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Aug 2020

Where have all the good times gone

Source: Asia Insurance Review | Jul 2020

Recent conversations with both insurers and reinsurers in Asia Pacific fail to deliver a definitive view of what they believe the rest of the year holds in store.
 
Reinsurers, unsurprisingly, are reluctant to give any kind of forward view - either of their prospective earnings or renewals. 
 
Many insurers are watching their domestic regulator to see if the goal posts are going to be moved in terms of paying out claims, as they have seen happen in some markets outside of Asia.
 
The macroeconomic picture is unremittingly bleak – even for big and populous countries that are often considered bellwethers for growth.
 
Goldman Sachs recently forecast that India’s GDP would fall in Q2 at an annualised quarterly rate of 45% to pick up 20% in Q3 if lockdowns were lifted.
 
China, meanwhile, had originally intended that 2020 would be the year when ‘absolute poverty’ in the country would be eliminated – but such lofty goals seem unrealistic now. Output in China fell almost 7% in Q1 – the first official year-on-year contraction since 1976.
 
Singapore has indicated that it expects to experience its sharpest contraction since independence in 1965. The economy could shrink this year by 7% as a direct result of the coronavirus, according to estimates.
 
The picture in the US is equally sobering with 40m people claiming unemployment benefit and the jobless rate hitting 15% - threatening to expose the rank underbelly of systemic racism.
 
What happens from here on in is unknown – but ‘pessimist’ in the insurance sector are moaning that all their discretionary expenditures have been eliminated (not reduced) and that they cannot travel, they cannot entertain, they cannot make purchases – and they cannot say when this situation will change.
 
Others, perhaps not ‘optimists’ exactly, remain silent on the question of future prospects for the insurance sector. Perhaps they remember other cataclysmic business non-events – like the Millennium Bug and don’t want to be caught forecasting a doom-laden future that might never be.
 
Some wise heads in the InsurTech space see the glass as being half full. “This virus is an accelerant, so we will see a lot of more interesting changes ahead,” said one. And it is hard to fault the logic of this as we read about COVID-19 hastening the early death of folding cash and the near ubiquity of electronic payments.
 
The other bunch of people who remain silent at present are those in the insurance sector who may hope to use the current crisis to go on a shopping spree – with asset prices at depressed lows. The rest of the year may see an uptick in mergers and acquisitions. 
 
A recent report by EY, ‘How COVID-19 will impact M&A in the insurance sector’ concludes, “We do not expect the COVID-19 crisis to open the floodgates on M&A activity.” 
 
If so, that would put the insurance sector at odds with many others – including private equity investors that are looking to make new investments in companies that will survive lockdowns – and sovereign wealth funds. It’s not just the Saudis who are bolstering their war chests.
 
The first day of June saw Tokio Marine HCC complete its acquisition of specialist renewable energy underwriter, GCube – possibly not the largest transaction of all time but it may foreshadow what is to come.
 
The following day saw the Carlyle Group and T&D Holdings complete their acquisition of a 76.6% interest in Fortitude Group, whose group companies include Fortitude Re, from American International Group for $2.2bn. 
 
A few days later FWD Life Indonesia completed the acquisition of Commonwealth Life.
 
Not drowning but waving? Perhaps.
 
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