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The rise of Asian regional players: Time to dream big

Source: Asia Insurance Review | Jun 2014

Asian insurers and reinsurers have certainly come a long way and it is time to dream big. One even plans to be in the top three global ranking by 2050. As the region’s industry leaders start to flex their muscles, we hear from them about the factors in their favour and their plans to boost their business pie and stature in the market including through intra-Asian cooperation. 
By Benjamin Ang
 
Korean Re had announced its ambition to be one of the top three reinsurers in the world. It unveiled its Vision 2050 early this year, with a three-stage roadmap of a specific set of goals for each stage. Specifically, Korean Re aims to join the ranks of the global top three reinsurers by 2050, with a gross written premium of KRW106 trillion (US$103.46 billion) and a net profit of KRW6.4 trillion. It also targets to increase the share of its overseas business to 80% so as to become a household name in the global reinsurance market.
 
Being in the right place
“The Asian insurance markets have greater growth potential than the advanced ones in the western world,” said Mr Jong-Gyu Won, President & CEO, Korean Re. As insurance market performance is closely associated with economic growth, the fast-growing Asian economies are likely to see their insurance markets grow at a rapid pace, he said.
 
Mr Tomoatsu Noguchi, Chief Executive, Toa Re, concurred. Asia is one of the most important regions when considering the future strategy as a (re)insurer. Asia enjoys the most rapid economic growth compared to other regions of the world, and the need for infrastructure is expected to increase going forward. In addition, the low penetration rate of insurance in Asia is expected to increase in future with the progress of urbanisation and industrialisation. “Consequently, we expect the need for reinsurance capacity to increase in Asia,” he said. 
 
“Home-grown advantage”
In addition to economic growth, Mr Ashok K Roy, Chairman cum Managing Director, GIC Re is of the opinion that being close to the cedants matters. “Despite the fact that reinsurance is a cross-border business, it is the relationship, proximity, and credibility about settling claims to the satisfaction of the cedants that matter,” he said.
 
As Mr Christopher Wei, Group CEO, Great Eastern Holdings puts it, it is the “home-grown advantage”. “Our appreciation of the cultural norms, our knowledge and comprehension of industry regulations as well as our in-depth understanding and insights of the insurance and protection needs of the local market,” he said, a point shared by most of the other leaders.
 
Calling the Asian focus, “probably the biggest potential differentiator”, Dr Reto Brosi, Chief Executive, Asia Capital Re, said the deeper understanding of local risk landscapes and business cultures means that Asian (re)insurers are able to develop, for example, dedicated insights, products, and models that are more relevant for clients in the region. “Clients will particularly appreciate this as they are looking for solutions that are helpful to them ‘here and now’, rather than how something is developing in a country at the other end of the world map,” he said. 
 
But Dr Brosi added that while traditional local reinsurers have done well so far with relationship and trust building, and are well-equipped with a good understanding of respective local business cultures, relationship alone is a business model that is no longer sufficient or sustainable over the longer period of time. “Or, at least, has serious limitations with regards to scale,” he said.
 
Today’s clients are becoming increasingly “knowledge-” and “value-hungry”. The ultimate winning formula is a combination of the soft skills, as well as hard skills for delivering something tangible to customers, said Dr Brosi.
 
Strong professional advisory capabilities needed
An area of focus to create value, is to keep up with the changing needs of the customers, said Mr Tadaharu Uehara, Managing Executive Officer in charge of Emerging Market (Asia, Oceania and Middle East), Tokio Marine Holdings. Asian (re)insurers should help customers better understand their evolving insurance needs and provide suitable insurance solutions, accordingly. 
 
“As Asian economies develop, new risks emerge and risk exposures become bigger and more complex. Insurance industry has a duty to prevent the society from paying heavy prices for under-insuring,” he said. “Pushing simple products to the market will no longer cut it.”
 
“As industry dynamics change, the future belongs to insurers who are able to find new ways to engage with consumers, design products that meet their changing needs, and evoke a sense of trust through strong professional advisory capabilities,” said Mr Wei. 
 
“It is important that we constantly evolve to remain relevant to our customers,” he said. Illustrating this, he said that with the advent of social media, customers are also increasingly depending on peer recommendations. Today’s Asian consumers spend an increasing percentage of their time on social media and prefer to be engaged through that platform. Which is why building its social media capabilities is an area of considerable focus for Great Eastern, “not only to drive customer engagement but for greater business transparency”.
 
Increasing penetration
A need that the insurance industry should fill, not just for business purposes but also social purposes, is to increase the rate of penetration in the region.
 
Looking at it from a business perspective, “more numbers have to be brought under the cover of insurance if we want to remain the growth engines of the global insurance markets”, said Mr Roy. 
 
But more importantly, from a social perspective, he said that the gap between the economic and insured losses is only widening by the day, and if it is not addressed with immediacy, can put back the progress made by these countries by decades. 
 
“The Asian countries suffer the maximum economic losses due to Nat CAT events. We are more vulnerable to natural hazards than any other region in the world and it is imperative that we improve our disaster risk financing systems, including insurance, to address the high toll that these events extract both in terms of human lives and also economically,” said Mr Roy. 
 
The emerging consumers
As for Peak Re, it is committed to providing solutions and catering to the underserved lower-middle class and the uninsured communities.
 
The current market focuses more on industrial risks and the upper tranche of middle class population as they are the mass affluent. “Yet, we believe the entry level of the middle class will indeed need the most insurance protection as they now have the spending ability, and look for better protection and stability for their family,” said Mr Franz Josef Hahn, CEO, Peak Re. 
 
Peak Re believes the upcoming focus of the Asian market will be the increasing demand from the middle class society. According to the World Economic Forum, the middle class population in Asia will increase dramatically to 1.75 billion from the current 500 million by 2020, and this will no doubt be the growth driver. “Hence, as an Asia Pacific-based reinsurer that is dedicated in serving this region, Peak Re is committed to helping these emerging consumers, and protecting them from new sources of risks, especially catastrophe risks,” said Mr Hahn. 
 
Smaller capitalisation of Asian players
As for weaknesses which may stand in the way of Asian (re)insurers’ rise, the main issue often cited is the smaller capitalisation when compared to international players. “Yes, at this moment, local Asian reinsurers are not able to fully absorb the volatility of the Asian Nat CAT risk landscape,” said Dr Brosi. “I am, however, cautiously confident that this will not be the case in the medium- to long-term,” he added. In the short-term, he said the capital markets will take over “in terms of making up for the shortfall in capitalisation”.
 
Mr Uehara also agrees that in general, Asian (re)insurers have smaller capital. However, he also said that due to the region’s economic growth in recent few years, the number of Asian (re)insurers, such as in China and Japan, with capital size similar to international players, has increased. Therefore, pooling the risks among local players and their governments may be the solution in dealing with unmodelled catastrophe risks in the region.
 
Smaller capitalisation not necessarily a weakness
Offering another perspective, Mr Roy said: “I don’t think we can call smaller capitalisation a weakness.” The Asian reinsurers primarily grew as a part of their insurance markets and, as such, were adequately capitalised to serve the initial needs of these markets. Over time as the industry expanded, the need for fresh capital expanded, too.
 
“Furthermore, reinsurance being a cross-border business, the entire capacity necessarily cannot be provided by the domestic market. It cannot be a case of putting all your eggs in one basket,” he added. 
 
Mr Noguchi also said that smaller capitalisation is not necessarily a weakness. Simply having a greater level of capitalisation does not make a company better; it is more important to generate profits and achieve growth by effectively utilising the capital. “The most important factor is the ability to efficiently and stably retain capital appropriate to the size of the company’s underwriting risk, and in line with a comprehensive growth strategy,” he added. 
 
Mr Hahn, touching on the same point, said: “We believe that a strong client selection capability is more important in leading to our success. By listening to our clients carefully to know their real needs and risk appetite, and through better client knowledge, comprehensive market research, detailed analytics, consistent underwriting discipline and prudent investment strategy, we will be able to build a profitable book and a strong market position.”
 
Cooperation for growth
But to overcome the challenge of smaller capitalisation now, Mr Won said that Asian (re)insurers can take a leaf out of the book of Lloyd’s, which is a testimony to the old saying of “many drops make a shower”. Lloyd’s has become a powerful marketplace through a collaborative structure where a number of insurers come together to pool risks and build capacity to cover them. 
 
Asian (re)insurers also stand to gain a lot when working together to make sure that risks in Asia are covered regionally as much as possible, he said. Asian players should seek ways to cooperate in underwriting mega risks so the scope of business and capital base can be expanded. A good example is a nuclear insurance pool, which demonstrates that cooperation enables the insurance industry to pool capacity and jointly cover risks no matter how big the risks are, he said. 
 
“In this regard, it is important to build consensus throughout the insurance community that cooperation can be more effective than competition in achieving growth across the board,” said Mr Won. 
 
 Cooperation or competition, there is no stopping the rise of the Asian (re)insurers.
Technical expertise – on par or not?
There are differences in opinions when it comes to whether Asian (re)insurers are on par with the international players in terms of technical expertise.
 
“In my humble opinion, Asian insurers are equally professional and have comparable technical expertise as international players. At Great Eastern, one of our top priorities has always been to build the professionalism and quality of our advisory force in the markets that we operate in and to consistently provide the most trusted advice,” said Mr Christopher Wei, Group CEO, Great Eastern Holdings.
 
Mr Tomoatsu Noguchi, Chief Executive, Toa Re, also believes that Asian reinsurers are not always in a weaker position in terms of general knowledge and technology concerning reinsurance compared to global reinsurers. So too does Mr Ashok K Roy, Chairman cum Managing Director, GIC Re, who said that technically and professionally, the Asian reinsurers have always been proactive and have measured up to the global benchmarks.
 
Mr Franz Josef Hahn, CEO, Peak Re, said: “We blend the local expertise with international experience to benefit our clients. Our team consists of reinsurance professionals from 14 nationalities worldwide who have extensive knowledge and expertise in the global and regional markets and we are confident that we have the technical competency and professionalism to deliver sustainable reinsurance products and platforms for our clients here in Asia Pacific.” 
 
Still gaps to close
Mr Tadaharu Uehara, Managing Executive Officer in charge of Emerging Market (Asia, Oceania and Middle East), Tokio Marine Holdings, said: “While we have been closing the technical expertise gap with our American and European counterparts in recent years, there is a lot more for us to learn from some of the international market leaders. The players in the region are encouraged to be providers of innovative solutions in risk financing where accurate data is required. In this context, public and private sectors should jointly make the effort in collecting and analysing relevant data.” 
 
Dr Reto Brosi, Chief Executive, Asia Capital Re, also said, with risk exposures growing constantly, Asian reinsurers will need to strengthen their technical capabilities and balance sheets in order to remain relevant.
 
Mr Jong-Gyu Won, President & CEO, Korean Re, said very candidly, that he believes most Asian (re)insurers remain behind international players in terms of technical and professional competency. 
 
“In terms of history, Korean Re is about 100 years behind the leading global reinsurers like Swiss Re and Munich Re. There is no doubt that how long you have been in the market makes a big difference in your technical expertise. It would take a due amount of time, as well as trial and error for us to build experiences and competency to the extent of gaining competitive edges in the world market,” he said. 
 
“However, I don’t believe that Asian (re)insurers are destined to fall behind for good. If we continue to build expertise and experiences in the underwriting and retaining of property risks, we will be able to catch up with the competitors in the advanced markets soon,” said Mr Won.

 

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