Opportunities in change

Pricing losses and a changing regulatory environment will be the main discussion points as SIRC delegates grapple with the great opportunities in Asia, Alex Yip, CEO Greater China, Lockton Companies, tells SIRC Today.

What are the main talking points that could arise at SIRC?

We see there being three main topics for discussions: pricing, losses and the changing regulatory environment.

Pricing is a particularly interesting subject. The region is far more price-driven than, say, Europe, where at recent conferences it definitely felt as though pricing discussions were largely a secondary topic.

SIRC is an important event for us so apart from myself, we will have a senior team there including Zubiao Gao, one of my senior vice president colleagues from Hong Kong; Justin Lee, managing director at Lockton Korea; and Mark Finch, one of our London-based senior vice presidents. Along with another half-dozen colleagues from across Asia-Pacific we will be well placed to deal with these and any others matters that may arise.

How much potential is in the Chinese market at the moment?

The losses resulting from the Tianjin port chemical storage facility explosion in August have highlighted cross-coverage concerns. This has undoubtedly made reinsurers stop and think whether they really know what they are covering and likewise caused market analysts to opine that this may help moderate some of the previously forecast rate reductions for the January renewal season.

One also needs to consider the upcoming C-ROSS regulation, set for implementation in 2016, which will create greater regulatory transparency. It will give further clarity and improve the risk management of insurers’ solvency requirements operating in China. In the longer term this can only help build a healthy insurance industry in China and grow Shanghai, for example, as a future reinsurance hub of Asia.

What would it take to open China fully as a market?

Greater sophistication of data management is probably still the key to attracting a broader reinsurance audience for China. Reinsurers are cautious by nature and still wary of the lack of clarity in exposure data that really helps quantify coverage and resultant pricing.

Do you sees potential in any other countries?

When one looks at the ASEAN economic community, all of the constituent countries continue to represent strong potential for growth.

The Asia-Pacific region seems to be pretty much on everyone’s shopping list within the industry. A key area for growth potential driven by rapid economic development and population growth is the reason. Asia-Pacific is projected to be the mainstay for insurance growth across the globe in the period leading up to 2020. Fuelling this demand is regulatory change bringing greater consumer protection.

Eight of the world’s top 10 cities exposed to coastal flooding are expected to be in Asia by 2050. This growth in urbanisation brings with it the threat of increased exposure to natural catastrophes such as windstorm. As a measure of this, South East Asia’s top 15 cities have $300 billion at risk from manmade and natural threats over a 10-year period. We see the largest threats therefore as windstorm, followed by the economic losses after a market crash, human pandemic, earthquake and flood.

How has Singapore developed as a re/ insurance hub?

Singapore has been very successful and is now fully established as a regional hub, with a queue of potential new entrants that continue to explore the possibility of setting up there to exploit the business opportunities that exist. The cost base is still very competitive and the capacity is there for all but the very large programmes, meaning that business from the region is much more self-sustaining, no longer having to rely on the London Market to the extent that it once did.

How have insurance-linked securities been greeted in the Asia-Pacific area?

In our region, the insurance-linked securities (ILS) arena has been relevant only to the more advanced markets of Australia and Japan where the buyers have reached a certain scale, but this will change ultimately as the level of ingenuity of other nations catches up.

The vast majority of the ILS market is invested in US property-catastrophe reinsurance products where these perils are well modelled and economically viable on a fully collateralised basis. As risk modelling in regions such as ours improves, we will see a broadening in appetite with deal opportunities arising across Asia-Pacific. China is an area that is specifically spoken about as offering shorter-term opportunities.