September 2014 Bermuda:Re/insurance+ILS 27
O
ver the past few years, three main growth drivers have surfaced in China’s re/insurance industry: economic development, regulatory change and market losses. The drivers have applied to both insurance and
reinsurance, but reinsurers appear to have been the main beneficiaries of increased capital requirements resulting from regulatory changes. Reinsurance underwriters in China have been presented with significant opportunities as a result.
According to Malcolm Steingold, CEO of Aon Benfield Asia Pacific, “Although China may be laying substantial regulatory change on the table right now, and the Chinese economy has slowed down somewhat, it is still the envy of the rest of the world.”
In the 10 years to 2010, China’s GDP recorded a compound annual growth of 17.25 percent, as well as substantial economic growth of
21.1 percent between 2005 and 2010. As a result, China now holds the title of the world’s second largest economy. Since then, the pace of expansion has slowed; growth was at 9.8 percent in 2012, due to interest rate drivers and a tightening of bank lending, not to mention the global financial collapse of 2009. At present, China’s growth rate is down to 7 percent—not back to its heady days, but still enviable in the current economic environment.
In terms of insurance development, the Chinese market has been largely underpinned by motor insurance, and until 2010, China’s P&C market was the second fastest growing jurisdiction in the world. It is apparent that the market has nearly boundless potential.
To put reinsurance potential in China into context, aggregate premiums ceded by Chinese P&C insurers in 2011 totalled $12.7 billion, up from $6.56 billion the previous year, indicating substantial growth. Reinsurance tends to be bought locally, however, with 85 percent of reinsurance business contracted on a treaty basis, but that trend appears to be slowly changing.
According to Steingold, this was originally driven by compulsory cessions which have since been phased out. He says that companies are seeking solvency through excess of loss programmes, which are gradually becoming more common and that as a consequence, the market is becoming more accessible to foreign reinsurers—although they “still have the hurdle of facing cultural issues, relationships, and heavy licensing and capital requirements if they want to set up onshore”.
James Beedle, senior managing director at Willis Re Asia, said he has seen growth in earthquake exposures in property lines, for example, spurred on by rapid economic development in China. “However, we are seeing the greatest potential in a number of specialty lines, in particular crop insurance along with credit and surety related products,” he says. These represent significant opportunities for insurers and their reinsurance partners in China.
Bermudan opportunities
The interesting part from a Bermudan perspective is that most offshore reinsurance is assumed by those operating out of the Asia-
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