Capital markets a hot topic at EAIC
The continued softening of the reinsurance market and the entrance of the capital markets into the Asian reinsurance sector will be the main topics of conversation at this year’s EAIC, according to Britt Newhouse, chairman of Guy Carpenter.
While direct involvement from the capital markets in Asia is still limited, Newhouse believes that this will grow, and that the region is already experiencing the knock-on effect of the capital markets movement into the Europe and US reinsurance markets.
“It will eventually work its way into this marketplace but most businesses these days are global businesses: even if you don’t have offices around the world, and even if you are not trying to write Asian business from London or London and American business from Asia, your business is still going to be affected by what happens in those markets.”
He said that if insurance and reinsurance pricing and competition increase dramatically in the US and Europe and the risk appetite of the capital in those markets goes unsatisfied, then that capital—be it in the form of a publicly traded reinsurance company, a Lloyd’s entity or an ILS fund—will go elsewhere to write more business, creating a knock-on effect in Asia.
“If reinsurance pricing goes down dramatically in Asia and increases the appetite and capacity of insurers in the region, then even if you are an insurer in Asia who’s not doing business globally, that’s going to affect your business because it’s going to create more capacity, more appetite, and more competition,” he said.
“That knock-on effect has certainly happened in our industry and it’s going to increase.”
Guy Carpenter estimates that over the coming year, 30 percent or more of global property catastrophe capacity from traditional reinsurers will go unsatisfied, with the current soft cycle extending for years to come.
Against this backdrop, the main opportunity for the industry in the Asia Pacific region is continued growth in insurable risk, says Newhouse.
“That’s no longer happening and doesn’t have the same potential in the Europe and the UK. That long-term economic expansion doesn’t exist anywhere else in the world except perhaps places such as Latin America and Africa—but here, it’s creating an as-yet unrecognised potential for enormous loss because values are growing and more people are buying insurance to protect those values.”
He added that as companies continue to grow and regulators and governments see the positive impact that insurance has on supporting and stimulating economic growth by taking on risk, they will encourage the involvement of the re/insurance industry.
“Singapore and China are good examples of this, but they also recognise that if there’s a weakness in the insurance sector it could cause serious problems for local economies, so the local regulators are beginning to shift from looking purely at ability to pay and financial measurements. They’re beginning to demand to see more evidence of enterprise risk management.
“There is the opportunity for companies to bring higher and higher levels of underwriting claims data analysis—and the regulators and probably, to some extent, the shareholders, are going to start differentiating those companies who are able to show they are able to slice and dice and manage the business and persuade external audiences that they are better.”
He added that Guy Carpenter’s long-term goal is to increase its global presence, and to do more business in Asia.
“We have been successful in that: our business here relative to the rest of the world is growing rapidly because we think this is the place to be.”
