11 October 2016 Insurance

Regulatory change remains a hot topic in the region

One of the hottest topics in Asia is regulatory change and the impact this is having on capital requirements, pricing, infrastructure and market access for all market participants. That is the view of Mark Morley, managing director, Willis Re, South East Asia.

“While there seems to be a growing consensus that regulatory regimes throughout the region are moving toward European-style risk-based capital models, other aspects of regulatory oversight have been less consistent,” he said.

“This is especially the case when we look at the varying approaches to market liberalisation across the region. Business models need to be flexible enough to adapt to these challenges and adjust to the changes in market dynamics.”

Another topic of discussion is around the various updates arriving this year (and next) of many of the third party catastrophe models in the region and the potential impact they may have on pricing and limits purchased, said Morley.

He also notes a continuation of interest in some of the key themes from previous years, which include various industry initiatives looking at how to increase the very low level insurance penetration in the region and where technology might help in that and other areas of industry development.

“In the absence of any fundamental change in the demand/supply characteristics of the market we can still expect some price reductions across Asia, particularly in regions where we have not seen significant loss activity,” he said.

However, he expects the extent of these reductions to be smaller and less widespread than those seen over the last few years—the reason being that loss activity is not the only driver of price.

“Reinsurers are still expected to earn a return on equity (ROE) and there is little doubt that reinsurer margins have eroded significantly over the last few years,” he said.

“In a study published by Willis Re, when we normalise for long-term catastrophe trends and prior year reserve development, reinsurer margins are starting to slip below the ROE targets expected by shareholders. This will certainly add shape to the pricing discussion in 2017.”

Asia is a diverse region in terms of geography, politics and economics and Morley believes the opportunities and challenges are no less diverse. Some consistent themes exist in terms of looking at the challenge of low insurance penetration, risk resilience and in product refinement and development.

“Some of the greatest opportunities for reinsurers in this market lie in the pursuit of greater efficiencies in their market access and exploring and exploiting the potential of different distribution models,” he said.

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