Reinsurance at a crossroads—different journeys lie ahead

Challenges for reinsurers in Asia include changes in exposure, in perils, in terms and conditions and in regulations, according to John Tan, group chief executive for ACR Capital Holdings.

“It’s important that the Asian reinsurers take a very long-term view because the essence of insurance and reinsurance is trust,” he said.

While he expects that alternative capital will be a topic of conversation at the EAIC, he believes that its impact on the Asian market will be limited by the fact that alternative capital typically seeks short-term opportunities, whereas the focus in Asia is on long-term risk sharing.

He added that the reinsurance industry in Asia is at a crossroads, with marked differences in approach from country to country.

“For each company the journey might be quite different. Some, like the Japanese, will be looking to be globalised, whereas others, like the Chinese, are still growing their own markets internally,” Tan said.

He said that these differences are reflected in the regulatory environments of each country.

“It’s always a question of whether you need to ring-fence your market against external shocks, and whether you are looking to build local institutions or global giants.”

The Asian market is still growing, he added, and the pace is fast compared to the markets in Europe and the US. However, Asian companies are still in the early stages of development and are a far cry from the well established leaders of the sector.

Although the big Western players have sufficient capital diversification and generally focus on risk transfer through non-proportional reinsurance, depending on price cycles to dictate what to buy and when, Asian reinsurers do not have the same luxury, he said.

The fact that the majority of Asian reinsurance products are proportional means that reinsurance in the region is characterised by a risk sharing approach which, Tan said, encourages a longer-term view with benefits being realised over time.

He expects that it will be at least another 20, 30 years until there are a sufficient number of Asian global giants for the region to truly secure its footing on the global stage, and it will be some time before Asian reinsurers achieve the same amount of diversification as the biggest Western firms.

Against this backdrop, ACR retains its strong regional focus and plans to grow as its clients grow.

“Our clients are still growing and we are basically the equity partners in that sense, so we take the long-term view and a risk sharing approach and grow with them,” he said.