Asia: a dynamic but challenging region

The Asian reinsurance markets are very much on the agenda of Qatar Re, but conquering such a big and diverse region will not be easy and also presents many challenges, Johannes Goebel, head of engineering, Qatar Re, told EAIC Today.

“Asia Pacific is one of the most dynamic economic regions in the world. Growing populations will stir further necessities for insurance products and, as many countries enter the stage of emerging markets, the insurance penetration will rise as well.

“This will mean that premium income will increase from those markets, but we will also face more severe and volatile loss situations,” Goebel said.

He noted that with estimated non-life cessions of $35 billion, the Asian markets account for a fifth of the global market. Increasing risk awareness coupled with low penetration rates, especially in non-life insurance, will sustain growth in the region’s re/insurance markets.

He also noted that the catastrophe year 2011, with huge and unexpected losses in Japan and Thailand, has raised awareness of the region’s significant protection gap and its very low ratio of insured versus economic losses. As a result, demand for insurance and reinsurance has increased.

“Qatar Re has been quite active in the Asia Pacific region and will continue to expand its market presence,” Goebel said. “The firm maintains treaty relationships with cedants in a number of Asian markets, predominately writing agriculture, engineering and energy. At EAIC Qatar Re will participate with an underwriting delegation for each of these lines.”

He acknowledged the many challenges that exist in the Asian markets, however, based on the experiences of the company’s underwriters who have been regularly visiting and writing business in Asia since many years.

“Currency fluctuations, which can be quite dramatic, require reinsurers’ attention. Also, the loss situation and the deterioration of the underlying conditions force insurers and reinsurers to come up with innovative solutions, although most responses have remained rather conventional thus far,” he said.

“In addition, in emerging Asia we still lack data, which is particularly challenging, given the pace in which insurable values are created and require cover—also in light of the region’s high exposure to multi-perils.”

He said the influx of alternative capital is having an influence on the market but he questions the rationale behind some buyers looking to use such structures.

“Alternative capital solutions are a substitute for traditional reinsurance, and this is also true in the Asia Pacific. However, it seems that in some cases its use is driven more by emotion. They want to think ‘yes, we also have a cat bond in place as we are a modern insurance company’ rather than because it is a necessity.

“Typically, reinsurers are able to provide tailored solutions to their cedants, which are sustainable over many years. Alternative capital assumes a complementary role by providing a solution defined for a specific situation.”

He believes the growth of the insurance markets in Asia will trail the economic growth of the region. Mature economies such as South Korea or Japan are already leading the way, while others are still in the emerging or developing phase.

“Typically, along with the growth and expansion of the industries in these countries a banking and financial services industry will develop as well. Investors will seek to secure their engagement against sudden losses. Insurance products will fit into this growth strategy quite well. Furthermore, personal lines insurance products will be in great need too—people who accumulate assets will want to protect them against loss,” he said.

Goebel believes a big talking point at the EAIC this week should be the present economic situation in Asia—slower growth in China and the weakening of the Japanese yen—as well as its ramifications for the insurance industry.

The challenging market environment with low rates and softer terms and conditions will also be high on the agenda in Asia. “In addition, we expect to discuss the difficult loss situation in the region,” he said.

The new Chinese solvency scheme, C-ROSS, which will be introduced in 2015, will stir up many discussions, he added. Finally, the start of the ASEAN Economic Community, which is scheduled for 2015, will trigger discussions about cross-country collaboration within the financial sector.