business from Australia and Japan staying in Singapore indicates that insurers and reinsurers in Singapore are gradually accepting and retaining more complex and sophisticated risks (see Charts 1 and 2). Asia-Pacific’s nonlife insurance industry has grown 8% annually over the past decade and contributed to 11% growth in Singapore’s offshore insurance industry. Assuming these growth rates continue for the next decade, the offshore insurance business could grow to 18 billion Singapore dollars (S$) (US$14 billion) of gross premiums written in 2023 from S$6.1 billion (US$4.8 billion) in 2013.
However, Singapore’s reinsurance market is regionally focused, relatively small, and lacks critical mass compared with global hubs such as Bermuda. Combined ratios for insurers and reinsurers writing business to Singapore’s offshore insurance fund rose sharply due to the regional catastrophes of 2011. Bermuda insurers are more diversified and have larger premium volumes and thus were better placed to withstand those events of 2011. We believe the aggregate underwriting performance in Singapore could remain volatile until the premium volumes from other lines of business have developed sufficiently to provide diversification against unexpected catastrophe losses (see Tables 1 and 2). Singapore’s offshore insurance premiums have risen to more than S$6 billion in 2013 from S$1.5 billion in 2000. Offshore insurance and reinsurance premiums accounted for nearly two-thirds of total market premiums in 2013, reflecting the magnitude and significance of the overseas business to the overall Singapore insurance marketplace. About two-thirds of the offshore business was underwritten by reinsurers registered with the regulator, MAS, while the rest were by direct insurers (including Lloyd’s), captive reinsurers, and protection and indemnity (P&I) clubs (see Chart 3). A P&I club is a mutual insurance association that provides third-party liability insurance for its members, which are generally ship owners, operators, or charterers.
Attaining “critical mass” would bring benefits
Using data from the Deloitte’s Bermuda Insurance Market Report 2014 as a proxy of the Bermudian market (which is mostly offshore business), the Singapore insurance hub is approximately 5% of the size of the Bermudian market in terms of net premiums written. The growing size of the Singapore
Global Reinsurance Highlights 2014
Chart 1: Singapore Offshore Insurance Fund—Reinsurers' Premiums 2008
Taiwan 4%
Philippines 3%
India 8%
Thailand 6%
Indonesia 10%
Korea, South 10%
Source: Monetary Authority of Singapore. © Standard & Poor's 2014.
Japan 11%
Hong Kong 2%
China 18%
Others 17%
Australia 11%
Total premiums: S$2.4 Billion
Chart 2: Singapore Offshore Insurance Fund—Reinsurers' Premiums 2013
Philippines 4%
Indonesia 8%
Korea, South 8%
Thailand 10%
India 11%
Source: Monetary Authority of Singapore. © Standard & Poor's 2014.
hub has led to increasing sophistication of underwriters and products, which will contribute to the market’s resilience against large losses. For instance, the participation of Lloyd’s underwriters, global and regional reinsurers, and international brokers have gradually made Singapore’s market more sophisticated and enhanced its capability to accept specialty business, such as offshore energy, aviation, credit and surety.
Nevertheless, factors that could temper Singapore’s growth as an insurance hub include insufficient development of local talent, the potential for a slowdown in regional economies, and increasing unmodeled or emerging insurance risks in Asia-Pacific due to rapid economic
expansion. In 2011, a year in which Asia- Pacific accounted for about 60% of global aggregate catastrophe losses, Singapore’s offshore business was saddled with a 297% combined ratio (a ratio over 100% indicates that the company is incurring underwriting losses). Most insurers and reinsurers with significant losses were subsidiaries or branches of larger global organizations and were able to withstand the hit. A few players reduced their exposure or completely withdrew from the region, and a number of others recapitalized.
Net premiums from Singapore’s offshore insurance business grew an average of 9.1% a year from 2000 to 2012. This compares favorably to net reinsurance premiums written by Bermudian insurers, where survey
43
Japan 12%
Taiwan 2%
Hong Kong 1%
China 16%
Australia 15%
Others 13%
Total premiums: S$3.8 Billion
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