US new capital affects Asia too
The Asian markets are being affected by the influx of capital into mature reinsurance markets such as the US because displaced reinsurers are increasingly seeking opportunities elsewhere, with Asia high on their list of targets, Takayuki Sumi, CEO of Tokio Millennium Re (UK), told EAIC Today.
But Sumi added that new entrants into the markets in the region will not find the going easy, as many Asian clients prefer to stick with partners with whom they have historic business relationships.
“The Asia region is one example where traditional reinsurers are looking for growth opportunities,” he said. “However, while cedants in Asia are willing to listen to and consider trading with new entrants in the market, they also tend to be more traditional in their outlook with a preference to partner with well-known reinsurers with whom they have historic relationships.
“Fortunately for us, our parent company, Tokio Marine & Nichido Fire, enjoys an excellent reputation and well known brand across the region, which we believe distinguishes the Tokio Millennium Re Group from other players.”
He said the reinsurance needs of insurers in Asia vary tremendously depending on their development in terms of capital levels, product offerings and the regulatory environment in which they operate.
“However, a common theme throughout most countries in Asia is the lack of penetration by insurers in non-life lines beyond motor insurance and property insurance for large, industrial companies,” Sumi said.
“This results in insurers having extremely high levels of motor insurance exposures, along with larger commercial and industrial property risks on their books. For this reason, insurers in most Asian countries often need capital support to be able to sustain the growth in demand for motor insurance and capacity support (typically on a proportional basis) to enable them to insure their large, industrial clients’ property risks.
“Since casualty lines are in the early stages of development, insurers in Asia also seek engagement from reinsurers in terms of product development to expand their product offering.”
He stresses that many parts of the market remain at a development stage, especially when compared with markets such as the US and Europe. However, increased sophistication in modelling, whether for catastrophe or other risk exposures, is improving at a rapid pace.
“For reinsurers used to dealing with the granularity of US or European exposures, as examples, this may prove challenging, but for reinsurers willing to listen to and learn from their clients about local market conditions, they should be able to make more appropriate assumptions,” he said.
Another challenge he notes is that some local reinsurance terms are driven more by historic, actual experience rather than the changes in exposure. This leaves reinsurers facing a narrow margin over expected loss cost when compared with what they could achieve in more exposure-focused insurance markets.
Sumi is bullish about the growth prospects in the market, however, describing the potential as “enormous”. He notes that figures for China alone show that the government expects the insurance industry to match that of the US within the next few years, becoming the second largest buyer of catastrophe reinsurance globally.
Similarly, countries such as India are expected to follow in this growth, he said, as health, agricultural and motor insurance expand rapidly to meet growing demand, coupled with personal lines sales extending into property insurance as a result of the exponential growth of the region’s middle class.
At the EAIC event, he expects the main topics of conversation will be the ‘softening market’. “However, it should be borne in mind that the margins available in Asia are already substantially lower than those in such places as Florida, thus limiting the room for any further softening of terms,” he said.
