioned to facilitate the further growth of microinsurance, he added.

“There are ways of supporting emerging markets via different reinsurance initiatives—Peak Re alone already underwrites seven different programmes across Asia in lines such as trade and credit life, agriculture or property, sometimes through public-private partnerships with governments.”

Rapid changeHahn believes that reinsurance is undergoing rapid and fundamental change, and much of this change is being implemented in Asia.

Insurers must work to close protection gap“Old business models are breaking down

and becoming irrelevant as a new generation of buyers appears,” he said.

“For Peak Re, our customers see inefficiency and redundancy in the provision of reinsurance, and they are driving these changes.”

Perhaps the most significant trend for Hahn is the need to ensure Peak Re is relevant to its customers and the markets it serves.

“Insurers and their reinsurers exist to pay claims; collectively that is our primary function. Therefore, at Peak Re, we believe the most significant way we can be relevant is to focus on the most efficient payment of claims.

“One of the best moments for me this year was when Peak Re was praised by our client and their broker on our speedy and efficient claims settlement. We also came out as the fastest reinsurer to pay claims in a recent internal client audit. Last year, 80 percent of all our claims were paid within five working days.”

Peak Re aims to become more relevant, and Hahn believes it is making progress on this: around 80 percent of additional business comes from existing clients.

“This assures our client base that we offer relevant reinsurance solutions,” he said.

“We also aim to continuously grow our business. We have recently increased our capital by $100 million and this will allow us to continue to diversify our portfolio, both organically and via strategic opportunities.”

Peak Re’s Zurich branch is in the process of being transformed into a fully licensed subsidiary, and the company has just completed its first merger and acquisition, with the acquisition of a 50 percent stake in Caribbean insurer Nagico.

“We want to grow our customer base as a trusted partner. We would like to be seen as a mature business partner even though we are still a young company,” said Hahn.

“We want to grow wisely, and to build and enhance our brand, and we will do so through recognition from our clients and peers.” n

Franz Josef Hahn

Demand for advisory services driven by Solvency II

“It is alarming to note that about 75 percent of the losses incurred by natural catastrophes in Asia so far this year were not insured.”

“Old business models are breaking down and becoming irrelevant as a new generation of buyers appears.”

14.10.16FRIDAYNews

Paul Latarche

Moore Stephens Consulting has used the EAIC conference this week to launch a new

set of services to companies in Asia via RuleBook, an underwriting and distribution platform.

The firm has partnered with NTT Data to provide RuleBook configuration and testing and deliver cloud monitoring and support services to a number of clients.

Paul Latarche, partner and head of insurance at Moore Stephen, said: “We have undergone a significant period of growth with RuleBook, embraced by 15 of the leading players in the market. The partnership with NTT Data was the natural next step. It gives

Moore Stephens unveils new partnership at EAIC us the bandwidth to support clients globally, utilising the technical expertise and global reach of one of Japan’s leading technology companies.

“We are delighted to announce that the RuleBook system will be available to underwriters and brokers across the Asian markets. Its success in the London market in enhancing the ability for the placement of complex specialty global risks, and driving more efficient communication between underwriters and their brokers, has established the system as a significant step forward in bringing the insurance process into the 21st century.” n


Reinsurers plunge into India seeking growthAs India opens its market to international

reinsurers, major foreign players are applying for licences to take advantage of the country’s strong growth potential. But they will encounter a fairly soft market with prices likely to depreciate further due to the additional inflow of capacity, and a paramount state-run competitor, experts believe.

India’s regulator amended the Insurance Act 1938 in 2015, allowing foreign reinsurers to open branch offices in the country.

Reinsurers hoping to receive a licence to operate in India from 2017 include Munich Re, Swiss Re, SCOR Re, Hannover Re, RGA (Reinsurance Group of America) and Berkshire Hathaway’s reinsurance unit Gen Re, according to news reports.

As India’s reinsurance market offers tremendous growth potential and regulation favours local companies, interest for setting up such operations will continue, according to an AM Best Global Reinsurance Segment Report released in September.

In order to prevent capital outflow, regulators prefer reinsurers to retain premiums inside the country. This structure benefits reinsurers with a domestic entity, according to the ratings agency.

Lloyd’s of London is among the suitors for a domestic licence. The Indian parliament has approved Lloyd’s and the market to operate onshore in India for reinsurance; Lloyd’s plans to open a hub in the country in 2017.

An onshore branch will provide Indian reinsurance brokers with local access

to Lloyd’s underwriting expertise and innovative reinsurance solutions for complex and specialist risks, including agriculture, infrastructure and disaster management, according to a statement.

Foreign reinsurers are attracted by India’s comparatively low insurance penetration and growth potential, which is likely to also benefit the reinsurance sector.

Another driver is India’s expected strong economic expansion. According to the World Bank, India’s gross domestic product will expand 7.6 percent in 2016 and 7.7 percent in 2017.

Reinsurers may face growth opportunities particularly in property/casualty as the segment is set to grow at low double-digits in the medium term. In addition, the influx of foreign reinsurers is set to develop underwriting expertise.

So far, GIC Re is the sole reinsurer in the domestic Indian reinsurance market and receives statutory cession of 5 percent on every policy, subject to certain limits of direct general insurance companies, according to its website. GIC Re leads many of domestic companies’ treaty programmes and facultative placements.

State-owned GIC Re reported a year-on-year gross premium growth rate of 21.4 percent in its 2015/16 financial year to $2.8

billion. The premium split between domestic and the overseas business over the period was 55 percent and 45 percent respectively. GIC Re’s profit after tax during the year 2015/16 was $429 million.

Despite significant growth, market conditions for reinsurance are difficult in India—GIC Re reported a combined ratio of 107.4 percent for the 2015/16 financial year.

In order to prepare for the challenges ahead, India’s domestic reinsurers will need to adapt their business models to the changing needs of India’s primary insurers: “A challenge for local reinsurers will be to stay relevant in their core markets,” said Moungmo Lee, managing director, analytics, Asia-Pacific at AM Best.

“Their major cedants have grown quickly and are able to retain more risk. Reinsurers need to keep pace with this shift to be able to provide the necessary capacity,” he explained.

Alternative revenue sources may include life reinsurance, agricultural and cooperative business.

What should help India’s reinsurers is their focus on proportional business with variable commission in their portfolios, according to AM Best. While the loss ratio at GIC Re may appear high, relative to the large primary companies in the market, this ratio compares favourably.

Furthermore, investment yield in India is at a high single-digit level at around 7 to 8 percent, Lee said. GIC Re reported investment income of $639 million for the 2015/16 financial year. n

“A challenge for local reinsurers will be to stay relevant in their core markets.”

14.10.16FRIDAY

www.intelligentinsurer.com | www.bermudareinsurancemagazine.com 19DAY 3: Friday October 14 2016 | EAIC TODAY |

News

In the past six months the surety bond market has developed significantly for insurers

in China, said Richard Chu, specialty lines, financial risks, Asia-Pacific, PartnerRe.

“It’s a new product in China mainly for construction sector,” he said. “Previously most of the construction companies had to go to banks for surety products, but in the last six to eight months it is changing simply because the China Insurance Regulatory Commission (CIRC) and the People’s Republic of China Central Committee and State Council are further opening up this market and strengthening urban planning and construction management.”

As a result of that, a number of insurance companies have started offering this product, and it is very much modelled towards the US surety market, said Chu.

A knock on effect is that PartnerRe is now seeing a number of enquiries from insurance companies in China writing these surety bonds.

“At present it is confined mainly to works in municipal government offices, schools and hospitals—it is still quite new in China,” said Chu.

He added that China’s One Belt–One Road initiative will increase demands for medium long-term credit and also political risk insurance cover.

“In fact, we have already seen a number of these projects, for example, China Railway Rolling Stock Co selling some 150 assembled railways cars and components to Egyptian National Railways—and that requires political risk coverage as well.”

He expects to see more of these projects in the near future.

In Korea, Chu said, the market has opened up due to recent changes by the regulator, the Financial Supervisory Service. It has opened up the export trade credit insurance market, which in the past was dominated by two companies: Seoul Guarantee Insurance and K-Sure (the export credit agencies of Korea).

“Property and casualty insurance companies such as Samsung, Hyundai, KB and Dongbu, are now allowed to write this export trade credit insurance,” he said. “This is a new opportunity. They had ability to write the insurance for their own groups which are mainly in the electronic and manufacturing sectors.”

Turning to JapanChu anticipates that Japan will continue to invest in infrastructure because the country is facing ageing public infrastructure such as government offices, schools, bridges, roads and sewerage pipes which were built 40 to 50 years ago.

“The Kumamoto earthquake revealed the necessity for such investment because the Kumamoto municipal government office collapsed during the earthquake and they were not able to function to undertake the necessary public service post-earthquake.

“One university professor calculated the cost of maintenance and the construction of existing public infrastructure would be 8.9 trillion yen, ($86 billion) which is far from possible. So Japan has to prioritise projects for the time being,” said Chu.

The upcoming 2020 Summer Olympics is sparking a lot of construction activity in Japan, he added; a recent project supported by PartnerRe was the construction of the Tokyo athletic stadium, with a $450 million surety bond request.

Another key development in Japan is the opening up of the export credit agency: Nippon Export and Investment Insurance (NEXI). It has gone through a broker tender process and the state’s involvement will cease.

“NEXI has been discussing its needs with PartnerRe and other reinsurers who can offer top security and expertise,” said Chu.

South East Asia presents re/insurers with a number of countries at different stages of

The surety bond market is growing in China

development. When it comes to trade credit insurance, Chu says cedants are still looking to grow and to open up this business in the market.

“Trade credit insurance is not such a straightforward business, because cedants need to invest in underwriting infrastructure, IT platforms, good risk management techniques and accumulation control; so in these countries, cedants are looking for reinsurance companies that have good track record and can provide them with a partnership.

“What Partner Re can do here is typically to provide technical knowledge transfer and risk management knowhow to further enhancing our cedants in South East Asia so that it supplements underwriting execution,” Chu explained.

In Indonesia, for instance, PartnerRe recently assisted a client on trade credit insurance, providing technical assistance and expertise to guide them towards the writing and the setting up of their trade credit department.

In China, PartnerRe is partnering with an insurance company that has several Chinese construction clients who are mainly in the Engineering News-Record 250 ranking.

“Most of these Chinese companies tend to go to Latin America and Africa. As a global company and with credit and surety expertise in all regions of the world, PartnerRe has the ability to assist them and share with them the best practices for underwriting those lines in these other regions and in that way help our clients succeed.” n

Richard Chu

Reinsurers plunge into India seeking growth“At present it is confined mainly to works in municipal government offices, schools and hospitals—it is still quite new in China.”

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