REGIONAL REINSURERS
In Asia-Pacific, most treaty business is proportional (that is, reinsurers pay a proportion of all covered losses). This hamstrings the ability of new entrants with limited capital or capacity to expand quickly, particularly in Korea and Japan, where the incumbents are clear market leaders and their market position has been very stable. That said, those entrants with good reputations and expertise have found traction by offering facultative (case-by- case cover) reinsurance. However, volumes in the region are considerably lower for this type of cover than for treaty business. It’s not easy to deploy “global” capacity without local knowledge. Global reinsurers and other opportunistic investors tend to offer capacity in lines of business where abundant data are available. Global reinsurers that have a long history across emerging markets continue to deploy capital with diligence and tend to maintain technical pricing, at least on a portfolio basis.
However, regional reinsurers across both EMEA and Asia-Pacific generally have closer relationships with their clients, and often possess better knowledge of the local markets than their global counterparts. They can thus develop a deeper understanding of the underlying risks. Regional reinsurers’ greater proximity enables them to build deeper relationships and offer better client servicing.
That said, not even the best local knowledge can protect reinsurers from unmodeled risks. For example, the 2011 Thai floods caused unexpected losses for both regional and global reinsurers, as did the Great East Japan Earthquake and tsunami, which caused widespread property and business interruption claims. Although catastrophe exposure is significant for regional reinsurers, most of them maintain exposure limits and are protected from less extreme risks through retrocession.
Asia-Pacific Reinsurers Benefit From Their Historical Strength And Local Protectionist Instincts
Although large global reinsurers maintain a strong presence in Asia-Pacific, local reinsurers still enjoy significant—often dominant—market share. For example, Korean Re has a 65% market share in the Korean property/casualty (P/C) reinsurance market and a share of about 50% in the life reinsurance market. Central Reinsurance Corp. (Central Re) and Thai Reinsurance
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For some incumbents, government support and an element of protectionism have helped them retain their positions. Markets such as China and India restrict foreign ownership and require foreign companies to partner with local firms. Other markets, however—including Hong Kong, Singapore, and the Philippines— have lower regulatory barriers to entry. Incumbents may also benefit from industry ownership or compulsory ceding arrangements to the domestic reinsurer, which also limit opportunities for new entrants. Additionally, many countries in Asia-Pacific have strong government- controlled earthquake commissions that are substantial global reinsurance purchasers in their own right, but can also absorb the need for capacity in the local market.
Economic Developments Also Favor Asia- Pacific Reinsurers
“Smaller reinsurers in CEEMEA face a more uncertain future than those in Asia-Pacific.”
Developing markets in Asia-Pacific have generally sustained stronger economic growth than in EMEA and we expect this to continue over the medium term (see Table 1). China provides the key growth engine for the region, but increased industrialization and gentrification in markets such as Thailand and the Philippines has also enabled both P/C and life insurance premiums to continue to grow by more than 10% a year.
Public Co. Ltd. (Thai Re) hold sizable market shares in Taiwan and Thailand, respectively. In Japan, Toa Re, which was established in the 1940s, is the country’s largest reinsurer for both P/C and life reinsurance. Its precise market share is not known, but we understand it to be very strong, especially in the non-catastrophe proportional treaty market.
The region’s reinsurers appear to have developed this position of strength for a mix of reasons. We don’t consider global reinsurers’ distance from clients to be a key protective factor for regional reinsurers; global reinsurers have long searched for geographic diversity and while language barriers and the lack of market data act as impediments, they can be overcome.
Meanwhile, economic growth in most of CEEMEA countries kicked off later, and less evenly. In Central and Eastern Europe, growth accelerated after 1989, when the Berlin Wall fell, and in the Middle East it accelerated along with the surge in oil prices and the global demand for oil. In most of Africa, economies are still at an earlier stage of development. Insurance penetration in CEEMEA also lags that of most of emerging Asia.
Uncertainty fuels regional reinsurers’ attempts to diversify
To compensate for the uncertain revenue streams in their home markets, we see many regional reinsurers, particularly in EMEA, competing in multiple countries. As a result, local reinsurers face competition from smaller reinsurers from other countries as well as from global reinsurers. Both types of competitor seek new markets and diversified revenue streams.
In Asia-Pacific, Toa Re is the principal regional reinsurer seeking international diversification. It has used its capacity
Global Reinsurance Highlights 2014
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