11 October 2016 Insurance

Growth opportunities are mainly in P&C

The biggest growth opportunities in Asia exist for primary insurers able to tap into the insurance needs of a more affluent population, Rainer Schuermann, regional manager, P/C Treaty Asia, Gen Re, told EAIC Today.

“In the short term, a growing middle class will have more insurance needs, and in the long run, the vast number of people who don’t even think of insurance today will become potential insurance customers,” he said.

Indirectly, this will also lead to more business opportunities with small and medium-sized enterprises, he added. Assets need to be protected.

“Specifically, closing the gap between total versus insured losses for cat events is an economic and societal necessity in most developing markets,” Schuermann said.

“Re/insurers’ capital and expertise can certainly contribute to, and benefit from, this opportunity. Nevertheless, despite the dominance of manufacturing industries in the composition of China’s GDP, the services sector is catching up quickly and may overtake industries soon. Hence, we might see large manufacturing plants move from China to other places in the region, creating opportunities there.”

He cautions that an opportunity can often also present a threat: in this case, the soft market conditions could prove to be a trap for the unwary, should they take on new risks at inadequate terms.

Apart from the usual suspects—catastrophes, new capital flowing in or established reinsurers changing ownership—the subject that deserves most attention at present is what is going on in the regulatory environment, in particular, in India, China and Indonesia.

“There are a lot of good elements in that, such as greater dependability and consistency, a move towards risk-based capital, etc. At the same time, reinsurers are pushed towards establishing smaller local entities subject to separate capital and solvency requirements.

“This reduces the efficiency of global risk-sharing and diversification mechanisms that reinsurers provide; it also adds expenses that, in the end, will have to be paid by the policyholder.”

Over the coming year, Schuermann expects to see terms and conditions moving towards a more sustainable level.

“There are signs that the soft market is at its bottom. Rate reductions are not a given and there have been upward adjustments where the loss experience was not good. Obviously, we will see this more clearly during the coming months, or in March for those markets that renew on April 1, but the general tendency is up.”

He added that he is struck by the fact that so many in this market are selling to their cedants only on price and on the transaction, rather than on the more valuable aspects of the relationship.

“You can negotiate all you want, but in the end it comes down to how your reinsurer responds to your specific needs. In most cases your needs will be met years down the road.”

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