SINGAPORE HUB
Singapore’s Push To Expand Insurance Hub Hinges On Sophistication And Expertise
By Philip Chung and Connie Wong
Factors that could temper Singapore’s growth as an insurance hub include insufficient development of local talent, a potential slowdown in regional economies, and increasing unmodeled or emerging insurance risks in Asia-Pacific due to rapid economic expansion.
Singapore’s fast growth as an insurance and reinsurance center in Asia-Pacific is no accident. While the government enhanced Singapore’s competitiveness through tax exemptions and concessions on selected offshore insurance businesses, the Monetary Authority of Singapore (MAS) liberalized entry into the direct insurance industry and lifted restrictions on foreign ownership of local insurers in 2000. That catalyzed the industry’s development and growth. Offshore gross insurance premiums in Singapore have quadrupled over the past 13 years amid the country’s conducive business and regulatory environment for insurance and reinsurance business.
Strong economic growth in Asia-Pacific and the corresponding rise in insurable asset values have spurred Singapore’s insurance industry forward. However, the growth in insured assets has also rapidly increased catastrophe exposure for insurers. Although insurance companies in the region have taken measures to reduce their exposure to losses like those from the 2011 flood in Thailand, a combination of outdated catastrophe models, unmodeled or insufficiently modeled risks, increasing capacity and competition, and weakening underwriting standards could result in significant losses again. We expect reinsurers that remain vigilant of the changing risks and exposures of their portfolio to be more resilient..
As the reinsurance industry strives to 42
“As economic growth in Asia-Pacific propels regional insurance and reinsurance demand, insurers have increasingly been able to satisfy their reinsurance needs in Singapore.”
develop the insurance markets in Asia-Pacific in the coming years, a strong hub in Singapore provides a platform to meet that aim. Standard & Poor’s Ratings Services expects economic growth in Asia-Pacific to continue to fuel regional insurance demand and development of the industry in Singapore. As a result, specialty, property and property catastrophe premiums are likely to rise in the next few years. In our view, maintaining underwriting discipline and developing a more granular understanding of underlying portfolio exposure will help insurers and reinsurers to benefit from regional economic growth. Companies that succumb to competitive pressure to grow or have deficiencies in risk management will face a higher likelihood of negative rating actions.
Building Critical Mass To Achieve Resilience Various factors have contributed to Singapore’s evolution as an insurance and reinsurance hub. Good infrastructure, a skilled labor pool, a favorable taxation
regime, and the country’s strategic location in Asia-Pacific aided its growth in the services sector. Although Singapore is not the cheapest location for doing business, nor does it have the lowest taxes in the region, its fair and transparent legal framework, stable political environment, developed financial system, supportive regulatory regime, and growing pool of technical experts offer compelling benefits and provide a competitive edge. As economic growth in Asia-Pacific propels regional insurance and reinsurance demand, insurers have increasingly been able to satisfy their reinsurance needs in Singapore. Since the MAS’ liberalization of the industry at the turn of the new century, the number of insurers in Singapore has increased, as have overall capacity and the depth of technical and specialty support. Australian and Japanese insurers have traditionally used the European or Bermudian markets to place their property catastrophe and specialty lines of business. However, the increasing reinsurance
Global Reinsurance Highlights 2014
SHUTTERSTOCK / I359702
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