SCOR tackles profit challenge by adding value in China/India
While China and India promise great growth potential, profitable business for reinsurers is hard to come by—the key is to offer cedants added value and additional services, Jean-Paul Conoscente, CEO of SCOR’s P&C reinsurance business unit globally, told SIRC Today.
“China has a lot of growth potential but profitability has been challenged over the past few years,” Conoscente said.
Prices in China are under pressure due to excess capacity, he explained. In addition, ceding companies are becoming bigger and are deciding to retain more of the better-quality risk and ceding some of the more volatile risk.
“Reinsurers are finding it more difficult to make the profit they expected,” Conoscente said.
SCOR is therefore carefully selecting the clients it wants to cooperate with in China. “China is a very difficult market from a profitability perspective and one we struggled with over the last couple of years,” he noted.
The situation for reinsurers in India is not much different from that in China. “The Indian market has strong growth potential, but profitability has been challenged and programmes are very competitive,” Conoscente said.
“We have a similar approach in India as in China. We carefully select the clients we support and ride out the cycle with them.”
Together with the selected clients, SCOR works on services and products that could be introduced in the market to spur growth and balance the cedants’ portfolios.
Two markets
In general, the Asia-Pacific insurance market can be divided into a mature and a developing market, where different dynamics can be observed, Conoscente suggested.
“We see that growth in mature markets such as Japan, Singapore, Australia and Korea is slowing down, while high-growth markets in south-east Asia are continuing to expand,” he said.
While the different growth dynamics may require specific products and services, both areas offer growth potential for reinsurers.
“In both regions, the different growth trajectories and the reduced quality of the growth require services beyond just reinsurance capacity. These represent opportunities for SCOR,” Conoscente said.
SCOR is therefore looking at the specific needs of key clients in the region not only in reinsurance but also in additional services and products that may help cedants in their development.
SCOR is seeing Asia-based insurers wanting to expand into new countries in the Asia-Pacific region, a trend that may offer additional growth opportunities for SCOR.
“We see a push by regional and global players to further expand their Asia-Pacific footprint. That has an impact on both locally and regionally-placed programmes,” Conoscente said.
“We see opportunities for us, as a global reinsurer, to work on those programmes and help companies reinsure the risk,” he added.
Among the high-growth markets in the Asia-Pacific region where SCOR sees potential to expand its business are Vietnam, Indonesia and Thailand.
One hurdle for insurers doing cross-border business in the region is regulation, Conoscente noted.
“Regulation continues to increase in those countries and that requires a large infrastructure, as we have. The larger Asian players also see opportunities to enter, as they have the means to meet the regulatory demands,” he explained.
A major topic at renewals will be the natural catastrophes that have hit the region recently, he said.
Insured losses in Japan from Typhoon Jebi which made landfall in Western Japan on September 4 may reach $5.5 billion, according to risk modelling firm RMS.
Industry insured losses from Typhoon Mangkhut in mainland China, Hong Kong, and Macau will be between $1 and $2 billion, according to estimates by catastrophe risk modelling firm AIR Worldwide.
“The levels of cat activity will be a major topic of conversation during the Asian renewals,” Conoscente said.
“It will be further reinforced that pricing needs to be at a sustainable level. Loss-affected programmes will definitely see price corrections, while loss-free programme prices will need to be adjusted to a sustainable level.”
While renewals negotiations are arguably always tough as insurers and reinsurers are coming from different angles, reinsurers are currently under particular pressure, Conoscente suggested.
“The reinsurance market has changed over the past five years given the permanent influx of alternative capital and depressed margins on some of the previously-profitable businesses, like cat, and low returns on investment in developed countries.
“All of those factors combined put a lot of pressure on business models.”
SCOR believes that its global platform gives it a competitive advantage in the current environment.
“Ten years ago, SCOR decided that the solution to our business model would be to become a global diversified reinsurer. A lot of companies have caught up to the realisation that that’s what’s required,” Conoscente said.
“Having a global platform like ours helps us to ride through the different cycles. As cycles go down in one country and up in another, our global presence enables us to achieve stable results over time.”
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