A.M. Best Briefing: A.M. Best’s Insight on the Asia-Pacific (Re)insurance Market

SINGAPORE--()--Asia is a very diverse region with varying levels of capitalization, regulations, tariffs and enterprise risk management, which creates equally diverse issues and challenges for insurers from a rating perspective, according to a new A.M. Best briefing.

The Best’s Briefing, titled, “A.M. Best’s Insight on the Asia-Pacific (Re)insurance Market,” identifies one of the more common issues affecting most non-life players as a slowdown in organic growth that is impacting traditional commercial and personal lines (fire and motor), as well as a growing reliance on insurance lines related to government-led infrastructure projects. Under these conditions, risk management and operational efficiencies become more important in maintaining profitability. However, industry participants report instances of widening terms and conditions, including a trend toward longer cover periods for project-related insurance, while expense ratios are expected to remain relatively high.

Two other common issues—many Southeast Asia markets remain very small in both absolute and relative terms, and the use of risk-based capital by regulators to monitor the financial strength of insurers.

However, the insurance opportunities in Asia are multiplying in growth economies. For example, despite China’s gross domestic product (GDP) growth of approximately 6%-7%, the non-life insurance segment continues to report double-digit premium growth. Nevertheless, in terms of underlying risks, growth has probably been even higher as a result of increased concentration of people, physical assets, infrastructure and economic activities in the cities. Additionally, most countries in the Southeast Asia region, with the exception of Singapore, are considered growth economies, with annual GDP growth rates ranging from 3.5% to 7%. Aside from Vietnam, these countries’ insurance industries generally did not grow as fast as China’s. In A.M. Best’s view, the main opportunities in these markets lie in product innovation, especially as some of these move, albeit slowly, toward market liberalization.

In a number of markets, A.M. Best also sees increases in minimum capital requirements, increased insurance risk that is likely to outpace internal capital generation and expected sales of government stakes in high-growth markets with relatively high limits for foreign ownership.

Overall, there are a few headwinds in Asia worth considering. These include lower economic growth, negative interest rates in some of its advanced economies, unfavorable demographics in Asia’s two largest economies, declining interest rates even in emerging economies, and the risk of a hard landing in China after years of increasing debt levels that fueled the creation of asset bubbles. There is also increased geopolitical risk and a rise in protectionism. All these factors contribute to an increase systemic risk across Asia.

To access a copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=255058.

A.M. Best is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2016 by A.M. Best Rating Services, Inc. and/or its subsidiaries. ALL RIGHTS RESERVED.

Contacts

A.M. Best
Moungmo Lee, +65 6589 8412, ext. 210
Managing Director, Analytics
moungmo.lee@ambest.com
or
Jose Ribeiro, +852 2827 3401
Managing Director, Asia Pacific
jose.ribeiro@ambest.com
or
Christopher Sharkey, +1 908 439 2200, ext. 5159
Manager, Public Relations
christopher.sharkey@ambest.com
or
Jim Peavy, +1 908 439 2200, ext. 5644
Director, Public Relations
james.peavy@ambest.com

Contacts

A.M. Best
Moungmo Lee, +65 6589 8412, ext. 210
Managing Director, Analytics
moungmo.lee@ambest.com
or
Jose Ribeiro, +852 2827 3401
Managing Director, Asia Pacific
jose.ribeiro@ambest.com
or
Christopher Sharkey, +1 908 439 2200, ext. 5159
Manager, Public Relations
christopher.sharkey@ambest.com
or
Jim Peavy, +1 908 439 2200, ext. 5644
Director, Public Relations
james.peavy@ambest.com