2 November 2015 Insurance

Ambitious Chinese insurers will change the landscape

As Chinese insurers look to branch out it will impact the re/insurance landscape across Asia, says Malcolm Steingold, chief executive officer, Aon Benfield Asia Pacific.

One of the biggest trends set to reshape the re/insurance landscape in Asia is Chinese insurers increasingly having global aspirations and the desire to expand globally, Malcolm Steingold, chief executive officer, Aon Benfield Asia Pacific, told SIRC Today.

He notes that, in insurance specifically, PICC is in the process of setting up PICC Re, a new reinsurer. There’s also the continuing investment of private equity firm Fosun, being aggressive in its acquisitions as it aims for global expansion, Steingold says.

“Fosun has had global aspirations in the insurance/reinsurance space for some time now and certainly since investing in Peak Re. They have subsequently acquired Portuguese insurer Fidelidade and Ironshore and have been actively seeking other acquisitions,” he says.

“Peak Re is also currently establishing a presence in Switzerland. We therefore see not only Chinese private equity firms but also state-owned insurers looking outside the Chinese market.” He also mentions Ambang, another Chinese company that, while it hasn’t yet acquired anything of any substance, is aggressively looking for investments outside the Chinese insurance market.

“You also have a few billionaire investors setting up, or expressing their intention to set up, a reinsurance company that we assume would be a global writer in China. But it’s still very early days yet and certainly there has been nothing concrete so far, other than announcements of intention to set up this company, which would be capitalised at around $1 to $1.5 billion dollars,” he says.

Steingold notes that the growth of Chinese companies will complement the many Japanese companies which already have a substantial global footprint. Companies such as Tokio Marine have been a major global player for quite some time. Recent acquisitions of note include MS&AD group’s acquisition of Amlin and Sompo’s acquisition of Canopius.

“The Japanese global footprint is currently substantially larger than the Chinese one which, to date, is still in global terms negligible,” Steingold says.

“If you look long-term though, you have to be guided by the scale of the Chinese economy and sheer size of China as a country. With this perspective in mind you must conclude that the Chinese will be a major force in the global insurance and reinsurance market. The sheer scale suggests they have the potential to be the dominant global player.”

Asked whether the recent Chinese economic slowdown will have much of an impact, Steingold says that he could not see the slowdown as being much of a factor featuring in the decision by Chinese insurers and private equity groups to expand into international insurance and reinsurance.

“It is a factor but not a major issue in the medium to long term. Some of these decisions would have been explored certainly before the slowdown of the Chinese economy. You must remember that when you talk about the Chinese market slowing down it’s still going to grow more than 6 percent this year. There’s few economies around the globe growing at a faster rate than that at the moment,” he points out.

Turning his attention to the reinsurance markets specifically, Steingold says January 1 is a major renewal across Asia, excluding Japan, which means it’s also a big renewal for China and some of the South-East Asian countries. China aside, there continues to be more than adequate capacity for reinsurance needs in the region.

“The market at January 1 will still provide opportunities for buyers of reinsurance,” he says. China is different because much depends on the extent to which the Tianjin loss will impact on the Chinese reinsurance renewals.

“While there has been some work done on estimating the total insured loss, and each of the major Chinese insurers has some idea of the loss in Tianjin, how this will impact on insurers will probably become a little more evident following discussions at SIRC,” he says.

“The scale of the loss is massive for a risk loss and the impact on reinsurers will very much depend on which insurers are substantially impacted by the loss. The larger players in the Chinese market will certainly be affected and this may present some challenges around renewal of the major pro rata treaties in the market. “This may turn out to be a broad market loss but I suspect there will be some reinsurers who due to their disproportionate share of pro rata treaties will consequently bear a disproportionate share of the loss.”

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