Asia P&C Insurance Sector

Transcription

1 13 November 213 Asia Pacific Equity Research Property & Casualty Insurance (Financials) Research Analysts Regional /, HK & SEA Arjan van Veen Frances Feng Andrew Adams andrew.adams@credit-suisse.com Prashant Kumar prashant.kumar.3@credit-suisse.com Takehito Yamanaka takehito.yamanaka@credit-suisse.com Korea Gil Kim gil.kim@credit-suisse.com Chung Hsu, CFA chung.hsu@credit-suisse.com Europe Richard Burden richard.burden@credit-suisse.com Christopher Esson chris.esson@credit-suisse.com North America Adam McInally adam.mcinally@credit-suisse.com Thomas Gallagher, CFA thomas.gallagher@credit-suisse.com Michael Zaremski michael.zaremski@credit-suisse.com Asia P&C Insurance Sector INDUSTRY PRIMER Coming of age Figure 1: Asia positioning by company Asia P&C insurance premiums (US$ mn) and market share (%) , 3, 25, 2, 15, 1, 5, MS&AD PICC Tokio Marine Tier 1 Tier 2 Tier 3 NKSJ Ping An Samsung Pacific IAG Hyundai Dogbu Korea Source: OCI, MAS, KIDI, TII, APRA, ISI, IRI, CIRC, OIC, Bank Negara, IRDA, BAPEPAMLK, PIC, AVI, company data, Credit Suisse estimates Structurally attractive market. The Asian P&C insurance market has grown at a compound rate of 9.6% p.a. over the past ten years (14.5% excluding ) with NJA growth above global growth in nine of the past ten years. We see the sector coming of age over the next decade as industry de-tariffs, consolidates and product mix diversifies (now heavily auto)., and stand out. Within the Asian markets, we have examined their relative attractiveness based on size, growth, concentration, profitability and regulation. Within this framework, the three countries that stand out are, and (and to a lesser extent ). Rise of the regionals. The emergence of regional P&C insurers has significantly lagged the life insurance sector in Asia to date. However, we are seeing regionals increasing their footprint of late, notably AXA, AIG and IAG. We see increasing M&A and consolidation as a key ongoing theme for the sector and key to improving fundamentals for many markets. Investment view. Our preference in the region is for consolidated markets where margins are likely to be more sustainable, have stronger growth profiles and a lack structural issues. Within the markets that stand out, we prefer IAG (IAG.AX), PICC P&C (2328.HK) and MS&AD (8725.T). LIG SUN AIG QBE Allianz AXA ACE Zurich Taiping Fubon Generali DISCLOSURE APPENDIX CONTAINS ANALYST CERTIFICATIONS AND THE STATUS OF NON US ANALYSTS. FOR OTHER IMPORTANT DISCLOSURES, visit or call +1 (877) US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION Client-Driven Solutions, Insights, and Access

2 P&C insurance premiums (US$mn) % of global insurance premiums P&C insurance premium growth (%pa) P&C insurance premiums (US$mn) P&C insurance premiums (US$mn) 13 November 213 Focus charts Figure 2: Asia P&C premium has grown ~1% pa over the past decade Asia P&C insurance prem (US$ mn) and ten-year growth rate (% p.a.) 8, 7, 6, 3.% 1yr CAGR (%pa) Figure 3: with rapidly catching up Asia P&C insurance premium (US$ mn) and ten-year growth rate (% p.a.) 14, 12, 1, 3.5% FY2 Developed Developing Emerging 2.2% 5, 4, 9.6% 8, 6, 13.8% 1yr CAGR (%pa) 3, 14.5% 4, 12.% 2, 1, 9.8% 3.2% 7.6% 5.3% 4.9% 3.5% 2, - 4.8% 12.5% 6.7% 12.2% 17.9% 1.5% 15.4% 12.4% % - USA Canada UK France Germany Italy Asia NJA FY2 South Korea Figure 4: Growth excluding has been 14.5% pa over the past ten years Asia P&C insurance prems (US$ mn) and growth rate (% p.a.) Figure 5: exceeding global growth in nine out of ten years Asia P&C insurance versus global growth rate (% p.a.) 45, 375, 3, 225, 15, 1yr CAGR (%pa) = 9.6%pa (14.5% excluding ) 8.7% Growth rate (%pa) 7.3% 1.1% 1.7% 2.8% 13.5% 1.6% 8.7% 2.9% 4.6% -8.4% 18.4% 17.1% 3% 8.1% 25% 2% 15% 1% 3 25.% 2 15.% 1 5.% 75, 5% - FY98 FY99 FY FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11 % -5.% FY FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11 Developed Developing Emerging Global share (%) Asia NJA Global Source for Figures 2-5: Swiss Re Figure 6: Asia company positioning by region Asia P&C insurance premiums (US$ mn) & market share (%) , 3, 25, 2, 15, Figure 7: with, and standing out Asia P&C insurance key market assessment factors Tier 1 Market Size Growth Concentrated Profitable Tier 2 Tier 3 Large Low Small Low Medium Medium South Korea Large Medium Medium Low Large Medium Medium Low 1, 5, Large Very High Medium High Small High MS&AD PICC Tokio Marine NKSJ Ping An Samsung Pacific IAG Hyundai Dogbu Korea LIG SUN AIG QBE Allianz AXA ACE Zurich Taiping Fubon Generali Medium Very High Small Very High Small High Small Very High Source for Figures 6-7: OCI, MAS, KIDI, TII,APRA, ISI, CIRC, OIC, Bank Negara, IRDA, BAPEPAMLK, PIC, AVI, Credit Suisse estimates] Notes (for all charts/tables in this report): 212 data used where available. Asia P&C Insurance Sector 2

3 13 November 213 Asia regional P&C insurance Structurally attractive market We believe the Asian P&C insurance industry will continue to be a structurally attractive market, with strong demographic and household income growth, leading to greater insurance penetration / density, which is in the sweet growth spot in many of the markets. The average growth rate of the Asian P&C insurance market has been 9.6% p.a. over the past decade (14.5% p.a. excluding ), relative to global growth of 6.1% p.a. one of the highest growth rates by region globally. We highlight the P&C industry remains much less evolved in Asia, with tariffs still very common, less concentrated markets and a heavy skew to auto insurance. However, we expect this to continue to evolve quickly and see the sector as starting to come of age. Market analysis:,, stand out Within Asia, we have examined the relative attractiveness of the markets based on size, growth, concentration, profitability, business mix and regulation. The key criteria for us in the medium term is the market structure, current margins and sustainability (or improvement) of these. Within this framework, the countries that stand out are: The Asian P&C insurance market is one of the most structurally attractive globally, in our view Key markets that stand out for us are:, and : A highly consolidated retail market dominated by three insurers, which have demonstrated consistent rational pricing behaviour. Growth expectations are mid-tohigh single digits medium term. : A highly consolidated market with mid- to high-teen growth expectation and good profitability for larger insurers, where we expect a more rational market to evolve. : The most consolidated market in Asia, with insurers finally starting to apply their effective market power in terms of pricing, but with only low single-digit growth expectation. Regionals rising The Asia property and casualty sector has materially lagged the life insurance sector in terms of consolidation, with few truly regional insurers. However, we have seen a pick-up in recent years in terms of consolidation as well as a few regional insurers emerging in both the personal and commercial lines. Key regional P&C insurers in Asia in our view are: MS&AD, IAG, AIG, QBE, Allianz, AXA and ACE. Within these, only MS&AD and IAG are pure Asian insurers, albeit with a very heavy exposure to their home markets with AXA the largest Asian regional insurer outside and, followed by AIG and MS&AD. Investment view Our individual stock investment preferences in the Asia region largely correlate to our country preferences. Key regional insurers emerging are AXA, AIG, MS&AD and IAG Our stock preferences within markets identified above : With the attractiveness of the retail market well understood, they are trading at fairly full valuations, with IAG (NEUTRAL) our preferred exposure. QBE (OUTPERFORM) remains our preferred pick in, with around one-fourth of earnings from Asia. : We see the medium-term prospects for this market the best in Asia (albeit with nearer-term risk), with PICC P&C (OUTPERFORM) valuation multiples attractive at the current stage of the cycle. : We expect the ese insurer results to continue to benefit from finally starting to put through risk-based pricing, with MS&AD (OUTPERFORM) our top pick. Asia P&C Insurance Sector 3

4 13 November 213 Asia P&C Insurance Sector 4 Figure 8: Asian insurance Key financial and valuation metrics (12-month forward) EPS P / BV ROE P / NTA ROTE EV ROEV VNB Payout Div Yld Reporting Market Monthly Daily Monthly Price 52 Week 12mth 12mth Inv'ment Year Consensus PE (x) Growth (x) (%pa) (x) (%pa) P / EV (x) growth (%pa) VNB (x) growth ratio (%) (%pa) Price movement (%) Company Currency Cap Volume Volume Liquidity 12-Nov high/low Target Return Rating End PE (x)* 12mth forward diluted (Credit Suisse forecasts) 1wk 1mth 1qtr 1hy 1yr YTD US$m US$m US$m % local local % Dec AMP.AX AMP AUD 12, % % NTRL 31-Dec 14.6x 15.x 19% 1.7x 1 3.7x 24.5% 1.2x 7% 8.1% 7.3x 4% 94% 5.5% -1.6% 1.2% 1.% -19.1% 1.% -4.7% CGF.AX Challenger AUD 2, % % OPFM 3-Jun 9.7x 9.5x 5% 1.4x 14.7% 1.8x 19.4% na na na na na 35% 3.8% -1.8% 8.6% 41.1% 41.1% 95.5% 7.6% TWR.AX Tower NZ NZD % % NTRL 3-Sep 12.2x 12.2x -37%.7x 5.6%.7x 6.%.4x 2.9% -75x 11% 51% 7.8% -2.9% -3.5%.7% 3.4% 1.%.3% IAG.AX IAG AUD 12, % % NTRL 3-Jun 13.1x 14.1x -8% 2.5x 18.4% 3.9x 27.5% na na na na na 7% 4.4% -2.4% 3.3% 3.2% 4.1% 34.2% 28.5% QBE.AX QBE USD 18,935 1, % % OPFM 31-Dec 12.9x 15.1x 3% 1.4x 9.9% 2.4x 16.% na na na na na 6% 3.4% 4.3% 7.8% -11.9% -.8% 41.% 41.3% SUN.AX Suncorp AUD 15, % % UPFM 3-Jun 12.9x 13.5x 62% 1.2x 8.7% 2.x 14.7% na na na na na 126% 6.2% -1.% 3.4% 7.7% 7.5% 43.7% 32.% 63,686 4, % 11.5% 13.4x 14.2x 13% 1.6x 11.5% 3.4x 21.8%.8x 7% 5.5% -34.x 8% 63% 4.3%.1% 4.4% 1.%.5% 34.7% 28.2% SS Life (A) CNY 48, % % NTRL 31-Dec 11.8x 8.9x 55% 1.4x 16.2% 1.4x 16.3%.9x 13% 1.3% -1.7x 4% 35% 3.1% 2.%.2% 1.% -13.5% -2.3% -34.3% 6161.SS Pacific (A) CNY 17,834 1, % % OPFM 31-Dec 14.x 11.9x 46% 1.4x 11.8% 1.4x 12.%.9x 13% 7.8% -1.6x 14% 37% 3.% 1.9% -3.8%.6% -6.8% -1.2% -23.2% SS New Life (A) CNY 7, % % NTRL 31-Dec 13.3x 12.6x 4% 1.7x 13.3% 1.7x 13.4% 1.x 12% 7.9% -.2x 6% 3% 1.3% -3.3% -2.6% -3.4% -4.9% -21.7% SS Ping An (A) CNY 29,36 4, % % OPFM 31-Dec 9.2x 9.2x 8% 1.5x 16.4% 1.8x 2.1%.8x 17% 8.2% -5.1x 15% 22% 2.4% 2.1% 1.2% 7.1% -3.4% -.6% -17.5% 13,2 7, % 38.5% 12.1x 1.6x 37% 1.5x 14.4% 1.6x 15.5%.9x 14% 8.6% -2.2x 1% 31% 2.1% 2.% -.5% 2.4% -8.7% -1.2% -26.6% 1299.HK AIA USD 59,577 2, % % OPFM 3-Nov 17.1x 17.2x -3% 2.x 11.7% 2.1x 12.2% 1.6x 11% 9.5% 15.5x 18% 2% 1.3% -.8%.9% 6.1% 8.6% 27.% 26.8% 945.HK Manulife CAD 4, % % OPFM 31-Dec 12.4x 15.7x -1% 1.5x 9.6% 2.x 12.6% 1.x na 6.1% -1.4x na 39% 2.8% 4.6% 11.% 9.% 19.6% 53.3% 39.9% 2378.HK Prudential plc GBP 4, % OPFM 31-Dec 13.7x 13.2x 49% 2.4x 18.2% 2.8x 21.1% 1.2x na 9.2% 2.8x 16% 47% 2.6% -2.8% 6.4% 6.9% 9.5% 51.7% 37.6% 2628.HK Life (H) CNY 2,26 1, % % NTRL 31-Dec 14.x 1.6x 53% 1.7x 16.3% 1.7x 16.4% 1.1x 13% 1.4% 2.1x 3% 35% 2.6% 1.2% 5.9% -3.% -7.1% -17.2% 261.HK Pacific (H) CNY 1, % % OPFM 31-Dec 16.8x 15.2x 45% 1.8x 11.9% 1.8x 12.1% 1.2x 13% 7.9% 4.4x 13% 37% 2.3%.9% -2.7% 3.% -1.8% 14.8% -3.8% 966.HK Taiping HKD 4, % RSTR RSTR 31-Dec 14.2x 12.1x 59% 1.6x 12.8% 1.6x 13.3% 1.1x 27% 8.9% 1.7x 37% % 2.1% 19.7% 15.4% 9.1% 5.1% -13.2% 1336.HK New Life (H) CNY 3, % % NTRL 31-Dec 1.5x 1.x 4% 1.4x 13.3% 1.4x 13.7%.8x 12% 7.9% -3.8x 7% 3% 2.9% 2.7%.9% 3.9% -2.4% -2.4% -22.9% 2318.HK Ping An (H) CNY 25,132 2, % % OPFM 31-Dec 11.8x 12.1x 9% 2.x 16.4% 2.4x 2.2% 1.x 17% 8.3%.x 15% 22% 1.8% 1.7% 6.9% 14.4% 2.8% 3.9% -4.1% 1339.HK PICC Group CNY 19, % % NTRL 31-Dec 1.8x 9.6x 2% 1.4x 15.1% 1.5x 16.% 1.1x 16% 11.7% 3.4x -1% 19% 2.1% -.5% -2.9% -1.4% -12.5% 4.3% -7.2% 2328.HK PICC P&C CNY 15, % % OPFM 31-Dec 9.9x 1.6x -1% 1.9x 18.2% 1.9x 18.2% na na na na na 25% 2.3% -.2% 4.1% 23.9% 25.3% 28.8% 16.9% 98,526 9, % 2.9% 12.6x 11.5x 28% 1.7x 14.9% 1.8x 15.7% 1.x 16% 9.2% 1.3x 12% 24% 2.%.2% 4.1% 14.% 7.8% 27.1% 14.7% RLCP.BO Reliance Capital INR 1, % na na NR 31-Mar 11.6x 11.6x 3%.7x 5.7% na na na na na na na 31% 2.7% -7.2% -2.8% 1.8% -7.6% -12.2% -28.3% MAXI.BO Max INR % % OPFM 31-Mar 1.8x 16.2x -39% 13.1x 9.6% 15.4x 95.1% na na na na na 42%.3% -2.1% -.3% 3.6% -11.% -22.9% -21.7% 2, % 32.8% 11.2x 13.9x -18% 6.9x 7.6% na na na na na na na 36% 1.5% -5.3% -1.9% 2.4% -8.8% -16.2% -25.8% 8686.T Aflac JPY 3,55 5 6,52 3,875-6,52 na na NR 31-Dec 1.5x 1.5x 6% 2.x 18.8% na na na na na na na 24% 2.3% 2.4% 4.3% 8.1% 18.1% 67.2% 46.% 875.T Dai-Ichi Life JPY 14,126 1, % 1,42,865-1,656 2, % OPFM 31-Mar 29.1x 33.8x 14%.8x 2.5% 1.x 2.8%.4x 5% 1.1% -1.9x 3% 5% 1.4% 2.8% 5.7% 3.% -8.7% 63.6% 18.4% 8729.T Sony Financial JPY 7, % 1,797 1,163-1,869 1,75 -.9% NTRL 31-Mar 18.5x 2.1x -2% 1.8x 9.2% 2.x 1.6x 4% 3.2% -8.9x 12% 31% 1.7% 1.2% 1.6% 5.8% 1.9% 3.3% 16.7% 8795.T T&D Holdings JPY 8, % 1,212,797-1,444 1, % NTRL 31-Mar 11.9x 11.9x 3%.8x 6.6%.8x 6.8%.4x 5% 3.7% -14.7x 7% 23% 1.9% 2.8% 1.3% -7.5% -7.6% 5.4% 16.4% 8725.T MS&AD Insurance JPY 16, % 2,578 1,33-3,75 3,4 34.1% OPFM 31-Mar 12.5x 9.7x 33%.7x 7.3%.8x 7.9% na na na na na 28% 2.2% 1.4% 2.7% -3.% -12.9% 97.9% 51.2% 863.T NKSJ Holdings JPY 1, % 2,573 1,429-2,73 2,7 7.3% NTRL 31-Mar 29.7x 33.3x -23%.9x 2.6%.9x 2.8% na na na na na 59% 2.3% 1.6% 4.1% 2.8% -5.8% 8.1% 4.2% 8766.T Tokio Marine JPY 25,328 1, % 3,29 1,979-3,57 3,7 14.4% NTRL 31-Mar 13.6x 13.x 17% 1.x 7.6% 1.1x 8.8% na na na na na 27% 1.9% 3.6% 5.1% 3.% -2.7% 66.2% 38.1% 82,153 6, % 22.3% 19.2x 2.3x 7% 1.x 6.% 1.1x 6.5%.5x 4.8% 2.6% -11.5x 7% 36% 1.9% 2.5% 3.9% 1.% -5.3% 68.7% 33.3% Korea 3283.KS Samsung Life KRW 19, % 12, 92,-11, na na NR 31-Mar 17.5x 17.5x 17%.9x 5.% 1.x 5.5%.7x 1% 3.8% -8.9x 4% 25% 1.6% -2.4% -.5% -2.9% -2.9% 9.7% 8.2% 8835.KS Hanwha Life KRW 5, % 6,8 6,29-8,15 na na NR 31-Mar 9.9x 9.9x 1%.7x 7.5%.7x 7.5%.6x 4% 6.6% -5.9x 9% 38% 3.%.7% -1.4% 2.7% -1.2% -8.6% -12.4% 8264.KS Tong Yang Life KRW 1, % 11,15 9,31-11,95 na na NR 31-Mar 7.6x 7.6x.7x 9.5%.7x 9.5% na na na na na 29% 3.8%.5% 5.7% 6.2% 1.4% -3.9% 5.7% 583.KS Dongbu KRW 3, % 49,5 41,25-5,5 44, -7.2% NTRL 31-Mar 6.7x 7.4x 16%.9x 13.8% 1.x 13.%.6x 1% 8.6% -2.7x 5% 21% 3.1% -.1% 8.2% 2.6% 8.9% -2.7% 6.7% 145.KS Hyundai M&F KRW 2, % 3,15 27,95-36, 32, 1.4% NTRL 31-Mar 6.2x 6.6x 19%.9x 15.2%.9x 13.3%.5x 16% 7.1% -4.5x 25% 22% 4.2% -2.% 4.5%.8% -4.6% -15.9% -9.5% 255.KS LIG Insurance KRW 1, % 26,8 21,15-27,2 na na NR 31-Mar 5.8x 5.8x.8x 13.7%.8x 13.7% na na na na na 21% 3.7% 2.1% 8.9% 7.% 17.8% -.7% 3.7% 6.KS Meritz F&M KRW 1, % 14,6 11,1-14,95 na na NR 31-Mar 7.8x 7.8x 1.1x 14.7% 1.1x 14.7% na na na na na 24% 3.% -1.% 8.1% 11.5% 18.7% 2.8% 3.2% 81.KS Samsung F&M KRW 11, % 253, 26,-261, 25,.8% NTRL 31-Mar 12.2x 1.9x 19% 1.1x 9.4% 1.x 9.5%.6x 5.8% -8.4x 19% 23% 2.% 1.4% 2.6% 3.7% 11.7% 17.9% 16.1% 369.KS Korean Re KRW 1, % 11,8 9,98-12,8 na na NR 31-Mar 6.4x 6.4x 12%.7x 11.4% na na na na na na na 17% 3.5% -1.7% 3.5% 4.9% 12.4% 2.6% 45,445 1, % 1.3% 9.2x 9.2x 16%.9x 11.1%.9x 1.8%.6x 1% 6.4% -6.1x 12% 24% 3.1% -.7% 1.8% 1.1% 3.5% 6.7% 6.3% South East Asia GELA.SI Great Eastern SGD 6, % % OPFM 31-Dec 11.9x 11.6x -4% 1.5x 12.8% 1.5x 12.9%.9x 9% 8.% -1.8x 12% 45% 4.3% -.1% 3.1% 3.4% -4.8% 17.6% 14.2% LOND.KL Lonpac Insurance MYR 1, % na na NR 31-Dec 17.6x 17.6x na 2.9x 16.7% 2.9x 16.7% na na na na na 95% 5.4%.4% 1.1% 8.5% 13.9% 2.3% 14.% TUNE.KL Tune Insurance MYR % na na NR 31-Dec 17.3x 17.3x na 3.6x 2.8% 3.6x 2.8% na na na na na 4% 2.3% -6.1% -1.7% 36.3% 36.3% PNLF.JK Panin Financial IDR % na na NR 31-Dec 4.5x 4.5x na.7x 14.1%.7x 14.1% na na na na na % -4.% 1.6% -9.5% -29.6% 4.7% 4.7% SMMA.JK Sinar Mas IDR 2, % 3,8 3,65-4,95 na na NR 31-Dec 14.6x 14.6x na 2.2x 14.9% na na na na na na na %.7% 2.7% -4.4% -16.9% -15.6% -16.9% BLA.BK Bangkok Life THB 2, % % UPFM 31-Dec 13.9x 14.2x 8% 2.5x 17.9% 2.5x 17.9% 1.7x 18% 11.9% 12.6x 12% 21% 1.7% -1.6% -7.3% -6.2% -16.3% 38.3% -2.8% BKI.BK Bangkok Insurance THB % na na NR 31-Dec 24.7x 24.7x na 1.3x 3.4% na na na na na na na 8% 3.2%.5% -2.1% -5.4% -15.7% 37.4% 27.1% SCBLIF.BK SCB Life THB 2, % 1, na na NR 31-Dec 17.7x 17.7x na 5.9x 33.3% na na na na na na na 8% 4.5% -.2% -4.% -7.5% -15.3% 39.3% 34.1% THRE.BK Thai Re THB % na na NR 31-Dec 18.5x 18.5x na 4.x 21.6% na na na na na na na % 1.% -7.9% -18.5% -32.9%.5% -2.5% 17, % 14.2% 13.8x 13.8x 2% 2.x 14.1% 2.x 15.9% 1.3x 13% 9.9% 5.4x 12% 38% 2.7% -.3% -.4% -2.2% -8.5% 21.2% 13.5% 2882.TW Cathay FHC TWD 17, % % NTRL 31-Dec 16.9x 16.6x 9% 1.9x 11.2% 1.9x 11.2%.8x 12% 4.7% -3.x % 15%.9% -.5%.7% 1.3% 13.7% 6.1% 47.7% 2823.TW Life TW TWD 2, % % OPFM 31-Dec 13.9x 11.7x 12% 1.1x 9.2% 1.1x 9.2%.6x 13% 5.4% -3.2x 1% 15% 1.7% -.4% -6.4% 4.7% 2.2% 37.4% 2.1% 2881.TW Fubon FHC TWD 14, % % NTRL 31-Dec 11.7x 12.x 4% 1.1x 9.3% 1.1x 9.3% 1.4x 17% 11.5% 3.4x 5% 33% 2.7% -.1% -5.3% -2.3% 33.3% 17.4% 2888.TW Shin Kong FHC TWD 3, % % UPFM 31-Dec 1.5x 1.8x -36%.9x 8.3%.9x 8.4%.4x 9% 3.5% -11.x % %.5% -3.3% 3.1% 1.1% 36.4% 26.6% 37,447 1, % 7.4% 12.9x 12.5x -3% 1.2x 9.5% 1.2x 9.5%.8x 13% 6.2% -3.5x 4% 13% 1.1% -.2% -2.4% 5.4% 5.8% 46.1% 32.3% Total NJA insurance 368,442 24,145 1,27 6.6% 21% 15.7x 15.1x 23% 1.9x 15.6% 2.2x 17.6% 1.x 12% 8.2% 1.5x 9% 42% 3.%.5% 1.7% 5.2%.3% 16.8% 5.9% Total Asia insurance 45,595 3,537 1, % 28% 16.9x 16.6x 21% 1.9x 15.2% 2.x 15.7%.9x 1% 6.9%.4x 8% 42% 3.% 1.% 2.4% 5.%.5% 3.8% 14.% Source: Reuters, Credit Suisse (*IBES consensus) 12-month forward rolling forecasts (non-rated stocks use IBES consensus forecasts)

5 13 November 213 Table of contents Focus charts 2 Asia regional P&C insurance 3 Structurally attractive market 3 Market analysis:,, stand out 3 Regionals rising 3 Investment view 3 Structurally attractive market 7 High growth region 7 Drivers of longer-term growth 8 Market analysis:, and stand out 1 Measuring structural attractiveness of market 1, and stand out 11 Regionals rising 14 Investment view Asia insurance market overview 22 Asian insurance market ranking 24 Criteria #1: Size 26 Criteria #2: Growth 28 Criteria #3: Market concentration 33 Criteria #4: Profitability 34 Criteria #5: Business mix 36 Criteria #6: Regulatory / solvency regime 38 4 Market snapshot 4 Industry dynamics 43 Regulatory environment Market snapshot 45 Industry dynamics 47 Market profitability 48 Regulatory environment 49 5 Market snapshot 5 Industry dynamics 52 Market profitability 53 Regulatory environment 54 Korea 55 Market snapshot 55 Industry dynamics 57 Market profitability 58 Regulatory environment 59 6 Market snapshot 6 Industry dynamics 62 Market profitability 63 Regulatory environment Market snapshot 65 Regulatory environment Asia P&C Insurance Sector 5

6 13 November 213 Market snapshot 68 Industry dynamics 7 Market profitability 72 Regulatory environment Market snapshot 78 Industry dynamics 8 Market profitability 81 Regulatory environment Market snapshot 83 Industry dynamics 85 Market profitability 86 Regulatory environment Market snapshot 88 Industry dynamics 9 Market profitability 92 Regulatory environment 93 The 95 Market snapshot 95 Industry dynamics 97 Market profitability 98 Regulatory environment 99 1 Market snapshot 1 Industry dynamics 12 Market profitability 13 Regulatory environment Market snapshot 15 Industry dynamics 17 Regulatory environment 18 Company positioning by market 11 Company overview 113 AIG (AIG.N) 113 ACE (ACE.N) 117 Allianz (ALVG.DE) 121 AXA (AXAF.PA) 124 IAG (IAG.AX) 127 MS&AD (8725.T) 13 Tokio Marine (8766.T) 134 QBE (QBE.AX) 137 Zurich (ZURN.VX) 14 Global valuation comparisons 143 Asia P&C Insurance Sector 6

7 P&C insurance premiums (US$mn) 13 November 213 Structurally attractive market High growth region We believe the Asia P&C insurance sector will continue to be a structurally attractive market, with strong economic, household income growth, increased asset ownership, further consolidation and further de-tariffing in many of the markets. The average growth rate of the Asia P&C insurance market has been 9.6% p.a. over the past ten years (relative to global growth of 6.1% p.a.), with 14.5% p.a. growth excluding. More recent Asia regional growth (past five years) has been stronger at 11.8% p.a. (albeit partially aided by a weakening USD) and 15.2% p.a. excluding. Within Asia, we highlight that growth rates differ substantially by country and region as shown below, with growth rates lower in more developed Asia (especially ) than in less developed Asia as one would intuitively expect. Asia P&C growth rate has been 9.6% p.a. over the past ten years (14.5% p.a. excluding ) Figure 9: Asia insurance premium growth rates (% p.a.) to year CAGR (%) 5-year CAGR (%) Emerging Developing Developed NJA Total Asia Excluding Source: Swiss Re (in USD terms) We highlight that relative to the more developed larger individual markets, Asia has grown at a much faster rate, mostly contributed by NJA growth, and is now of a much more substantial size. In 212, NJA was more than 2x the size of, whereas it was the same size in 25. Figure 1: Asia growth rate faster than other regions P&C insurance premiums (US$ mn) and ten-year growth rate (% p.a.) 8, 7, 6, 3.% 1yr CAGR (%pa) The Asian P&C market is half the size of the US and bigger than UK, Germany, France and Italy combined 5, 4, 9.6% 3, 14.5% 2, 1, 9.8% 3.2% 7.6% 5.3% 4.9% 3.5% - USA Canada UK France Germany Italy Asia NJA FY2 Source: Swiss Re Given higher growth rates, the NJA P&C insurance market grew from a 6% share of the world market in 2 to a 13.9% share in 212. During the same period, s share fell from 11% to 6.5%. Asia P&C Insurance Sector 7

8 P&C insurance premiums / capita (US$) P&C insurance premiums / GDP (%) 13 November 213 Drivers of longer-term growth We believe the following factors are the key drivers of longer-term higher growth rates for the NJA life insurance market: Working population growth: Countries with reasonably young population profiles (i.e.,, and the ) will have reasonably strong working population growth profiles in the coming decades. Improved insurance penetration: Many NJA countries have low levels of insurance penetration (outside developed Asia), which we expect to increase as the population becomes wealthier and better educated (with increased urbanisation). Figure 11: Insurance density remains low in Asia Life insurance premiums / capita (US$) Figure 12: with penetration higher in developed Asia Life insurance premiums / GDP (%) 2,5 2, 2.1% 1yr CAGR (%pa) 8.8% 6.% 5.% 4.5% 4.3% 1,5 2.6% 6.5% 5.4% 4.% 3.9% 3.6% 3.7% 1, 4.3% 3.6% 3.% 2.% 2.5% 2.3% 1.9% 1.8% 5 1.% 8.4% 13.2% - USA Canada UK France Germany Italy Asia NJA FY2 USA Canada UK France Germany Italy Asia NJA FY2 Source for both figures: Swiss Re Under-developed segments: The Asia P&C market is quite skewed to motor / auto insurance, with other segments under developed or in some cases non-existent. For example, personal home building and/or contents insurance is virtually non-existent in, whereas this segment can make up 2-3% of other more developed markets. Figure 13: Non-motor segments more immature in less developed Asia Asia P&C market by product segment (% 212) 1% 8% 6% 4% 2% % Korea Motor Property Liability Marine Hull & Cargo A&H Aviation Other Source: OCI, MAS, KIDI, TII, APRA, ICNZ, ISI, IRI, CIRC, OIC, Bank Negara, IRDA, BAPEPAMLK, PIC, AVI, Company data, Credit Suisse estimates Asia P&C Insurance Sector 8

9 13 November 213 Asia P&C Insurance Sector 9 Figure 14: Asia P&C insurance sector Market snapshot (size, growth, mix, profitability, market position) ASIAN P&C INSURANCE 35, 3, 25, 2, 15, 1, 5, MS&AD PICC Tokio Marine Tier 1 Tier 2 Tier 3 NKSJ Ping An Samsung Pacific IAG Hyundai Dogbu Korea DEVELOPED ASIA DEVELOPING ASIA EMERGING ASIA JAPAN HONG KONG SINGAPORE KOREA TAIWAN AUSTRALIA NEW ZEALAND CHINA THAILAND MALAYSIA INDIA INDONESIA PHILIPPINES VIETNAM Premium / growth US$mn US$mn US$mn US$mn US$mn US$mn US$mn US$mn US$mn US$mn US$mn US$mn US$mn US$mn Premiums 77,553 5,72 2,434 57,814 4,1 39,297 4,31 9,664 4,484 4,36 8,464 2,438 1,34 1,8 Growth - 5yr average -.2% 1.1% 2.9% 15.7% 1.4% 4.2% 9.9% 2.2% 8.% 5.4% 16.2% 9.6% 7.% 16.2% Growth latest 2.3% 12.9% -11.8% 17.5% 6.6% 7.% 6.7% 16.6% 21.7% 1.6% 24.2% 1.3% 11.% 11.% % Motor 59% 11% 34% 43% 5% 37% na 77% 59% 48% 46% 32% 32% 28% Property 19% 21% 12% 9% 18% 13% na 6% 6% 17% 22% 28% 3% 12% A&H 14% 26% 12% na 12% 3% na 3% na na 1% 1% 4% 18% Other 8% 42% 42% 48% 2% 47% na 13% 35% 35% 22% 3% 34% 43% Profitability na Margins - 5yr average 13.9% 89.5% 9.6% 98.9% 96.8% 97.% na 96.8% 121.% na 124.% na na na Margins latest 13.4% 91.2% 86.7% 115.2% 92.1% 95.1% na 94.9% 19.1% 9.% 122.4% 84.% 9.2% na RoA - 5yr average.19% na 4.67% na na 3.7% na 2.91% 2.22% na 5.83% na na na RoA latest.59% na 6.87%.56%.51% 4.68% na 3.75%.7% na 4.93% na 2.6% na RoE - 5yr average.8% na 11.1% na na 14.7% na 16.5% 8.% na 6.8% na na na RoE - latest 3.1% na 16.3% 5.2% 8.% 22.1% na 18.4% 11.% na 7.% na 5.7% na Risk Assets / equity 5.3 na na na 1.3 na 2.2 na Debt / equity 12% na na na % 9% na 2% na na na na na na Solvency ratio na na na na 541% 182% na 176% na na 163% na na na Competitive landscape LIG Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % Company % MS&AD 34.2% AXA 11.6% AIG 15.5% Samsung F&M 25.7% Fubon 22.1% IAG 22.7% IAG 37.4% PICC 34.9% Viriyah 15.5% IAG 13.4% New 16.2% Sinar Mas 1.3% Malayan 12.1% Bao 23.7% Tokio Marine 27.6% Zurich 5.8% AXA 12.8% Hyundai 16.2% Cathay Cent 12.7% SUN 19.2% SUN 23.1% Ping An 17.3% Dhipaya 1 Allianz 11.1% United 15.5% Jasa 8.6% Prudential 9.% PVI 2.5% NKSJ 27.6% BOC 4.2% NTUC 1.3% LIG 14.2% ShinKong 1.2% QBE 13.% WES 7.9% Pacific 12.7% Bangkok Insuran 7.2% MSIG 9.6% National 14.7% Astra Buana 8.5% BPI/MS 8.2% Bao Minh 1 AIG 3.9% AIG 4.6% Fairfax 9.8% Dongbu 15.8% Mingtai 8.9% Allianz 9.3% QBE 6.4% United 4.9% Syn Mun Kong 4.9% Lonpac 6.2% Oriental 11.4% Central Asia 5.3% Pioneer 7.8% PJICO 8.7% Kyoei 2.2% Bupa 4.6% MS&AD 1.1% Mertiz 7.2% Tokio Marine 7.1% WES 3.3% TWR 5.1% Life P&C 4.9% Muang Thai 3.8% Tokio Marine 6.1% ICICI Lombard 9.7% Tugu Pratama 5.1% Standard 3.9% PTI 7.2% Sony 1.% QBE 3.5% Liberty 4.8% Hanwha 5.9% Taian 5.7% Zurich 3.3% FMG 2.9% CCIC 3.1% IAG 3.9% AXA 5.4% Bajaj Allianz 6.2% Adira Dinamika 3.7% Chartis 5.3% Samsung 3.2% ACE.7% Asia Financia 3.3% QBE 4.5% Heungkuk 4.3% Union 5.5% ACE 1.5% Allianz 2.9% Sunshine 2.5% LMG 3.4% ACE 4.8% IFFCO-Tokio 3.7% Wahana Tata 3.6% UCPB 4.3% IAG 2.1% Secom.6% Lloyd's 2.1% Tokio Marine 4.1% Lotte 3.4% South 5.4% AIG 1.4% AIG 2.9% Taiping 1.7% Tokio Marine 3.2% AIG 3.7% Reliance 3.2% MS&AD 3.4% Philippine Ch 5.1% AIG 1.2% Other 2.2% Others 6.3% Other 28.3% Other 7.4% Other 13.% Other 26.4% Others 11.5% Others 19.9% Other 42.8% Other 39.6% Others 19.3% Others 51.5% Other 44.3% Other 23.5% Top % Top 5 3.8% Top % Top 5 79.% 61.% Top % Top % Top % Top % Top % Top % Top % Top 5 41.% Top 5 7 Source: Regulators, Company data, Credit Suisse estimates Source: Regulators, Company data, Credit Suisse estimates SUN AIG QBE Allianz AXA ACE Zurich Taiping Fubon Generali

10 13 November 213 Market analysis:, and stand out Measuring structural attractiveness of market By examining the Asia P&C insurance market individual profiles, we have rated the key market characteristics of each country by the following metrics to derive an overall view of the attractiveness of each market for the listed P&C insurers and distinguish between them: We have assessed the various P&C markets based on size, growth, profitability and other factors Size: Key determinant of the market opportunity (especially for regional insurers); Growth: Growth profile over the past decade and our view of future opportunity. Market concentration: As products are often commoditised, concentrated markets often lead to more rational and profitable markets, with larger insurers often also having substantial scale advantage; Market profitability: Historical profitability and future likely sustained profitability; Business mix: We see a lack of diversification (i.e. high skew of motor) as positive for the long-term growth potential. Ownership restrictions / ease of access: Whether foreign insurers can obtain full ownership, operate on a level-playing field with domestic insurers; and Regulation / solvency regime. Whether a country has adopted a risk-based capital solvency system, which is often an indication of regulatory development. We discuss our findings in detail on pages 24-39, which are summarised as follows: Figure 15: Asia P&C insurance landscape is varied and evolving Market size, growth, concentration, profitability and solvency regime by country Market Size Growth Concentrated Profitable Busimess mix Ease of access Tariffication? RBC? Large Low Small Low Medium Medium South Korea Large Medium Medium Low Large Medium Medium Low Large Very High Medium High Small High Medium Very High Small Very High Small High Small Very High Source: OCI, MAS, KIDI, TII, APRA, ICNZ, ISI, CIRC, OIC, Bank Negara, IRDA, BAPEPAMLK, PIC, AVI, Company data, Credit Suisse research In terms of ranking the various markets, our key focus is generally on the likely ability of the market to generate sustained robust profitability, with market concentration and behaviour of these larger companies being key drivers. As such, our preferred markets are all quite highly concentrated and the larger incumbents have demonstrated some margin discipline (in some cases aided by the regulator). Korea Asia P&C Insurance Sector 1

11 13 November 213 is the second most consolidated market in Asia, but profitability has been continuously poor, where we do not see the situation improving in the near term., and stand out Within the Asian market and the framework discussed above, we believe the following countries stand out: has a highly consolidated retail market, dominated by three insurers IAG, Suncorp and Allianz, which cumulatively have around 75-8% market share. These insurers have demonstrated consistent rational pricing behaviour for some time despite consistent competitive pressure from smaller insurers. However, smaller insurers / new entrants have struggled to break into the n market as they have generally focused on motor (with home being more volatile due to its exposure to natural catastrophes), and as such have struggled to build scale and have had a few natural peril events (hail storms) impacting their profitability. The large number of natural catastrophes in recent years has allowed the insurers to continue to increase prices and pass on increased allowance for such events. Given large price increases in more catastrophe prone areas, a key issue now is affordability. This issue, combined with our GDP growth expectations for, leads to a more modest mid-to-high single-digit medium-term growth expectation. Please see our recent report; Insurance: Back to a world of normal GWP growth, (6 pp) 3 September 213, for more details on the n market. The P&C market is mainly a motor market (75% of premiums) and also highly concentrated, with PICC P&C, Ping An and Pacific controlling two-thirds of the market. The profitability of the P&C sector has steadily improved over the past couple of years due in part to increased regulatory focus (solvency, commission and pricing) resulting in an improved discipline from the local insurers. More recently, margins have eroded again due to the impact of claims inflation (as tariff rates have not changed) and some pick-up in competition (commission rates and some increase in average discount). While the gradual deregulation of premium rates (de-tariffing) presents medium-term risk/uncertainties, it is unlikely to be introduced within the next three years. We argue there are structural reasons for margin sustainability for large insurers (PICC, Ping An and Pacific) given their significant scale advantage. As such, we believe downside earnings protection exists at around 15% ROE, as the smaller insurers will be unprofitable around these levels, needing the regulator to intervene to restore profitability. Longer term, we believe key features of the de-regulation proposals are positive for the industry (i.e. inflation protection through base rate being based on industry experience), with the regulator taking a pragmatic approach to implementation. The P&C market has seen an average growth rate of 21% p.a. over the past decade. Given low penetration of other classes outside motor and likely more regular price rises post motor de-tarrification, we expect growth rates in excess of 15% p.a. over the next decade. Please see our recent report; P&C Insurance Sector: Scale drives margin sustainability, (13pp), 9 August 213 We believe the retail market is one of the most attractive P&C markets globally market concentration and growth outlook should lead to strong medium-term performance, in our view Asia P&C Insurance Sector 11

12 13 November 213 is the most consolidated market in Asia, with the top three insurers MS&AD, Tokio Marine and NKSJ controlling around 9% of the market. Despite this concentration and implied market power, their results have been rather disappointing over the past few years (Figure 17 and Figure 19) even for classes not overly impacted by the 211 Tohoku earthquake / tsunami and flooding. ese P&C are finally starting to utilise their dominant market position In contrast to corporate P&C insurance, consumer-oriented P&C insurance in is still bound by certain regulations. Insurers set net insurance premiums based on advisory rates, and their premiums have to be approved by the Financial Services Agency. However, automobile insurance has undergone a number of structural changes since end- 29, and profitability is improving. It is now possible to set insurance premiums in line with risk by age, and the discount system, which was excessively advantageous to policyholders compared with actual accident rates, has been revised. Figure 16: Auto premium rate revisions by major ese non-life companies MS&AD Tokio Marine NKSJ MS&AD NKSJ Mitsui Sumitomo TM Nichido Sompo Aioi Nissay Dowa Nipponkoa 21 October +1% July +1.% April +.8% October +1.6% December +1.4% 211 October +1.9% January +1.7% April +1.7% October +1.% January +1.8% 212 October +.8% October ± October + October +1.% October ± 213 October (% not disclosed) October (% not disclosed) April +2.% Source: Toa Re, 's Insurance Market 213 report, Company disclosures October (% not disclosed) April +2.% This started to have a visible impact from 4Q FY3/13, and loss ratios improved in 1-2Q FY3/14 owing to declines in small insurance claims. The sector is making rapid progress towards its goal of improving the combined ratio from around 1-11% in FY3/13 to 96% by FY3/16. As highlighted below, MS&AD expects these initiatives to remove underwriting losses by 213E and improve the loss ratio to sub 6% medium term. Figure 17: MS&AD expects motor profitability in 213 Figure 18: with improved results thereafter Source for both charts: MS&AD presentation, 4 June 213 While we expect 's profitability to improve as the insurers continue to focus on better margins, we do not expect much by way of growth from the ese P&C insurance industry with the average growth rate over the past decade has been 3.5% p.a. Asia P&C Insurance Sector 12

13 13 November 213 Figure 19: Asian P&C insurance Market size, growth, concentration and profitability (29-12) GWP (US $mn) Growth Rate Market Swiss Re Data (USD, CAGR %pa) Concentration Combined ratio % Country year 1-year Top 5 Top yr Avg Motor 129,74 117, % 3.5% 95% 98% 14% 115% 13% 14% 17% 49% 3,738 3,8 8.6% 4.8% 31% 46% 91% 88% 88% 87% 89% 11% 9,823 6, % 12.5% 5% 67% 88% 91% 89% 89% 89% 35% South Korea 6,376 42, % 13.8% 79% 96% 11% 11% 11% 12% 11% 56% 15,23 12,55 7.3% 6.7% 61% 87% 92% 91% 99% 97% 95% 5% 42,525 34,68 9.1% 12.% 67% 76% 94% 11% 95% 87% 94% 37% 8,811 7, % 12.2% 76% >9% na 146% 11% 98% 115% 3% 87,319 71, % 2.2% 74% 83% 94% 92% 96% 11% 96% 76% 6,177 5, % 17.9% 42% 57% na 217% 98% 97% 137% 74% 5,315 4, % 1.5% 47% 67% 81% 83% 86% 85% 84% 47% 13,142 1, % 15.4% 68% 87% 122% 132% 123% 123% 125% 46% 4,615 3, % 12.4% 38% 54% na na 92% 92% 92% 32% 1, % 1 42% 62% 9% 9% 95% 12% 94% 32% 1, % 18.5% 7% na na na na na na 28% 389, , % 9.6% 78% 86% 94% 15% 1% 1% 11% 54% Source: Swiss Re, OCI, MAS, KIDI, TII, APRA, ICNZ, ISI, CIRC, OIC, Bank Negara, IRDA, BAPEPAMLK, PIC, AVI, Credit Suisse research Asia P&C Insurance Sector 13

14 13 November 213 Regionals rising The Asia property and casualty sector has materially lagged the life insurance sector in terms of consolidation, with few truly regional insurers. However, we have seen a pick-up in recent years in terms of consolidation as well as a few regional insurers emerging in both the personal and commercial lines. Key regional P&C insurers in Asia in our view are: MS&AD, IAG, AIG, QBE, Allianz, AXA and ACE. The Asia P&C market has lagged the life sector in terms of regional consolidation Within these, only MS&AD and IAG are pure Asian insurers, albeit with a very heavy exposure to their home markets with AXA being the largest Asian regional insurer outside and, followed by AIG and MS&AD. Figure 2: ASIA regional company positioning (GWP US$ mn) excluding / NZ / 2,5 Tier 1 Tier 2 Tier 3 2, 1,5 1, 5 AXA AIG MS&AD Taiping Allianz Tokio Marine ACE IAG Zurich QBE NKSJ Generali Korea Source: OCI, MAS, KIDI, TII, APRA, ICNZ, ISI, IRI, CIRC, OIC, Bank Negara, IRDA, BAPEPAMLK, PIC, AVI, Company Data, Credit Suisse estimates (single country P&C insurers excluded) AXA (AXAF.PA, 18.13, OUTPERFORM, TP 21.1) AXA has been one of the most active P&C insurers in Asia on the M&A front over the past couple of years, having recently acquired a 5% stake in the Chinese insurer, Tian Ping (April 213), and entered into a ten-year agreement with HSBC regionally to sell P&C products (completed August 212). AXA has been one of the most active P&C insurers in terms of M&A AXA's Asian P&C business is skewed to retail business lines (mainly motor), with large operations in, and now. AXA is the largest regional insurer outside and (Figure 2) and the fifth largest in non- Asia (Figure 21). American International Group (AIG, US$48.54, RESTRICTED) AIG's Asian P&C business is dominated by its business (~8%) where it owns the fourth largest insurer, Fuji F&M, with strong market positions in and. In addition to its own Chinese business, it has a 9.9% stake in PICC P&C (2328.HK), the largest P&C company in, which we do not include in the charts above. AIG Asia is roughly 8% -based, but also owns 9.9% of PICC P&C AIG is the second largest regional insurer outside and (Figure 2) and the fourth largest in non- Asia (Figure 21). Asia P&C Insurance Sector 14

15 13 November 213 MS&AD Insurance Group (8725.T, 2,485, OUTPERFORM, TP 3,4) While non- Asia represents only around 5% of total premiums for MS&AD, it has been fairly active in its expansion outside. The company s approach to these markets has varied depending on local regulations pertaining to foreign insurance companies, but its basic strategy has been to acquire minority rather than majority stakes and develop business jointly with partners in each market. It has entered these markets as a long-term growth strategy, given the low growth outlook in its domestic market. MS&AD is the largest P&C insurers in Asia MS&AD is now the third largest regional insurer outside and (Figure 2) and the eighth largest in non- Asia (Figure 21); and the largest P&C insurer in Asia. Allianz SE (ALVG.DE, 126.5, NEUTRAL, TP 136.) Allianz has been active as a P&C insurer in the Asian region for some time with a focus on the group's n, n and n operations, although we note that Allianz does have additional exposure to the region through some of its global speciality businesses such as Allianz Global Corporate Solutions, where premiums are often written onto balance sheets outside the domestic market. Allianz is the third largest regional in NJA, focused mainly on organic growth However, as with the group s life operations, Allianz has failed to broaden its regional reach much outside these markets and has generally avoided acquisitions on the ground of valuation, preferring to continue to focus on the organic development of the business, which we expect Allianz to continue to do. In particular, we expect the group to continue to use the speciality businesses (such as credit insurer Euler Hermes) to develop in some of the larger regional markets such as where the group believes it has unique expertise not easily replicated by the local insurers. While accounts for ~6% of Allianz s overall P&C premiums (P&C is ~45% of the group), the rest of Asia accounts for little more than 1.5% of the group s P&C portfolio. Allianz is now the fifth largest regional insurer outside and (Figure 2) and the third largest regional P&C insurers in non- Asia (Figure 21). Insurance Group (IAG.AX, A$6.12, NEUTRAL, TP A$6.) IAG has a stated long-term strategy to focus only on Asian expansion for longer-term growth after exiting its previous acquisition in the UK, having identified five key Asian markets (and is present in all except ). IAG's goal is to have 1% of its premiums from Asia by 216 and deliver a 15% ROE by 217. Its main operations outside are in and where it mainly focuses on the retail space (motor insurance). It expanded its n presence in September 212 by acquiring Kurnia insurance and took a 2% stake in Bohai Insurance in in April 212. IAG is the largest regional insurer in Non- Asia IAG is now the eighth largest regional insurer outside and (Figure 2) and the largest regional P&C insurers in non- Asia (Figure 21). Asia accounted for 6.3% of its premiums outside and. Zurich Insurance Group (ZURN.VX, SFr252., NEUTRAL, TP SFr271.) Zurich has been actively pursuing bolt-on acquisitions in the Asian region over recent years as the group seeks to expand the exposure to growth markets. In general, we expect management to continue this strategy as it looks to diversify the group away from its large US and European operations. There was recent press coverage (Insurance News, 5 November 213) that Zurich may be looking to acquire Wesfarmers (WES.AX) insurance business, which is of similar size to its own n business. Zurich has been actively pursuing bolt-on acquisitions in the Asian region over recent years Zurich is now the ninth largest regional insurer outside and (Figure 2) and the seventh largest regional P&C insurers in non- Asia (Figure 21). Asia P&C Insurance Sector 15

16 13 November 213 QBE, ACE and Tokio Marine have all made acquisitions in Asia over the years as part of their global acquisition strategy. These companies also have reinsurance operations for which the premiums may not necessarily be fully captured in our data. Figure 21: NJA (non- Asia) regional company positioning (GWP US$ mn) 12, Tier 1 Tier 2 Tier 3 1, 8, 6, 4, 2, IAG QBE Allianz AIG AXA Zurich ACE MS&AD Taiping Tokio Marine NKSJ Generali Korea NZ Jaoan Source: OCI, MAS, KIDI, TII, APRA, ICNZ, ISI, IRI, CIRC, OIC, Bank Negara, IRDA, BAPEPAMLK, PIC, AVI, Company Data, Credit Suisse estimates (single country P&C insurers excluded) Figure 22: Asia regional company positioning (GWP US$ mn) 35, Tier 1 Tier 2 Tier 3 3, 25, 2, 15, 1, 5, Generali Fubon Taiping Zurich ACE AXA Allianz QBE AIG SUN LIG Dogbu Hyundai IAG Pacific Samsung Ping An NKSJ Tokio Marine PICC MS&AD Korea Source: OCI, MAS, KIDI, TII, APRA, ICNZ, ISI, IRI, CIRC, OIC, Bank Negara, IRDA, BAPEPAMLK, PIC, AVI, Company Data, Credit Suisse estimates Asia P&C Insurance Sector 16

17 13 November 213 Investment view Our individual stock investment preferences in the Asia region largely correlate to our country preferences discussed earlier, where we examined the relative attractiveness of the markets based on size, growth, concentration, profitability and regulation. The key criteria for us in the medium term is the market structure, current margins and sustainability (or improvement) of these. We highlight below in Figure 23 that strong retail P&C franchises (often backed by strong market structures) can: Our stock preferences within markets identified in our framework Generate sustainably strong margins in the medium term, and are not necessarily subject to insurance 'cycles' like commercial line insurers; and Demand fairly robust valuations, with weighted average P/B value 2.3x relative to ROE generation of around 15%. Figure 23: Global retail P&C insurance valuations EPS P / BV ROE ROTE Div Yld GWP Reporting Market Price Year Combined rato (%) PE (x) Growth (x) (%pa) P / NTA (x) (%pa) (%pa) Company %P&C Currency Cap 12-Nov End Growth 12mth forward diluted (Credit Suisse forecasts) US$m yr IAG.AX IAG 1% AUD 11, Jun 1.9% 97.8% 1.9% 86.% 9.8% 12.4% 14.3x -8% 2.5x 18.4% 3.9x 27.5% 4.3% SUN.AX Suncorp 68% AUD 15, Jun % 98.9% 94.3% 91.9% 12.4% 13.6x 62% 1.2x 8.7% 2.x 14.7% 6.2% 27, % 13.9x 27% 1.8x 13.5% 3.x 21.1% 5.3% 261.HK Pacific (H) 27% CNY 27, Dec 93.7% 93.1% 95.8% 98.7% 97.3% 2.7% 15.2x 45% 1.8x 11.9% 1.8x 12.1% 2.3% 966.HK Taiping 36% HKD 2, Dec 13.4% 1.7% 1.4% 99.% 98.1% 17.6% 12.1x 58% 1.6x 12.8% 1.6x 13.3% 1339.HK PICC Group 85% CNY 19, Dec 93.7% 93.1% 95.8% 95.8% 96.9% 16.2% 9.6x 2% 1.4x 15.1% 1.5x 16.% 2.1% 2328.HK PICC P&C 1% CNY 2, Dec 97.8% 94.% 95.1% 95.5% 96.9% 16.2% 9.9x 7% 1.8x 18.5% 1.8x 18.5% 2.5% 125, % 11.8x 24% 1.7x 14.9% 1.9x 16.% 1.7% 8725.T MS&AD Insurance 1% JPY 15,537 2, Mar 13.3% 11.7% 115.3% 14.8% 98.% 1.9% 9.7x 33%.7x 7.3%.8x 7.9% 2.2% 863.T NKSJ Holdings 1% JPY 1,299 2, Mar 17.5% 16.3% 116.2% 15.1% 98.7% 3.3% 33.2x -23%.8x 2.6%.9x 2.8% 2.4% 8766.T Tokio Marine 1% JPY 24,636 3,29 31-Mar 96.8% 96.4% 17.4% 95.8% 9.1% 6.1% 13.x 16% 1.x 7.6% 1.1x 8.8% 1.9% 5, % 18.7x 9%.8x 5.8%.9x 6.5% 2.2% Europe ADML.L Admiral 1% GBP 5, Dec 89.2% 95.7% 96.6% 91.9% 91.2% 11.2% 11.2x 1% 6.7x 55.% 7.3x 65.6% 7.7% DLGD.L Direct Line 1% GBP 5, Dec 119.4% 12.9% 1.4% 96.% 96.% -8.3% 11.x 3% 1.2x 11.1% 1.4x 13.% 5.7% ESUR.L Esure 1% GBP 1, Dec 112.3% 94.6% 92.4% 89.6% na na 9.1x na 3.1x 33.5% 3.1x 33.5% 7.9% SAMAS.HE Sampo 5% EUR 26, Dec 93.6% 91.9% 89.2% 88.8% 88.6% 4.6% 12.6x 5% 1.7x 14.1% 1.9x 15.1% 4.7% TOP.CO Topdanmark 85% EUR 3, Dec 92.4% 89.% 86.% 88.% 88.% 1.1% 1.4x -6% 2.4x 24.1% 2.8x 26.9% TRYG.CO Tryg 1% EUR 5, Dec 98.7% 93.1% 87.2% 88.3% 88.% 1.7% 1.9x -3% 2.x 18.6% 2.2x 2.4% 7.5% GJFS.OL Gjensidige 95% NOK 9, Dec 95.3% 91.9% 85.2% 88.% 88.% 5.2% 15.6x 1% 2.3x 13.4% 2.3x 14.5% 5.9% 57, % 11.5x 6% 2.8x 24.3% 3.x 27.% 5.6% North America ALL Allstate 1% USD 24, Dec 15.6% 121.6% 88.% 93.1% 94.5% 2.% 1.7x -5% 1.1x 11.9% 1.3x 11.8% 2.% PGR Progressive 1% USD 15, Dec 92.4% 92.8% 95.5% 93.3% 94.1% 6.2% 16.4x 8% 2.2x 13.1% 2.1x 12.7% 1.6% IFC.TO Intact 1% CAD 8, Dec 96.5% 13.5% 93.5% 13.3% na 17.% 11.7x 4% 1.8x 15.3% 1.8x 15.3% 2.8% 49,56 8.4% 12.9x 15% 1.7x 13.4% na na 2.1% South East Asia BKI.BK Bangkok Insurance 1% THB Dec 93.7% 11.3% 116.5% na na 11.7% 24.7x na 1.3x 5.1% 1.3x 5.1% 3.2% SMK.BK Syn Mon Kong 1% THB Dec 93.2% 92.1% 93.2% na na 6.2% 12.3x na 2.7x 22.1% 2.7x 22.1% 2.8% TUNE.KL Tune Insurance 1% MYR Dec na na 78.9% na na na 17.4x na 3.6x 2.8% 3.6x 2.8% 2.3% 1,6 9.% 18.1x na 2.5x 16.% na na 2.8% Total 261,85 Arithmetic average 99.2% 97.8% 96.9% 94.7% 93.6% 8.2% 13.8x 15% 2.x 16.5% 2.2x 18.5% 3.6% Weighted average 95.4% 96.7% 93.9% 94.% 9.4% 13.4% 15.5x 14% 2.3x 15.4% 2.1x 17.5% 3.1% Source: Reuters, Credit Suisse 12mth forward rolling forecasts (non-rated stocks use IBES consensus forecasts) Within Asia, the only market where the retail franchises get full credit for future earnings sustainability given the market structure is, in our view. PICC P&C's valuation is around 1.9x book value despite high-teen ROE generation as market profitability bottoms, with top-line growth of 15-2%. However, we believe the ese P&C insurers are getting little credit for their ability to further improve their returns (which is not difficult to understand, given the historical performance), despite being one of the most consolidated markets in the world. Asia P&C Insurance Sector 17

18 13 November 213 With the attractiveness of the retail market well understood, they are trading at fairly full valuations, with IAG (IAG.AX, A$6.12, NEUTRAL, TP A$6.) being our preferred domestic exposure best exposed to the themes discussed in this report. While IAG faces the prospect of a slowdown in premium rate increases, we expect further insurance margin improvement into FY14. In addition to underlying improvement, with a comprehensive reinsurance cover in place and a more conservative natural peril allowance, it is our view that the IAG has the most leverage to favourable general insurance conditions and less downside risk, justifying a P/E premium to its peers. QBE Insurance Group (QBE.AX, A$15.33, OUTPERFORM, TP A$17.25) remains our preferred pick in, with around 25% of earnings from Asia (5% outside ). While macro factors have deteriorated in recent months, the insurance environment remains favourable and in our view the margin improvement story remains in place for QBE. Key near-term drivers remain leverage to rising interest rates and a weakening AUD; medium-term drivers are a return to growth in the core insurance business, as well as expense management and loss ratio improvement, which should help justify its slight premium to US peers. Please see our recent report; Insurance: Back to a world of normal GWP growth, (6 pp), 3 September 213, for more detail on the n market. We see the medium-term prospects for this market as the best in Asia (albeit with nearerterm risk), with PICC P&C (2328.HK, HK$11.6, OUTPERFORM, TP HK$14.) valuation multiples attractive at the current stage of the cycle. We highlight that PICC Group (1339.HK, HK$3.63, NEUTRAL, TP HK$4.25) also provides a similar exposure, but includes an inferior life insurance franchise and does not trade at a sufficient discount to allow for this at this point in time. While the gradual deregulation of premium rates (de-tariffing) presents medium-term risk/uncertainties, it is unlikely to be introduced within the next three years. We argue that there are structural reasons for the margin sustainability for large insurers (PICC P&C, Ping An and Pacific) given their significant scale advantage. We highlight that the US market experience in auto insurance highlights that despite a very competitive market and an overall industry combined ratio of around 1%, the larger insurers have been able to generate quite healthy returns. Our preferred domestic n exposure is IAG We see medium-term prospects for the Chinese market as one of the best in Asia, with PICC P&C multiples still attractive Figure 24: US auto insurance combined ratios materially better for larger insurers ( ) Average Allstate Geico Chubb Progressive Travellers Industry Source: SNL Financials, Credit Suisse research As such, we believe downside earnings protection exists at around 15% ROE for larger insurers such as PICC P&C, as the smaller insurers will be unprofitable around these levels, needing the regulator to intervene to restore profitability. Longer term, we believe key features of the de-regulation proposals are positive for the industry (i.e. inflation protection through base rate being based on industry experience), with the regulator taking a pragmatic approach to the implementation. Asia P&C Insurance Sector 18

19 13 November 213 The P&C market has seen average growth of 21% p.a. over the past decade. Given low penetration of other classes outside motor and likely more regular price rises post motor de-tarrification, we expect growth rates in excess of 15% p.a. over the next decade, with PICC P&C roughly growing in line with the market. Please see our recent report; P&C Insurance Sector: Scale drives margin sustainability, (13pp), 9 August 213, for further detail on the market. : We expect the ese insurer results to continue to benefit from finally starting to put through risk-based pricing, with MS&AD Insurance Group Holdings (8725.T, 2,578, OUTPERFORM, TP 3,4) being our top pick. In contrast to corporate non-life insurance, consumer (retail)-oriented non-life insurance in is still bound by regulations. Insurers set net insurance premiums based on advisory rates, and their premiums have to be approved by the Financial Services Agency. However, automobile insurance has undergone a number of structural changes since end- 29, and profitability is improving. It is now possible to set insurance premiums in line with risk by age, and the discount system, which was excessively advantageous to policyholders compared with actual accident rates, has been revised. This started to have a visible impact from 4Q FY3/13, and loss ratios improved in 1-2Q FY3/14 owing to declines in small insurance claims. The sector is making rapid progress towards its goal of improving the combined ratio from around 1% to 11% in FY3/13 to 96% by FY3/16. MS&AD is our top pick, although all three major P&C insurers are making progress towards boosting margins on automobile insurance. Improvement in auto insurance margins in should have a bigger impact on MS&AD compared to Tokio Marine Holdings (8766.T, 3,29, NEUTRAL, TP 3,7), which has higher overseas profit exposure. The stock is also excessively discounted compared to Tokio Marine, in our view, which has slightly higher RoNAV. We expect NKSJ Holdings (863.T, 2,573, NEUTRAL, TP 2,7), which has a similarly low valuation to MS&AD, to post very low net profit for FY3/15, due to costs (of around 75 bn) arising from the merger scheduled for September 214 of Sompo Insurance and Nippon Koa Fire & Marine Insurance within the holding company. We look for NKSJ's profits to pick up from FY3/16. MS&AD is our preferred pick in the highly concentrated and improving ese P&C market Asia P&C Insurance Sector 19

20 13 November 213 Asia P&C Insurance Sector 2 Figure 25: Asian insurance Key valuation metrics EPS P / BV ROE P / NTA ROTE EV ROEV VNB Payout Div Yld Reporting Market Monthly Daily Monthly Price 52 Week 12mth 12mth Inv'ment Year Consensus PE (x) Growth (x) (%pa) (x) (%pa) P / EV (x) growth (%pa) VNB (x) growth ratio (%) (%pa) Price movement (%) Company Currency Cap Volume Volume Liquidity 12-Nov high/low Target Return Rating End PE (x)* 12mth forward diluted (Credit Suisse forecasts) 1wk 1mth 1qtr 1hy 1yr YTD US$m US$m US$m % local local % Dec AMP.AX AMP AUD 12, % % NTRL 31-Dec 14.7x 15.x 19% 1.7x 1 3.7x 24.5% 1.2x 7% 8.1% 7.4x 4% 94% 5.5% -2.5%.2% 1.3% -18.5% -.2% -4.6% CGF.AX Challenger AUD 2, % % OPFM 3-Jun 9.8x 9.5x 5% 1.4x 14.7% 1.8x 19.4% na na na na na 35% 3.8% -3.7% 8.4% 39.2% 4.8% 92.7% 71.5% TWR.AX Tower NZ NZD % % NTRL 3-Sep 12.3x 12.3x -37%.7x 5.6%.7x 6.%.4x 2.9% -75x 11% 51% 7.7% -1.9% -2.6% -4.4% 3.4% 2.3% 1.% IAG.AX IAG AUD 12, % % NTRL 3-Jun 13.3x 14.3x -8% 2.5x 18.4% 3.9x 27.5% na na na na na 7% 4.3% -.7% 3.6% 4.8% 3.6% 33.3% 29.9% QBE.AX QBE USD 18,94 1, % % OPFM 31-Dec 12.8x 15.1x 3% 1.4x 9.9% 2.4x 16.% na na na na na 6% 3.5% 4.4% 7.3% -1.4% -.5% 29.9% 4.6% SUN.AX Suncorp AUD 15, % % UPFM 3-Jun 12.9x 13.6x 62% 1.2x 8.7% 2.x 14.7% na na na na na 127% 6.2% -.5% 2.4% 7.9% 7.3% 42.4% 32.2% 63,979 4, % 11.3% 13.5x 14.2x 13% 1.6x 11.5% 3.4x 21.8%.8x 7% 5.5% -33.8x 8% 63% 4.3%.3% 3.9% 1.8%.6% 3.5% 28.3% SS Life (A) CNY 48, % % NTRL 31-Dec 11.8x 8.9x 55% 1.4x 16.2% 1.4x 16.3%.9x 13% 1.3% -1.7x 4% 35% 3.1%.5%.9% 1.2% -14.2% -2.8% -34.3% 6161.SS Pacific (A) CNY 17,834 1, % % OPFM 31-Dec 14.x 11.9x 46% 1.4x 11.8% 1.4x 12.%.9x 13% 7.8% -1.6x 14% 37% 2.9%.7% -3.4% 1.9% -6.7% -4.1% -23.2% SS New Life (A) CNY 7, % % NTRL 31-Dec 13.3x 12.6x 4% 1.7x 13.3% 1.7x 13.4% 1.x 12% 7.9% -.2x 6% 3% -2.% -2.7% -2.6% -4.9% -21.7% SS Ping An (A) CNY 29,36 4, % % OPFM 31-Dec 9.2x 9.2x 9% 1.5x 16.4% 1.8x 2.1%.8x 17% 8.2% -5.1x 15% 22% 2.4% 1.7% 2.7% 7.3% -4.3% -2.2% -17.5% 13,2 7, % 38.5% 12.1x 1.6x 37% 1.5x 14.4% 1.6x 15.4%.9x 14% 8.6% -2.2x 1% 31% 2.1%.8%.5% 2.7% -9.2% -11.4% -26.6% 1299.HK AIA USD 59,574 2, % % OPFM 3-Nov 17.1x 17.2x -3% 2.x 11.7% 2.1x 12.2% 1.6x 11% 9.5% 15.5x 18% 2% 1.3% -1.%.9% 6.1% 9.4% 25.7% 26.8% 945.HK Manulife CAD 4, % % OPFM 31-Dec 12.4x 15.7x -1% 1.5x 9.6% 2.x 12.6% 1.x na 6.1% -1.4x na 39% 2.8% 6.% 11.% 9.% 21.4% 53.5% 39.9% 2378.HK Prudential plc GBP 4, % OPFM 31-Dec 13.7x 13.2x 49% 2.4x 18.2% 2.8x 21.1% 1.2x na 9.1% 2.8x 16% 47% 2.6% -2.8% 6.4% 6.9% 9.5% 49.5% 37.6% 2628.HK Life (H) CNY 2,25 1, % % NTRL 31-Dec 14.x 1.6x 53% 1.7x 16.3% 1.7x 16.4% 1.1x 13% 1.4% 2.1x 3% 35% 2.6% -.7% 1.2% 5.9% -2.1% -8.7% -17.2% 261.HK Pacific (H) CNY 1, % % OPFM 31-Dec 16.8x 15.2x 45% 1.8x 11.9% 1.8x 12.1% 1.2x 13% 7.9% 4.4x 13% 37% 2.3% -.2% -2.7% 3.% -1.3% 13.4% -3.8% 966.HK Taiping HKD 4, % RSTR RSTR 31-Dec 14.2x 12.1x 58% 1.6x 12.8% 1.6x 13.3% 1.1x 27% 8.9% 1.7x 37% % 1.5% 19.7% 15.4% 8.6% 2.9% -13.2% 1336.HK New Life (H) CNY 3, % % NTRL 31-Dec 1.5x 1.x 4% 1.4x 13.3% 1.4x 13.7%.8x 12% 7.9% -3.7x 7% 3% 2.9% -.4%.9% 3.9% -17.6% -2.4% -22.9% 2318.HK Ping An (H) CNY 25,131 2, % % OPFM 31-Dec 11.8x 12.1x 9% 2.x 16.4% 2.4x 2.2% 1.x 17% 8.3%.x 15% 22% 1.8% 1.9% 6.9% 14.4% 3.2% 2.% -4.1% 1339.HK PICC Group CNY 19, % % NTRL 31-Dec 1.8x 9.6x 2% 1.4x 15.1% 1.5x 16.% 1.1x 16% 11.7% 3.4x -1% 19% 2.1% -1.6% -2.9% -1.4% -11.% 4.3% -7.2% 2328.HK PICC P&C CNY 15, % % OPFM 31-Dec 9.9x 1.6x -1% 1.9x 18.2% 1.9x 18.3% na na na na na 25% 2.3% -1.7% 4.1% 23.9% 27.% 26.8% 16.9% 98,516 9, % 2.9% 12.6x 11.5x 28% 1.7x 14.9% 1.8x 15.7% 1.x 16% 9.2% 1.3x 12% 24% 2.% -.7% 4.1% 14.% 9.3% 25.% 14.7% RLCP.BO Reliance Capital INR 1, % na na NR 31-Mar 11.6x 11.6x 3%.7x 5.7% na na na na na na na 31% 2.7% -9.% -2.% -.7% -3.6% -12.7% -28.3% MAXI.BO Max INR % % OPFM 31-Mar 1.8x 16.2x -4% 13.1x 9.5% 15.4x 95.% na na na na na 42%.3% -2.2% -.2% 2.8% -9.7% -23.4% -21.7% 2, % 32.8% 11.2x 13.9x -18% 6.9x 7.6% na na na na na na na 36% 1.5% -6.5% -1.3%.6% -5.9% -16.7% -25.8% 8686.T Aflac JPY 3, ,52 3,875-6,5 na na NR 31-Dec 1.5x 1.5x 6% 2.x 18.8% na na na na na na na 24% 2.3% 1.9% 4.3% 8.5% 2.1% 63.% 46.% 875.T Dai-Ichi Life JPY 14,134 1, % 1,42,864-1,656 2, % OPFM 31-Mar 29.1x 33.8x 15%.8x 2.5% 1.x 2.8%.4x 5% 1.1% -1.9x 3% 5% 1.4% 4.1% 5.7% 4.6% -6.6% 64.4% 18.4% 8729.T Sony Financial JPY 7, % 1,797 1,163-1,869 1,75 -.9% NTRL 31-Mar 18.5x 2.1x -2% 1.8x 9.2% 2.x 1.6x 4% 3.1% -8.9x 12% 31% 1.7%.6% 1.6% 5.5% 21.3% 31.2% 16.7% 8795.T T&D Holdings JPY 8, % 1,212,797-1,444 1, % NTRL 31-Mar 11.9x 11.9x 3%.8x 6.6%.8x 6.8%.4x 5% 3.7% -14.7x 7% 23% 1.9% 5.4% 1.3% -6.2% -5.5% 51.3% 16.4% 8725.T MS&AD Insurance JPY 16, % 2,578 1,32-3,75 3,4 34.1% OPFM 31-Mar 12.5x 9.7x 33%.7x 7.3%.8x 7.9% na na na na na 28% 2.2% 3.6% 2.7% -1.9% -9.4% 98.% 51.2% 863.T NKSJ Holdings JPY 1, % 2,573 1,398-2,73 2,7 7.3% NTRL 31-Mar 29.7x 33.2x -23%.9x 2.6%.9x 2.8% na na na na na 59% 2.3% 3.4% 4.1% 4.8% -5.% 84.% 4.2% 8766.T Tokio Marine JPY 25,344 1, % 3,29 1,979-3,57 3,7 14.4% NTRL 31-Mar 13.6x 13.x 17% 1.x 7.6% 1.1x 8.8% na na na na na 27% 1.9% 4.6% 5.1% 6.5% -.8% 66.1% 38.1% 82,22 6, % 22.3% 19.2x 2.3x 7% 1.x 6.% 1.1x 6.5%.5x 4.8% 2.6% -11.5x 7% 36% 1.9% 3.9% 3.9% 2.9% -2.3% 69.5% 33.3% Korea 3283.KS Samsung Life KRW 19, % 12, 92,-11, na na NR 31-Mar 17.5x 17.5x 17%.9x 5.% 1.x 5.5%.7x 1% 3.8% -8.9x 4% 25% 1.6% -.5% -1.9% -2.9% -3.3% 1.2% 8.2% 8835.KS Hanwha Life KRW 5, % 6,8 6,29-8,15 na na NR 31-Mar 9.9x 9.9x 11%.7x 7.5%.7x 7.5%.6x 4% 6.6% -5.9x 9% 38% 3.%.6% 2.1% -1.% -7.5% -12.4% 8264.KS Tong Yang Life KRW 1, % 11,15 9,31-11,95 na na NR 31-Mar 7.6x 7.6x.7x 9.5%.7x 9.5% na na na na na 29% 3.8% 6.2% 4.2% 11.5% -3.5% 5.7% 583.KS Dongbu KRW 3, % 49,5 41,25-5,5 44, -7.2% NTRL 31-Mar 6.7x 7.4x 16%.9x 13.8% 1.x 13.%.6x 1% 8.6% -2.7x 5% 21% 3.1%.6% 7.8%.6% 9.7% -3.8% 6.7% 145.KS Hyundai M&F KRW 2, % 3,15 27,95-36, 32, 1.4% NTRL 31-Mar 6.2x 6.6x 19%.9x 15.2%.9x 13.3%.5x 16% 7.1% -4.5x 25% 22% 4.2% -2.4% 4.% -2.3% -1.5% -13.2% -9.5% 255.KS LIG Insurance KRW 1, % 26,8 21,15-27,8 na na NR 31-Mar 5.8x 5.8x.8x 13.7%.8x 13.7% na na na na na 21% 3.7%.4% 6.6% 3.1% 24.1% -3.6% 3.7% 6.KS Meritz F&M KRW 1, % 14,6 11,1-14,95 na na NR 31-Mar 7.8x 7.8x 1.1x 14.7% 1.1x 14.7% na na na na na 24% 3.% -1.% 7.4% 7.% 24.3% 5.% 3.2% 81.KS Samsung F&M KRW 11, % 253, 26,-261, 25,.8% NTRL 31-Mar 12.2x 1.9x 19% 1.1x 9.4% 1.x 9.5%.6x 5.8% -8.4x 19% 23% 2.% 2.% 1.2% 3.5% 15.% 19.9% 16.1% 369.KS Korean Re KRW 1, % 11,8 9,98-12,8 na na NR 31-Mar 6.4x 6.4x 12%.7x 11.4% na na na na na na na 17% 3.5%.4% 1.3%.4% 4.9% 13.5% 2.6% 45,498 1, % 1.3% 9.2x 9.2x 16%.9x 11.1%.9x 1.8%.6x 1% 6.4% -6.1x 12% 24% 3.1%.2% 1.%.3% 4.7% 7.6% 6.3% South East Asia GELA.SI Great Eastern SGD 6, % % OPFM 31-Dec 11.9x 11.6x -4% 1.5x 12.8% 1.5x 12.9%.9x 9% 8.% -1.8x 12% 45% 4.3% -.6% 3.7% 3.1% -4.5% 17.6% 14.2% LOND.KL Lonpac Insurance MYR 1, % na na NR 31-Dec 17.6x 17.6x na 2.9x 16.7% 2.9x 16.7% na na na na na 95% 5.4% -.6% 1.8% 9.7% 13.4% 2.3% 14.% TUNE.KL Tune Insurance MYR % na na NR 31-Dec 17.4x 17.4x na 3.6x 2.8% 3.6x 2.8% na na na na na 4% 2.3% -7.1% -9.8% 36.3% 36.3% PNLF.JK Panin Financial IDR % na na NR 31-Dec 4.5x 4.5x na.7x 14.1%.7x 14.1% na na na na na % -3.6% 1.6% -5.% -28.3% 41.8% 4.7% SMMA.JK Sinar Mas IDR 2, % 3,8 3,65-4,95 na na NR 31-Dec 14.6x 14.6x na 2.2x 14.9% na na na na na na na %.7% 2.7% -11.1% -16.9% -15.6% -16.9% BLA.BK Bangkok Life THB 2, % % UPFM 31-Dec 13.9x 14.2x 8% 2.5x 18.% 2.5x 17.9% 1.7x 18% 11.9% 12.6x 12% 21% 1.7% -6.9% -6.9% -17.1% 39.9% -2.8% BKI.BK Bangkok Insurance THB % na na NR 31-Dec 24.7x 24.7x na 1.3x 3.4% na na na na na na na 8% 3.2%.3% -2.4% -4.9% -14.9% 36.4% 27.1% SCBLIF.BK SCB Life THB 2, % 1, na na NR 31-Dec 17.7x 17.7x na 5.9x 33.3% na na na na na na na 8% 4.5% -.2% -4.2% -7.9% -13.3% 39.3% 34.1% THRE.BK Thai Re THB % na na NR 31-Dec 18.5x 18.5x na 4.x 21.6% na na na na na na na % 1.% -7.9% -19.2% -32.3%.5% -2.5% 17, % 14.2% 13.8x 13.8x 2% 2.x 14.1% 2.x 15.9% 1.3x 13% 9.9% 5.4x 12% 38% 2.7% -.3% -.2% -3.1% -8.3% 21.4% 13.5% 2882.TW Cathay FHC TWD 17, % % NTRL 31-Dec 16.9x 16.6x 9% 1.9x 11.2% 1.9x 11.2%.8x 12% 4.7% -3.x % 15%.9% 1.1% 1.3% 1.9% 16.7% 57.4% 47.7% 2823.TW Life TW TWD 2, % % OPFM 31-Dec 13.9x 11.7x 12% 1.1x 9.2% 1.1x 9.2%.6x 13% 5.4% -3.2x 1% 15% 1.7% -2.1% -3.8% 5.1% 4.2% 33.9% 2.1% 2881.TW Fubon FHC TWD 14, % % NTRL 31-Dec 11.7x 12.x 5% 1.1x 9.3% 1.1x 9.3% 1.4x 17% 11.5% 3.4x 5% 33% 2.7%.5% -4.7% -.7% -.1% 29.4% 17.4% 2888.TW Shin Kong FHC TWD 3, % % UPFM 31-Dec 1.5x 1.8x -35%.9x 8.4%.9x 8.4%.4x 9% 3.5% -11.x % %.5% -4.3% 3.1% 3.8% 33.6% 26.6% 37,431 1, % 7.4% 12.9x 12.5x -3% 1.2x 9.5% 1.2x 9.5%.8x 13% 6.2% -3.5x 4% 13% 1.%.6% -1.8% 5.4% 8.3% 42.9% 32.3% Total NJA insurance 368,793 24,218 1, % 21% 15.7x 15.1x 23% 1.9x 15.6% 2.2x 17.7% 1.x 12% 8.2% 1.5x 9% 42% 3.%.1% 1.8% 5.3% 1.% 15.% 6.% Total Asia insurance 45,995 3,624 1, % 28% 16.9x 16.6x 21% 1.9x 15.2% 2.x 15.7%.9x 1% 6.9%.4x 8% 42% 3.%.9% 2.5% 5.4% 1.7% 29.2% 14.1% Source: Reuters, Credit Suisse (*IBES consensus) 12mth forward rolling forecasts (non-rated stocks use consensus forecasts)

21 13 November 213 Asia P&C Insurance Sector 21 Figure 26: Asian P&C insurance Key valuation metrics Reporting Market Monthly Daily Monthly Price 52 Week 12mth 12mth Inv'ment Year Combined rato (%) Consensus PE (x) EPS Growth P / BV (x) ROE (%pa) P / NTA (x) ROTE (%pa) Div Yld (%pa) Company %P&C Currency Cap Volume Volume Liquidity 12-Nov high/low Target Return Rating End PE (x)* 12mth forward diluted (Credit Suisse forecasts) US$m US$m US$m % local local % IAG.AX IAG 1% AUD 12, % % NTRL 3-Jun 11% 98% 11% 86% 91% 13.3x 14.3x -8% 2.5x 18.4% 3.9x 27.5% 4.3% QBE.AX QBE 1% USD 18,94 1, % % OPFM 31-Dec 9% 98% 11% 91% 9% 12.8x 15.1x 3% 1.4x 9.9% 2.4x 16.% 3.5% SUN.AX Suncorp 68% AUD 15, % % UPFM 3-Jun 1% 12% 99% 94% 92% 12.9x 13.6x 62% 1.2x 8.7% 2.x 14.7% 6.2% 47,116 3, % 6.2% 13.x 14.3x 28% 1.7x 12.3% 2.8x 19.4% 4.7% 261.HK Pacific (H) 27% CNY 21, % % OPFM 31-Dec 94% 93% 96% 99% 97% 16.8x 15.2x 45% 1.8x 11.9% 1.8x 12.1% 2.3% 966.HK Taiping 36% HKD 2, % RSTR RSTR 31-Dec 13% 11% 1% 99% 98% 14.2x 12.1x 58% 1.6x 12.8% 1.6x 13.3% 2318.HK Ping An (H) 12% CNY 42,814 2, % % OPFM 31-Dec 91% 94% 98% 98% 98% 11.8x 12.1x 9% 2.x 16.4% 2.4x 2.2% 1.8% 2328.HK PICC P&C 1% CNY 15, % % OPFM 31-Dec 98% 94% 95% 95% 97% 9.9x 1.6x -1% 1.9x 18.2% 1.9x 18.3% 2.3% 83,562 4, % 27.9% 13.2x 12.5x 25% 1.8x 14.8% 2.x 15.9% 1.6% 8725.T MS&AD Insurance JPY 16, % 2,578 1,32-3,75 3,4 34.1% OPFM 31-Mar 13% 12% 115% 15% 98% 12.5x 12.5x 14%.7x 5.6% 1.1x 6.5% 2.2% 863.T NKSJ Holdings JPY 1, % 2,573 1,398-2,73 2,7 7.3% NTRL 31-Mar 17% 16% 116% 15% 99% 29.7x 29.7x -15%.8x 2.6%.x 2.4% 8766.T Tokio Marine JPY 25,344 1, % 3,29 1,979-3,57 3,7 14.4% NTRL 31-Mar 97% 96% 17% 96% 9% 13.6x 13.6x 16% 1.x 7.1% 1.x 5.5% 1.9% 52,33 3, % 18.6x 18.6x.8x 5.1% 2.2% Korea 583.KS Dongbu KRW 3, % 49,5 41,25-5,5 44, -7.2% NTRL 31-Mar 113% 18% 1% 11% 12% 6.7x 6.7x 16%.9x 13.8% 1.x 13.% 3.1% 145.KS Hyundai M&F KRW 2, % 3,15 27,95-36, 32, 1.4% NTRL 31-Mar 99% 97% 1% 13% 13% 6.2x 6.2x 19%.9x 15.2%.9x 13.3% 4.2% 255.KS LIG Insurance KRW 1, % 26,8 21,15-27,8 na na NR 31-Mar na na na na na 5.8x 5.8x.8x 13.7% na na 3.7% 6.KS Meritz F&M KRW 1, % 14,6 11,1-14,95 na na NR 31-Mar na na na na na 7.8x 7.8x 1.1x 14.7% na na 3.% 81.KS Samsung F&M KRW 11, % 253, 26,-261, 25,.8% NTRL 31-Mar 95% 92% 89% 84% 85% 12.2x 12.2x 19% 1.1x 9.4% 1.x 9.5% 2.% 369.KS Korean Re KRW 1, % 11,8 9,98-12,8 na na NR 31-Mar 96% 99% 13% 11% 99% 6.4x 6.4x 12%.7x 11.4%.8x 12.5% 3.5% 19, % 7.7x 7.7x 1.x 13.3% 3.2% South East Asia AINM.KL Allianz 5% MYR % na na NR 31-Dec 9% 9% 88% na na 13.6x 13.6x 19%.9x 6.6% na na.8% LOND.KL Lonpac Insurance 1% MYR 1, % na na NR 31-Dec 88% 88% 17.6x 17.6x 3.1x 17.6% na na 5.4% TUNE.KL Tune Insurance 1% MYR % na na NR 31-Dec 98% 94% na na na 17.4x 17.4x 2.1x 12.2% na na 2.3% PNIN.JK Panin Insurance IDR % na na NR 31-Dec na na na na na 3.8x 3.8x na.7x 14.7% na na NRCP.PS Ayudha 1% THB 18..2% na na NR 31-Dec 97% 152% na na na 22.7x 22.7x na 1.2x 5.3% na na 1.7% BKI.BK Bangkok Insurance 1% THB % na na NR 31-Dec 94% 11% 116% na na 24.7x 24.7x na 1.3x 3.4% na na 3.2% TIP.BK Dhipaya 1% THB % na na NR 31-Dec 86% 94% 96% na na 24.2x 24.2x na 2.4x 7.4% na na 3.4% MTI.BK Muang Thai 1% THB % na na NR 31-Dec 96% 11% 132% na na 13.7x 13.7x na 1.6x 11.6% na na SMK.BK Syn Mon Kong 1% THB % na na NR 31-Dec 93% 92% % na na 12.3x 12.3x na 2.6x 21.4% na na 2.8% MNRB.KL Re 1% MYR % na na NR 31-Dec 98% 94% na na na 11.5x 11.5x na 2.1x 18.4% na na SPRS.SI Re 1% SGD % na na NR 31-Dec 98% 132% na na na 9.2x 9.2x na.8x 8.8% na na 4.6% THRE.BK Thai Re 1% THB % na na NR 31-Dec 92% 147% 2.1x na na 12.2x 18.5x 9% 4.x 32.8% na na NRCP.PS PhilNaRe 1% PHP 71 na na na na na NR 31-Dec 157% 133% na na na 8.2x 8.2x na.5x 6.1% na na 4, % 14.7x 15.2x 54% 1.8x 12.8% na na 1.9% 2851.TW Central Re 1% TWD % na na NR 31-Dec % Total ASIA insurance 155,263 8, % Arithmetic average 13.2x 13.5x 23% 1.5x 12.3% 1.6x 13.% 2.4% Weighted average 18.2x 13.3x 21% 1.7x 14.2% 2.1x 16.6% 2.9% Source: Reuters, Credit Suisse (*IBES consensus) 12mth forward rolling forecasts (non-rated stocks use consensus forecasts)

22 13 November 213 Asia insurance market overview By examining the Asia P&C insurance market, we have classified the region into four subregions:, Developed, Developing and Emerging Asia, representing the various stages of economic development they are currently in, and more specifically, their stages of insurance penetration and density. Developed Asia. More developed economies, with high insurance penetration rates (premiums as a % of GDP) and medium-to-high insurance density (premium per capita). These include,, South Korea,, and NZ. Developing Asia. Developing Asian economies, which generally have low-to-medium insurance density and low insurance penetration rates. These include, and. Emerging Asia. Emerging less developed economies, which generally have low insurance density and also low insurance penetration rates. These include,, the and.. One of the most developed economies in the region with a higher per capita GDP, insurance penetration and insurance density. For materiality reasons, we have defined non- Asia (NJA) as the 14 countries above, which, when combined with, represent over 93% of all Asian P&C premiums. Swiss Re data highlight that these 14 countries wrote a combined P&C insurance premium of US$48 bn in 212, representing around 21% of global premiums. In 212, the non- Asia-Pacific market was more than twice the size of, whereas it was around half of the ese market in 22. Given this strong growth rate, the NJA market has doubled its global share from representing 6.5% of total global P&C insurance premiums in 21 to 13.9% in 212. Figure 27: Asia was 14.9% of global premiums in 22 Global P&C insurance premiums (% by region) Figure 28: up to 2.5% in 212 due to strong NJA growth Global P&C insurance premiums (% by region) 8.4% NJA 6.5% Middle East.3% FY2 NJA 13.9% Middle East 1.6% Central/East Europe 1.6% North America 5.4% 6.5% Central/East Europe 4.% North America 38.9% Western Europe 3 Latin America 2.3% Western Europe 29.% Latin America 4.9% Source: Swiss Re Source: Swiss Re We also note that the growth rate of developed NJA and has been materially lower than the rest of the NJA region. Figure 29: P&C insurance premium growth rates (% p.a.) to year CAGR (%) 5-year CAGR (%) Emerging 14.3% 12.6% Developing 19.4% 23.6% Developed NJA 11.7% 1.5% 3.5% 6.2% Total Asia 9.6% 11.8% Source: Swiss Re Asia P&C Insurance Sector 22

23 13 November 213 Company positioning by region Figure 3: Asia P&C company positioning Asia P&C insurance premiums (US$ mn) & market share (%) 212 Figure 31: NJA P&C regional company positioning Asia regional company positioning (US$ mn) , Tier 1 Tier 2 Tier 3 12, Tier 1 Tier 2 Tier 3 3, 1, 25, 8, 2, 15, 6, 1, 4, 5, 2, Generali Fubon Taiping Zurich ACE AXA Allianz QBE AIG SUN LIG Dogbu Hyundai IAG Pacific Samsung Ping An NKSJ Tokio Marine PICC MS&AD Korea IAG QBE Allianz AIG AXA ACE Zurich MS&AD Taiping Tokio Marine NKSJ Generali Korea NZ Source: OCI, MAS, KIDI, TII, APRA, ICNZ, ISI, CIRC, OIC, Bank Negara, IRDA, BAPEPAMLK, PIC, AVI Figure 32: Asia by development categorisation Korea Developed Developing Emerging Source: Credit Suisse classification Asia P&C Insurance Sector 23

24 13 November 213 Asian insurance market ranking By examining the Asian P&C insurance market individual profiles, we have rated the key market characteristics of each country by the following metrics to derive an overall view of the attractiveness of each market for the listed P&C insurers and distinguish between: We have examined market attractiveness by considering various metrics Size (large/medium/small): Key determinant of the market opportunity of the P&C insurers (especially regional insurers); Growth (very high/high/medium/low): Growth profile is based on the past ten-year growth and our view of growth over the next decade or so; Market concentration (concentrated/not concentrated): As products are often commoditised, concentrated markets often lead to more rational and profitable markets, with larger insurers often also having substantial scale advantage; Market profitability (decent/mediocre/loss-making): We have examined historical profitability of each market and as a basis of determining whether future sustained profitability is likely for each market; Business mix (diversified / non-diversified): We see a lack of diversification (i.e. high skew of motor) as positive for the long-term growth potential; Ownership restrictions / ease of access (for non-domestic insurers): Whether foreign insurers can obtain full ownership, operate on a level-playing field with domestic insurers and the ability to enter markets; and Regulation / solvency regime (with RBC framework or not): Whether a country has adopted a risk-based capital solvency system, which is often an indication of regulatory development. Figure 33: Asia P&C insurance landscape is varied and evolving Market size, growth, concentration, profitability and solvency regime by country Market Size Growth Concentrated Profitable Busimess mix Ease of access Tariffication? RBC? Large Low Small Low Medium Medium South Korea Large Medium Medium Low Large Medium Medium Low Large Very High Medium High Small High Medium Very High Small Very High Small High Small Very High Source: OCI, MAS, KIDI, TII, APRA, ICNZ, ISI, CIRC, OIC, Bank Negara, IRDA, BAPEPAMLK, PIC, AVI, Company data, Credit Suisse research Based on the above metrics, we have analysed the attractiveness of each country and categorised them into the following three groups: Attractive:, Moderate:,,,,, Not-so-good:, South Korea,,, the Asia P&C Insurance Sector 24

25 13 November 213 Asia P&C Insurance Sector 25 Figure 34: Asian P&C insurance Market size, growth, concentration and profitability (29-12) GWP (US $mn) Growth Rate Market Swiss Re Data (USD, CAGR %pa) Concentration Combined ratio % Solvency Likely RBC Country year 1-year Top 5 Top yr Avg Motor Regime Timeframe 129,74 117, % 3.5% 95% 98% 14% 115% 13% 14% 17% 49% RBC 3,738 3,8 8.6% 4.8% 31% 46% 91% 88% 88% 87% 89% 11% Solvency I 216 9,823 6, % 12.5% 5% 67% 88% 91% 89% 89% 89% 35% RBC South Korea 6,376 42, % 13.8% 79% 96% 11% 11% 11% 12% 11% 56% RBC 15,23 12,55 7.3% 6.7% 61% 87% 92% 91% 99% 97% 95% 5% RBC 42,525 34,68 9.1% 12.% 67% 76% 94% 11% 95% 87% 94% 37% RBC 8,811 7, % 12.2% 76% >9% na 146% 11% 98% 115% 3% RBC 87,319 71, % 2.2% 74% 83% 94% 92% 96% 11% 96% 76% Solvency I ,177 5, % 17.9% 42% 57% na 217% 98% 97% 137% 74% RBC 5,315 4, % 1.5% 47% 67% 81% 83% 86% 85% 84% 47% RBC 13,142 1, % 15.4% 68% 87% 122% 132% 123% 123% 125% 46% Solvency I 215 ~ 216 4,615 3, % 12.4% 38% 54% na na 92% 92% 92% 32% RBC 1, % 1 42% 62% 9% 9% 95% 12% 94% 32% RBC 1, % 18.5% 7% na na na na na na 28% Solvency I Not in the near future 389, , % 9.6% 78% 86% 94% 15% 1% 1% 11% 54% Source: OCI, MAS, KIDI, TII, APRA, ICNZ, ISI, IRI, CIRC, OIC, Bank Negara, IRDA, BAPEPAMLK, PIC, AVI, Company data, Credit Suisse estimates

26 P&C insurance premiums (US$mn) P&C insurance premiums (US$mn) P&C insurance premiums (US$mn) % of global insurance premiums 13 November 213 Criteria #1: Size The Asia property and casualty (P&C) market has been growing rapidly over the past decade, with total GWP rising from US$164 bn in 22 to US$47 bn in 212. Its global share grew from 15.5% in 1998 to 2.5% in 212. Figure 35: Asia P&C premiums totalled US$47 bn Asia P&C insurance premiums (US$ mn), Figure 36: is still the largest, followed by Asia P&C insurance premiums by country (%), , 375, 3, 225, 15, 1yr CAGR (%pa) = 9.6%pa (14.5% excluding ) Growth rate (%pa) 8.7% 7.3% 1.1% 1.7% 2.8% 13.5% 1.6% 8.7% 2.9% 4.6% -8.4% 18.4% 17.1% 3% 8.1% 25% 2% 15% 1% 25.6% 1.3% 1.9% 3.2% 1.1%.3%.3% 31.8% 75, - 5% % Developed Developing Emerging Global share (%) 2.2% 1.4% 3.7% South Korea 14.8% 2.4%.9% Source: Swiss Re, Credit Suisse research remains the largest P&C market in Asia with a gross written premium (GWP) of US$13 bn at the end of 212, which makes up 32% of the total Asian market. After years of rapid growth, is now the second largest market in Asia, accounting for 26% of the Asian market, followed by South Korea (15%) and (1%). Medium-sized markets (with a GWP between US$5 bn and US$15 bn) include,, and, with the remainder considered to be small markets. Figure 37: Asia now ~6% of the US market Asia and USA P&C insurance market size, , Aisa 1yr CAGR (%pa) = 9.6%pa 7, USA 1yr CAGR (%pa) = 3.%pa 6, 5, 4, 3, 2, 1, Figure 38: with almost as big as and P&C insurance market size, , 1yr CAGR (%pa) = 2.2%pa 12, 1yr CAGR (%pa) = 3.5%pa 1, 8, 6, 4, 2, USA Asia Source: Swiss Re, Credit Suisse research As highlighted in Figure 38, 's strong growth profile over the past decade has meant that it is already 8% the size of the ese market, compared with just 18% a decade ago. Asia P&C Insurance Sector 26

27 P&C insurance premiums (US$mn) 13 November 213 Figure 39: is still the biggest market in Asia, but is catching up quickly Asia P&C insurance premiums by country (%), 22 and , 3.5% Developed Developing Emerging 12, 1, % 8, 6, 13.8% 1yr CAGR (%pa) 4, 12.% 2, - 4.8% 12.5% 6.7% 12.2% 17.9% 1.5% 15.4% 12.4% % South Korea Source: Credit Suisse classification This has meant that s share shrank from 56% of the Asian P&C market in 22 to 32% in 212. On the other hand, grew from representing 1% of the Asian P&C market in 21 to 26% in 212. Figure 4: Asia country mix then (22) Asia P&C insurance country mix (%), 22 Figure 41: and now (212) Asia P&C insurance country mix (%), 212 1% 1% 1% 1.9%.9% % FY2 1.3% 1.9% 3.2% 1.1%.3%.3% 31.8% 2% 8.4% 5% South Korea 1% 2% 2% 56% 25.6% 2.2% 1.4% 3.7% South Korea 14.8% 2.4%.9% Source: Swiss Re, Credit Suisse research Asia P&C Insurance Sector 27

28 P&C insurance premium growth (%pa) 13 November 213 Criteria #2: Growth In USD terms, the Asia P&C market has been growing at a pace of 9.6% p.a. over the past decade (14.5% p.a. excluding ). We highlight that growth rates within Asia differ materially by country, with the more mature countries growth rates tend to be slower and the less developed countries growing at much higher rates. has the highest growth rate over the past decade with a tenyear CAGR of 2.2% Growth rates are higher outside developed Asia Figure 42: Asia ten-year growth rate is 9.6% Global P&C insurance premiums (% by country) Figure 43: Developing and emerging Asia growth faster Five- and ten-year CAGR (in US$ % p.a.) NJA 13.9% Middle East 1.6% 35% 3% Developed Developing Emerging 1yr CAGR 5yr CAGR 25% 6.5% Central/East Europe 4.% North America 38.9% 2% 15% 1% 5% Western Europe 29.% Latin America 4.9% % South Korea Source: Swiss Re, Credit Suisse research Premium growth by country/region We note that growth rates within Asia differ materially by country, with the more mature countries growth rates tend to be slower and the less developed countries growing at much higher rates as highlighted below. Given their population and economy size, has been the largest emerging P&C insurance markets over the past decade, as highlighted below. Developing Asia delivered the strongest growth attributed to Figure 44: Asian giants awakening Asia P&C insurance premiums (US$ mn) and five-, ten-year CAGR (% p.a.) Asia 5yr CAGR 1yr CAGR Developed NJA Developing NJA Emerging NJA % 5% 1% 15% 2% 25% 3% Source: Swiss Re, Credit Suisse research Asia P&C Insurance Sector 28

29 P&C insurance premiums / capita (US$) P&C insurance premiums / capita (US$) 13 November 213 Insurance density by country/region Insurance density is defined as the average P&C insurance premium per capita. This measure allows some assessment of potential saturation of premiums per person. We note that this measure can be distorted by the type of insurance business sold in various countries. However, we note that the insurance density in Asia is significantly below that of the more developed markets, as shown below. Figure 45: Asian insurance density is well below that of developed markets Global insurance density (premium per capita US$ and ten-year CAGR) 2,5 2, 2.1% 1yr CAGR (%pa) 8.8% Asia insurance premium density remains well below that of the developed world 1,5 2.6% 6.5% 5.4% 1, 4.3% 3.6% 5 8.4% 13.2% - USA Canada UK France Germany Italy Asia NJA FY2 Source: Swiss Re We highlight that insurance density increases with wealth, with the real growth opportunity residing in developing and emerging Asia. Figure 46: with real opportunity in developing and emerging markets Asia P&C Insurance density (premium per capita US$ and ten-year CAGR) 2,5 Developed Developing Emerging The real growth opportunity lies in developing and emerging Asia 2, 1.2% 1.8% FY2 1yr CAGR (%pa) 1,5 1, 3.6% 13.3% 5 4.2% 6.3% 19.4% 16.8% 8.7% 13.4% 11.3% 7.7% 17.2% - South Korea Source: Swiss Re Asia P&C Insurance Sector 29

30 Premium per capita (US$) Premium per capita (US$) Premium per capita (US$) 13 November 213 GDP per capita: Entering the sweet spot While historical growth rates from Asia have been strong, we note that insurance density (premium per capita) and insurance penetration (premium as a percentage of GDP) remain very low in much of the developing and emerging Asia, as highlighted below. Figure 47: Insurance density remains low in developing and emerging Asia P&C insurance premium per capita versus GDP per capita (US$) 212 2,5 2, USA Canada Non-developed Asian GDP and insurance per capita have substantial upside over the next few decades 1,5 South Korea UK Germany France Developed Asia 1, 5 Italy Growth potential - 1, 2, 3, 4, 5, 6, 7, 8, Source: Swiss Re, Credit Suisse research GDP per capita (US$) As such, we are of the view that as these countries will continue to mature and their GDP per capita rises, their insurance density (premiums per capita) will also increase substantially. We highlight the development of Developed Asia over the past decade in Figure 48 below, noting that its starting point has not yet been achieved by Developing Asia. Figure 48: Developed Asia past the sweet spot P&C insurance premium versus GDP per capita (US$) ,5 Figure 49: but Developing Asia has a long way to go P&C insurance premium versus GDP per capita (US$) 2,5 2, 2, 1,5 1, , 1, 15, 2, 25, 3, 35, 4, 45, 5, GDP per capita (US$) 1,5 1, 5 Growth potential , 1, 15, 2, 25, 3, 35, 4, 45, 5, GDP per capita (US$) Source for both Figures: Swiss Re, Credit Suisse research Asia P&C Insurance Sector 3

31 P&C insurance premiums / GDP (%) P&C insurance premiums / GDP (%) 13 November 213 Insurance penetration by country/ region Insurance penetration is defined as the life insurance premium as a percentage of the GDP. This measure allows some assessment of potential saturation of insurance premiums per country. Figure 5: Asia insurance penetration behind that of global mature economies P&C insurance premiums / GDP (%) 6.% 5.% 4.5% 4.3% Asia insurance premium penetration is behind that of developed markets 4.% 3.9% 3.6% 3.7% 3.% 2.% 2.5% 2.3% 1.9% 1.8% 1.% USA Canada UK France Germany Italy Asia NJA FY2 Source: Swiss Re We note that while Asia appears to be slightly behind developed markets, we note this impression is misleading, since developed Asia significantly distorts the average, with developing and emerging Asia in fact having very low penetration rates. Figure 51: and some way to go in non-developed Asia P&C insurance premiums / GDP (%) 6.% 5.% Developed Developing Emerging FY2 although distorted by high penetration in developed Asia and very low penetration in developing and emerging Asia 4.% 3.% 2.% 1.% South Korea Source: Company data, Credit Suisse research Asia P&C Insurance Sector 31

32 P&C insurance premiums / GDP (%) P&C insurance premiums / GDP (%) P&C insurance premiums / capita (US$) P&C insurance premiums / capita (US$) P&C insurance premiums (US$mn) P&C insurance premiums (US$mn) 13 November 213 Global/Asia P&C insurance growth, density and penetration rates Figure 52: Asia ten-year growth rate at 9.6% p.a Global P&C insurance premiums (% by country) 8, 7, 6, 3.% 1yr CAGR (%pa) Figure 53: with being the main driver Asia P&C insurance premiums (% by country) 14, 12, 1, 3.5% FY2 Developed Developing Emerging 2.2% 5, 4, 9.6% 8, 6, 13.8% 1yr CAGR (%pa) 3, 14.5% 4, 12.% 2, 1, - 5.3% 3.5% 3.2% 7.6% 9.8% 4.9% USA Canada UK France Germany Italy Asia NJA FY2 2, - 4.8% 12.5% South Korea 6.7% 12.2% 17.9% 1.5% 15.4% 12.4% % Figure 54: Asia insurance density remains low Global P&C insurance density (premium per capita US$) Figure 55: with opportunity in non-developed Asia Asia P&C insurance density (premium per capita US$) 2,5 2, 1,5 1, 5 2.1% 1yr CAGR (%pa) 8.8% 2.6% 6.5% 5.4% 4.3% 3.6% 2,5 2, 1,5 1, 5 3.6% Developed Developing Emerging FY2 1.2% 1.8% 1yr CAGR (%pa) 13.3% 6.3% 4.2% - 8.4% 13.2% USA Canada UK France Germany Italy Asia NJA FY2 - South Korea 19.4% 16.8% 8.7% 13.4% 11.3% 7.7% 17.2% Figure 56: Asia insurance penetration also behind Global P&C insurance penetration (premium as a % of GDP) 6.% Figure 57: due to non-developed Asia Asia P&C insurance penetration (premium as a % of GDP) 6.% Developed Developing Emerging 5.% 4.5% 4.3% 5.% FY2 4.% 3.9% 3.6% 3.7% 4.% 3.% 2.% 2.5% 2.3% 1.9% 1.8% 3.% 2.% 1.% 1.% USA Canada UK France Germany Italy Asia NJA FY2 South Korea Source for Figures 4-45: Swiss Re, Wefa, Credit Suisse research Asia P&C Insurance Sector 32

33 13 November 213 Criteria #3: Market concentration The developed Asian P&C markets are generally quite concentrated (with the Top 5 insurers jointly constituting more than 5% of the market share) except for the market which is highly competitive and fragmented. Within the developing and emerging Asian markets,, and are the most concentrated, with Korea and being the most concentrated markets. In general, the smaller markets tend to be more fragmented. is the most fragmented market in Asia. and Korea are the most concentrated markets in Asia Figure 58: Market concentration varies across Asia Top 5 insurers market share (%), 212 1% Developed Developing Emerging 9% Top 5 market share (%) 8% 7% 6% 5% 4% 3% Figure 59: with the most concentrated Top 1 insurers market share (%), 212 1% Developed Developing Emerging 9% Top 1 market share % 8% 7% 6% 5% 4% 3% 2% South Korea 2% South Korea Source: Swiss Re, Credit Suisse research While the n market does not appear overly concentrated, it does have a very concentrated retail market (voluntary motor insurance, CTP and home insurance). In summary, Very concentrated:, Korea Concentrated:, n (retail), and Moderate: Fragmented:,,,, and. Asia P&C Insurance Sector 33

34 13 November 213 Criteria #4: Profitability Profitable underwriting and focus on margins (as opposed to market share) by the majority of the market has a key challenge for many Asian P&C markers. Underwriting profit (a combined ratio of less than 1%) has been a problem for P&C insurers in,, Korea and, mainly due to intense competition and in some cases regulatory constraints (such as price tariffs). has suffered from a weak price discipline among the larger domestic insurers, and Korea from political pressure (with larger insures generating their profits in other business lines), while 's issues have been partially regulatory, but some of these issues are starting to be addressed as discussed earlier. Figure 6: Asian P&C insurance market combined ratios (%) Country Top 5 (%) yr Avg 95% 14% 115% 13% 14% 17% 31% 91% 88% 88% 87% 89% 5% 88% 91% 89% 89% 89% Korea 79% 11% 11% 11% 12% 11% 61% 92% 91% 99% 97% 95% 67% 94% 11% 95% 87% 94% 76% na 146% 11% 98% 115% 74% 94% 92% 96% 11% 96% 42% na 217% 98% 97% 137% 47% 81% 83% 86% 85% 84% 68% 122% 132% 123% 123% 125% 38% na na 92% 92% 92% 42% 9% 9% 95% 12% 94% Asia total 78% 94% 15% 1% 1% 11% Source: OCI, MAS, KIDI, TII, APRA, ICNZ, ISI, IRI, CIRC, OIC, Bank Negara, IRDA, BAPEPAMLK, PIC, Company data, Credit Suisse estimates Given higher investment yields available in some markets, some insurers have been operating a business model that relies more on the investment income on the float to offset underwriting losses and generates bottom-line profitability this, in our opinion, is an unsustainable business model in the long run (as yields are likely to decline as economies mature). Figure 61: Underwriting profitability varies across Asia P&C insurance combined ratio (% ) % Developed Developing Emerging 2% 15% 1% 5% Figure 62: has the worst four-year combined ratio P&C insurance combined ratio (% ) four-year average 16% Developed Developing Emerging 14% 12% 1% 8% 6% 4% % South Korea % 2% % South Korea 4yr avg Combined Ratio 1% Source for both charts: Swiss Re, OCI, MAS, KIDI, TII, APRA, ICNZ, ISI, IRI, CIRC, OIC, Bank Negara, IRDA, BAPEPAMLK, PIC, AVI, Company data, Credit Suisse estimates, and the have been operating with very small underwriting profits over the past three years. The rest have had decent underwriting profits. Asia P&C Insurance Sector 34

35 13 November 213 Figure 63: has had the highest combined ratio over the past three years Asia P&C insurance,markets combined ratio (%) % 12% 11% Korea 1% 9% HK 8% 7% HK Korea Source: OCI, MAS, KIDI, TII, APRA, ISI, IRI, CIRC, OIC, Bank Negara, IRDA, BAPEPAMLK, PIC, AVI, Credit Suisse estimates According to the underwriting profitability over the past three years, we can categorise the Asia markets into the following three groups: Very good underwriting profitability (combined ratio <9%): The n market has had the best average combined ratio over the past five years. Despite fairly fragmented markets, profitability in and has been the next best. Decent underwriting profitability (mid-9% combined ratio):,, and the have been operating with reasonable underwriting profits over the past five years. For markets like n and the, this is despite being high natural catastrophe areas and experiencing their fair share of such events during the period. Not-so-good or poor underwriting profitability: Profitable underwriting has remained a challenge for the P&C insurers in, Korea and, mainly due to intense competition and in some cases regulatory constraints (such as price tariffs). and 's average combined ratios have also averaged above 1% over the past five years due to big individual events the 211 flood and 211 Christchurch earthquake which were extremely large (>US$1 bn events) and saw the P&L impact spread over more than a year for some insurers as reserves were adjusted. Asia P&C Insurance Sector 35

36 13 November 213 Criteria #5: Business mix We see the business mix in various markets as a key driver of both potential future growth as well as market profitability. Motor insurance is the largest segment in Asia representing over half of the Asian P&C insurance market, making up 3-5% in most markets and around 75% for and. Motor is the largest segment in Asia, particularly in developing Asia Figure 64: Non-motor segments more immature in less developed Asia Asia P&C market by product segment (% 212) 1% 8% 6% 4% 2% % Korea Motor Property Liability Marine Hull & Cargo A&H Aviation Other Source: OCI, MAS, KIDI, TII, APRA, ISI, IRI, CIRC, OIC, Bank Negara, IRDA, BAPEPAMLK, PIC, AVI, Credit Suisse estimates The strongest growth rates over the past five years have been in motor, accident & health and 'other' markets. Of the major market segments, motor insurance has been the fastest growing, driven, to a large extent, by growth in and. Figure 65: A&H, motor and other highest growth Asia growth by segment, five-year CAGR (% p.a.) 2 Figure 66: with motor growth highest in and Asia motor market share (%) by segment, % 17.5% 15.% 4.8% 15.3% 2% 12.5% % % of total Asia 15% 7.5% 1.4% 1% 17.2%.7% 5.% 2.5% 7.9%.1% 5% Motor Property Liability Marine Hull & Cargo A&H Aviation Other Total % Korea Source: OCI, MAS, KIDI, TII, APRA, ISI, IRI, CIRC, OIC, Bank Negara, IRDA, BAPEPAMLK, PIC, AVI, Credit Suisse estimates Asia P&C Insurance Sector 36

37 13 November 213 Asia P&C Insurance Sector 37 Figure 67: Snapshot of the Asia motor insurance market Characteristics of the Asia Motor insurance markets Growth Rate Market 212 GWP (US $mn) (Local Currency) Concentration Loss Ratio Deregulation Country Total Motor % of Total 5-year 1-year Top 5 Top Tariff Timeframe 97,628 48,814 5% % 65% 64% Deregulated 5, % 9.7% 43% 54% 47% 46% 48% Deregulated 2, % 1.6% 6.8% 82% 98% 66% 68% 74% Deregulated South Korea 53,7 11,257 21% 6.2% 5.9% 76% 88% 82% 8% 76% Deregulated 3,98 1,971 5% 1.4% 2.1% 64% 91% 62% 61% 6% Deregulated 31,895 11,846 37% 5.2% 76% 8% 76% Deregulated 54,741 41,86 76% 22.8% Tariffed ,424 2,545 74% 7.5% 1.1% 47% 61% 57% 57% 6% Tariffed 4,632 2,157 47% 9.% 7.1% 56% 72% 75% 78% 85% Tariffed ,975 4,572 46% 17.8% 18.5% 57% 81% 58% 13% 85% Deregulated 3, % 1.6% 51% 62% 54% 54% 54% Deregulated % 7.8% 43% 43% 45% Tariffed 1, % 7% 49% 5% 48% Tariffed 1. Shenzhen pilots motor insurance detariffication 2. is a market without Compulsory Third Party (CTP) Insurance Source: OCI, MAS, KIDI, TII, APRA, ICNZ, ISI, IRI, CIRC, OIC, Bank Negara, IRDA, BAPEPAMLK, PIC, AVI, Ernst & Young, Towers Watson, Credit Suisse estimates

38 13 November 213 Criteria #6: Regulatory / solvency regime Risk-Based Capital (RBC) frameworks and more stringent capital requirements have been gradually introduced across Asia markets, which we believe will change local market conditions. The introduction of RBC requirements in and, for example, has resulted in market consolidation and will continue to do so, in our view. The increased minimum capital requirement in the, if enforced in the current form, will also likely result in industry consolidation. Figure 68: Asia motor insurance market snapshot Market size, growth, concentration, profitability, availability of compulsory third party (CTP) insurance and tarrification status Market Size Growth Concentrated Profitable CTP Tariffication? Large Low Small Low Small Very High South Korea Large High Medium Low Large High Large Very High Medium Low Medium High Medium Very High Small Very High Small High Small Source: OCI, MAS, KIDI, TII, APRA, ISI, IRI, CIRC, OIC, Bank Negara, IRDA, BAPEPAMLK, PIC, AVI, Ernst & Young, Towers Watson, Credit Suisse estimates Many motor markets in Asia continue to have some of tarrification, which we believe distorts longer-term market fundamentals. 's regulator has planned a phased implementation of new regulations to gradually allow insurers to fully set their own price. will also review its motor tariff system in 216. Compulsory third party motor insurance exists in many Asian markets, and has led to strong growth in the market when introduced. Banks forcing mortgagees to take building insurance at the time of a mortgage would also materially increase penetration of this class of business in many Asian countries in our view Asia P&C Insurance Sector 38

39 Asia P&C Insurance Sector 39 Figure 69: Asia P&C insurance landscape is varied and evolving Characteristics of the Asia P&C insurance markets Market Size Growth Concentrated Profitable Busimess mix Ease of access Tariffication? RBC? Large Low Small Low Medium Medium South Korea Large Medium Medium Low Large Medium Medium Low Large Very High Medium High Small High Medium Very High Small Very High Small High Small Very High GWP (US $mn) Growth Rate Market Swiss Re Data (USD, CAGR %pa) Concentration Combined ratio % Solvency Likely RBC Country year 1-year Top 5 Top yr Avg Motor Regime Timeframe 129,74 117, % 3.5% 95% 98% 14% 115% 13% 14% 17% 49% RBC 3,738 3,8 8.6% 4.8% 31% 46% 91% 88% 88% 87% 89% 11% Solvency I 216 9,823 6, % 12.5% 5% 67% 88% 91% 89% 89% 89% 35% RBC South Korea 6,376 42, % 13.8% 79% 96% 11% 11% 11% 12% 11% 56% RBC 15,23 12,55 7.3% 6.7% 61% 87% 92% 91% 99% 97% 95% 5% RBC 42,525 34,68 9.1% 12.% 67% 76% 94% 11% 95% 87% 94% 37% RBC 8,811 7, % 12.2% 76% >9% na 146% 11% 98% 115% 3% RBC 87,319 71, % 2.2% 74% 83% 94% 92% 96% 11% 96% 76% Solvency I ,177 5, % 17.9% 42% 57% na 217% 98% 97% 137% 74% RBC 5,315 4, % 1.5% 47% 67% 81% 83% 86% 85% 84% 47% RBC 13,142 1, % 15.4% 68% 87% 122% 132% 123% 123% 125% 46% Solvency I 215 ~ 216 4,615 3, % 12.4% 38% 54% na na 92% 92% 92% 32% RBC 1, % 1 42% 62% 9% 9% 95% 12% 94% 32% RBC 1, % 18.5% 7% na na na na na na 28% Solvency I Not in the near future 389, , % 9.6% 78% 86% 94% 15% 1% 1% 11% 54% Source: Swiss Re, OCI, MAS, KIDI, TII, APRA, ISI, CIRC, OIC, Bank Negara, IRDA, BAPEPAMLK, PIC, AVI 13 November 213

40 as % of region P&C premium growth (5yr CAGR %pa) 13 November 213 Market snapshot According to Swiss Re data, total premiums written by the P&C insurance sector in 212 were US$129.7 bn, which makes the second largest life insurance market in the world (with a 6.5% global market share) and the largest in Asia (with a 48% market share in developed Asia context). is the largest market in Asia with a 6.5% global market share Figure 7: is 6.5% of the global P&C market Global P&C insurance premiums by region (%), 212 Figure 71: and half of the developed Asia market Developed Asia insurance premium by country (%) 212 NJA 13.9% Middle East 1.6% 1% 4% 6.5% South Korea 22% Central/East Europe 4.% North America 38.9% 48% 6% Western Europe 29.% Latin America 4.9% 3% 16% Source: Swiss Re, Credit Suisse research Over the past decade, s market share in both the global and the Asia context has been declining mainly due to its own lack of growth while the rest of the world has been growing, albeit at a different pace. In the Asia context, given the strong growth from the developing and emerging Asia economies, s market share declined from 56% a decade ago to 32% in 212. Figure 72: s share of market has declined % of global and regional market 8 12.% Figure 73: given a lack of growth in the market P&C insurance prem (local currency) 5-yr CAGR (% p.a.) 3 Developed Developing Emerging 7 1.4% 25.% 2 FY % 15.% 5 7.2% 1 5.% 4 5.6% 3 FY FY1 FY11 FY1 FY9 FY8 FY7 FY6 FY5 FY4 FY3 FY2 Asia Developed Asia Global (RHS) 4.% -5.% South Korea Source: Swiss Re, Credit Suisse research In local currency terms, the P&C insurance market has had almost zero growth rates over the past five (with a five-year CAGR of.3%) to ten years (with a ten-year CAGR of.4%). In USD terms, given the continued strengthening of the JPY against the USD, the growth rate is positive (with a ten-year CAGR of 3.5%). The stagnation of the P&C coincides with the the second lost decade of the ese economy, which has also recorded marginal GDP growth over the past ten years. In local currency terms, has had almost zero growth over the past five to ten years Asia P&C Insurance Sector 4

41 P&C insurance premiums / GDP (%) P&C insurance premiums / GDP (%) P&C insurance premiums (JPY bn) 13 November 213 In JPY terms, premium income as a whole has been shrinking, but the decline has been decelerating in recent years. After years of decline in P&C premiums, the market has recovered from 211, coinciding with the premium rate restructuring in the auto segment as discussed earlier in this report. In USD terms, the market has registered growth over the past four years, albeit at a slower pace than the rest of Asia over the past two years. Figure 74: Market growth picked up in 211 P&C insurance prems ( bn), growth rate (% p.a.) Figure 75: with USD growth over the past few years P&C insurance premiums (US$ mn) and growth rate (% p.a.) 12, 1yr CAGR = -.4% 25.% 11,5 11, 1,5 1.8% 1.9% -1.2% -.1% -.4% -3.3% -5.4% -2.5% Growth (%pa) 2.8% 4.3% 15.% 5.% -2.6% -.4% 1, -5.% 9,5 9, FY FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11-15.% FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11 ASIA Devleoped ASIA Source: Swiss Re, Credit Suisse research The mature state of the P&C insurance market, however, is not fully reflected in its insurance penetration (P&C premiums as a percentage of GDP) or insurance density (P&C premiums per capita) and may be distorted by the reinsurance market. At 2.3% in 212, s insurance penetration has barely changed from a decade ago and is still low relative to other developed peers. Even in the developed Asian economies, its insurance penetration is the second lowest and only higher than. Figure 76: Penetration low relative to developed peers Developed countries P&C insurance premiums / GDP (%) Figure 77: second lowest in developed Asia Asia P&C insurance premiums / GDP (%) 6.% 6.% Developed Developing Emerging 5.% 4.5% 4.3% 5.% FY2 4.% 3.9% 3.6% 3.7% 4.% 3.% 2.% 2.5% 2.3% 1.9% 1.8% 3.% 2.% 1.% 1.% USA Canada UK France Germany Italy Asia NJA FY2 South Korea Source: Swiss Re, Credit Suisse research With a very high level of market consolidation already achieved and the stagnant nature of the domestic market, the major domestic insurers in recent years have been increasingly looking outwards into the wider APAC region for a growth driver. At US$1,25/capita, s insurance density still lags other developed P&C markets which provides some hope that there may yet be room for domestic business expansion. Asia P&C Insurance Sector 41

42 P&C insurance premiums as % GDP P&C insurance premium / capita (JPY ') P&C insurance premiums / capita (US$) P&C insurance premiums / capita (US$) 13 November 213 Figure 78: Density also low relative to developed peers Developed countries P&C insurance prem / capita (US$) Figure 79: third lowest in developed Asia Asia P&C insurance premium / capita (US$) 2,5 2, 1,5 1, 5 2.1% 1yr CAGR (%pa) 8.8% 2.6% 6.5% 5.4% 4.3% 3.6% 2,5 2, 1,5 1, 5 3.6% Developed Developing Emerging FY2 1.2% 1.8% 1yr CAGR (%pa) 13.3% 6.3% 4.2% - 8.4% 13.2% USA Canada UK France Germany Italy Asia NJA FY2 - South Korea 19.4% 16.8% 8.7% 13.4% 11.3% 7.7% 17.2% Source: Swiss Re, Credit Suisse research As the ese economy has recorded marginal GDP growth over the past 15 years, the trend of historical P&C insurance penetration shows a trend similar to the P&C premium, with years of decline until a small rebound in 211 and 212. With low birth rates and increased longevity, the population continues to age. The number of workers per elderly person has dropped significantly over the past 3 years and the trend is expected to continue. By 25, the population is forecast to reduce by 2%. The improvement in insurance density could come from the shrinking population. Figure 8: penetration bottomed in 21 P&C insurance premiums / GDP (%) 2.3% 2.3% 2.2% Figure 81: and insurance density has been stable insurance prem / capita (US$), growth rate (% p.a.) 12 1yr CAGR = -.3% Growth (%pa) 1.7% 2.1% -1.3% -.2% -1.2% -5.2% -2.4% -2.% -.3% 4.4% 2.9% 8 2.2% 2.1% 4 2.1% 2.% FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11 - FY11 FY1 FY9 FY8 FY7 FY6 FY5 FY4 FY3 FY2 FY1 Source: Swiss Re, Credit Suisse research P&C insurance distribution in is still overwhelmingly dominated by agents, which generated more than 9% of the market volume. Despite a significant amount of deregulation that has already occurred in the P&C insurance market over the past 15 years, the broker channel still seems to be significantly under-represented, accounting for less than 1% of the total market volume. The P&C insurance industry is operating in a rather challenging macroeconomic environment with facing significant political, economic, demographic and competitive headwinds to retain its position as one of the world s economic superpowers. The Great East Earthquake and tsunami in 211 was a major financial blow to s P&C industry, adding to the aforementioned difficulties. Distribution is still overwhelmingly dominated by agents Future growth faces several macro headwinds that are challenging to counter In our view, there is little that the P&C industry can do to counter these headwinds and there is limited room for domestic growth in the traditional insurance coverage areas such as motor (both voluntary and compulsory), fire and marine. Asia P&C Insurance Sector 42

43 Premium ( mn) Growth (%pa) Net earned premium ( mn) Growth (%pa) 13 November 213 Industry dynamics The general (P&C) insurance market has been growing at -.7% p.a. in terms of gross written premium (GWP) from 24 to 213. Among all the P&C segments, personal accident is the fastest growth segment with a.8% growth rate p.a. over the past nine years, followed by motor insurance with a growth rate of.3%. Compulsory auto liability has shrunk at 2.9% p.a. over the past nine years. However, as discussed earlier, pricing changes in motor in particular have led to improved premium growth in recent years, with around 3% p.a. growth over the past two years. 's P&C insurance market has shrunk at -.7% p.a. over past decade or so Figure 82: market has shrunk at.7% p.a. General insurance (in force prem in bn) and growth (%) 1,5, 4% Figure 83: with a pick-up in recent years led by motor General insurance (in force prem bn) and growth (%) 8,, 4% 9,, 3% 7,, 3% 7,5, 6,, 4,5, 3,, 2% 1% % -1% -2% -3% 6,, 5,, 4,, 3,, 2,, 2% 1% % -1% -2% -3% 1,5, -4% 1,, -4% % % GWP NEP Growth (%pa) 9yr CAGR (%pa) Source for both charts: IRI, Credit Suisse research Fire Marine Motor Compulsory Automobile Liability Other Growth (%pa) Motor insurance is the largest segment with a 49% share in the overall general insurance market in 213, followed by property and casualty (liability). The industry is highly concentrated with the Top 3 insurers having a combined market share of around 9% in 212.The rest are small- and medium-sized local insurers as well as foreign insurers. The Top 3 insurers have a combined market share of ~9% Figure 84: Motor is the largest P&C segment general insurance market position by segment (%) Figure 85: with market dominated by 3 listed insurers general insurance market position (%) Compulsory Automobile Liability 13% Other 12% Fire 15% Marine 2% 3, 2,5 2, 34.2% Top 3 = 9% 27.6% 27.6% 1,5 1, Personal Accident 9% 5 3.9% 2.2% 1.%.7%.6%.6%.5% 1.1% Motor 49% MS&AD Tokio Marine AXA Asahi Secom ACE Sony Kyoei AIG NKSJ A&H Liability Property Motor Other Allianz Other Source for both charts: IRI, Credit Suisse research Asia P&C Insurance Sector 43

44 13 November 213 Regulatory environment The Financial Services Agency (JFSA) is the integrated regulator that regulates banking, securities, insurance and other financial service industries. JFSA strives to enhance insurance risk management and generally seeks to achieve consistency with international regulation. JFSA has made considerable progress in deregulating the general insurance industry over the past 15 years. The common theme in the past few years has been the strengthening of consumer protection, including the introduction of a new insurance contract law. Minimum capital requirement: The minimum required capital for an insurance company or a mutual insurance association are both 1 bn (US$13 mn). Foreign branches are required to deposit cash or securities for the protection of their ese policyholders. The normal minimum deposit is 2 mn (US$2.6 mn). Foreign branches must also hold assets in equivalent to the total of their underwriting reserves and outstanding loss reserves. Solvency margin: A new ordinance, A Cabinet Office Ordinance for Partial Amendment of the Order for Enforcement of the Insurance Business Act, was promulgated in April 211 with the purpose of introducing stricter standards for the calculation of insurance companies solvency margin ratios. Effective 31 March 212, FSA started to use the new standards as the benchmark for supervisory invention. The formula for calculating the solvency margin ratio takes six types of risks into consideration, namely general insurance risk, third sector risk, assumed interest risk, asset management risk, business administration risk and catastrophe risk. Foreign ownership: There are non-legal barriers for foreign companies. Foreign insurers are allowed to establish wholly owned subsidiaries or branches or to acquire any percentage of equity shares in a ese company. This is partly because the major domestic insurers have strong ties with keiretsu conglomerates that guarantee them a share of their business. Current development: JFSA is considering revising the current Solvency Capital Standards from the current RBC style to a Solvency II-style approach, and is currently carrying out a Quantitative Impact Study (QIS) to determine the potential impact. With regards to the proposed IFRS Phase II Exposure Draft, is expected to implement IFRS. This will have a major impact on insurers balance sheets. The Financial Services Agency (JFSA) is the insurance regulator Asia P&C Insurance Sector 44

45 P&C insurance premiums (HK$ mn) as % of region 13 November 213 Market snapshot According to Swiss Re s classification, total premiums written by the P&C market in 212 were US$3.7 bn, which makes the 45th largest P&C insurance market in the world in 212 and the 11th largest in Asia ex- (including ) with a 1.3% market share. is the 11th largest in Asia ex- with a 1.3% market share Figure 86: P&C market is 1.3% of NJA NJA P&C insurance premiums by country (%), 212 Figure 87: but NJA market share has declined % of global and regional market 4.7% 1.9% 2.7%.4% 1.7%.4% 1.3% 3.5% South Korea 21.7% 6.% 5.% 4.% 3.% 1.2% 1.%.8%.6% 37.6% 5.5% 2.% 1.%.4%.2% 3.2% 15.3% FY99 FY FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11 NJA Developed NJA Global (RHS) Source: Swiss Re, Credit Suisse research s market share in the global context has been relatively stable at just shy of.2% over the past decade. In the developed Asia region, s market share has shrunk from around 5% to below 3% over the past few years. Similarly, within the NJA region, given the strong growth from developing and emerging economies, s market share has also been on the downtrend and declined from 4.% a decade ago to the current 1.3%. The P&C insurance market has grown at 4.8% p.a. over the past ten years, significantly lower than the growth rate in the rest of Asia. has been growing at 4.8% over the past decade Figure 88: HK P&C market has grown at 4.8% over the past ten years HK P&C insurance premiums (HK$ mn), growth rate (% p.a.) Figure 89: growth better in 212 P&C insurance premiums (US$ mn) growth rate (% p.a.) 35, 3, 25, 2, 15, Growth (%pa) 12.6% 1yr CAGR = 4.8% 7.6% 7.8% 4.2% 1.1% 18.6% 1.2% -1.8% -3.4% 3.6% 6.5% 7.6% 7.9% , 5, - FY99 FY FY1 FY2 FY3 FY4 FY5 FY6 Source: Swiss Re, Credit Suisse research FY7 FY8 FY9 Compared to the other developed countries in non- Asia, s growth has been slower for most of the past 15 years. However, unlike the significant slowdown Hong FY1 FY11-1 FY FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11 HK NJA Devleoped NJA Asia P&C Insurance Sector 45

46 P&C insurance premiums as % GDP P&C insurance premium / capita (HK$) P&C insurance premiums / GDP (%) P&C insurance premiums / capita (US$) 13 November 213 Kong experienced in life insurance sales during the financial crisis, and other developing Asian countries have still managed to register growth in P&C insurance sales over the past few years. In 212, the P&C insurance market in saw 12.6% growth over 211, but it still significantly lagged other NJA countries average growth. At 1.4%, s P&C insurance penetration rate is the lowest in the developed Asian countries. In terms of life insurance density (i.e., life premiums per capita), Hong Kong is also on the lower end in developed NJA at US$519 per capita. s P&C insurance penetration and density are the lowest in developed NJA Figure 9: penetration low in Asian context Asia P&C insurance premiums / GDP (%) 6.% Developed Developing Emerging Figure 91: density is also low Asia NJA P&C insurance premiums / capita (US$) Developed Developing Emerging 5.% 4.% FY2 2,5 2, 1.2% 1.8% FY2 1yr CAGR (%pa) 3.% 2.% 1.% 1,5 1, 5 3.6% 4.2% 13.3% 6.3% 19.4% 16.8% 8.7% 13.4% 11.3% 7.7% 17.2% - South Korea South Korea Source: Swiss Re, Credit Suisse research Being a relatively mature market, s P&C insurance penetration has been relatively flat over the past decade, ranging from 1.1% to 1.4%. Insurance density increased from US$344 per capita to US$519 per capita over the same period. In the foreseeable future, we believe s P&C insurance will grow at a lower rate than the developing and emerging Asian economies. Insurance penetration has been relatively stable at 1.1% to 1.4% over the past decade Figure 92: penetration has been flat HK P&C insurance premiums / GDP (%) Figure 93: upward trend for density in recent years HK P&C insurance prem / capita (HK$), growth rate (% p.a.) 1.6% 1.4% 1.2% 1.%.8% 4,5 4, 3,5 3, 2,5 2, 11.% Growth (%pa) 7.6% 1yr CAGR = 4.1% 12.4% 2.8% 8.6% 16.9% 1.2% -3.3% 5.% -3.4%.7% 9.5%.6% 1,5.4% 1,.2% 5 FY FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11 - FY FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11 Source: Swiss Re, Credit Suisse research Asia P&C Insurance Sector 46

47 Premium (HK$mn) Growth (%pa) Net earned premium (HK$mn) Growth (%pa) 13 November 213 Industry dynamics The market grew at 5.3% in terms of gross written premium (GWP) during Among all product lines, A&H and property insurance have been growing at a faster pace, with 1% and 3.4% growth rates p.a., respectively. On the other hand, motor insurance is the segment with the lowest growth rate of 2.7% p.a. market has been growing at 4.2% over the past nine years Figure 94: HK market has grown 5.3% p.a. over the past decade HK P&C insurance (GWP in HKD mn) and growth (%) Figure 95: A&H and property growing at a faster pace HK P&C insurance (NEP in HK$ mn) and growth (%) 45, 14% 45, 14% 4, 12% 4, 12% 35, 3, 25, 2, 15, 1, 5, 9yr CAGR = 5.3% 1% 8% 6% 4% 2% % -2% -4% -6% 35, 3, 25, 2, 15, 1, 5, 9yr CAGR = 5.9% 1% 8% 6% 4% 2% % -2% -4% % % GWP NEP Growth (%pa) 9yr CAGR (%pa) A&H Laibility Property Motor Source: OCI, Credit Suisse research A&H insurance is the largest segment with about one third of the market share in 212, followed by liability, property and motor insurance segments. The Top 4 segments in total accounted for more than 79% of the GWP in 21. The P&C insurance market is every competitive and highly fragmented, with the presence of more than 1 insurers and only an approximately 11.6% market share for the market leader (AXA). The big insurers in this space are generally the large foreign insurance groups with multi-national presence and tend to use as a regional centre, with names such as AXA, Zurich, AIG, Bupa and QBE. A notable player is Bank of (BOC) Group Insurance, which heavily relies on its bancassurance platform. is highly fragmented, with Top 1 insurers making up just half of the market Nonetheless, the industry is relatively concentrated, with the Top 11 insurers having a combined market share of over 47.5%. Figure 96: A&H is the largest segment in HK HK P&C market position by segment (NEP HK$ mn, %) Figure 97: Top 11 have about half of the market share HK P&C market position by company (GWP HK$ mn, %) Pecuniary Loss 7% Reins (Non-Prop) % Reins (Prop) 1% A&H 27% 14, 12, 1, Top 5 = 3% Top 1 = 45% Liability 24% 8, Property 21% Transport 4% Marine 5% Aviation % Motor 11% 6, 4, 2, 11.6% 5.8% 4.2% 4.6% 4.6% 3.5% 3.3% 2.1% 1.4% 2.6% 3.7% Other CTIH MSIG HKMC Lloyd's AFH QBE Bupa AIG BOC Zurich AXA A&H Liability Property Motor Other Source: OCI, Credit Suisse research Asia P&C Insurance Sector 47

48 13 November 213 Market profitability The combined ratio of P&C insurance has been less than 1% for ten consecutive years since 22, indicating consistent underwriting profit for the P&C insurance industry as a whole. The last time the HK P&C insurance industry had a more than 1% combined ratio was in 21. The aggregate combined ratio has been less than 1% for nine consecutive years Figure 98: Combined ratio consistently less than 1%... HK P&C insurance combined ratio (%) 12% Figure 99: A&H has been profitable the past decade A&H insurance (27% market share) combined ratio (%) 12% 1% 1% 8% 8% 6% 6% 4% 4% 2% 2% % % Expense % Commission % Loss % 1% Expense % Commission % Loss % 1% Source: OCI, Credit Suisse research Among the Top 3 segments, A&H has been consistently profitable over the past decade with the combined ratio ranging from 9.9% to 96.5%. Liability insurance is about making even, with an average combined ratio of 95.4% over the past decade. Property insurance, on the other hand, has been very profitable, with an average combined ratio of 75.9% over the past ten years. The consistent profitability of A&H and property insurance coincides with the higher growth rates of the two segments. A&H and property segments have been profitable; liability insurance is about making even Figure 1: Liability insurance u/w profit weak Liability insurance (24% market share) combined ratio (%) 12% Figure 11: with property insurance very profitable Property insurance (21% market share) combined ratio (%) 12% 1% 1% 8% 8% 6% 6% 4% 4% 2% 2% % % Expense % Commission % Loss % 1% Expense % Commission % Loss % 1% Source: OCI, Credit Suisse estimates Asia P&C Insurance Sector 48

49 13 November 213 Regulatory environment Currently, Office of the Commissioner of Insurance (OCI), a part of the Financial Services and Treasury Bureau of the government, is appointed as the Insurance Authority (IA) by the administration. OCI stipulates the requirements of minimum capital and solvency margins. Minimum capital requirement: Insurance companies are required to submit a three- or five-year business plan when they apply for authorisation. The capital requirement is determined based on the plan and is typically higher than the statutory minimum. Foreign branches are not required to make a capital deposit, but are required to maintain assets in equivalent to the aggregate of 8% of the net liabilities and solvency margin applicable to their domestic business. Solvency margins: OCI requires an insurer to maintain a required solvency margin as a cushion against the risk that the insurers liability exceeds its assets in adverse circumstances. The solvency margin provisions differ by the type of the insurer: general business insurer, a long-term business insurer and a captive insurer. The administration plans to establish an Independent Insurance Authority (IIA) to replace OCI and published a public consultation paper on 12 July 21. Regulation of intermediaries: Under the proposed new regime, the IIA would be responsible for licensing and direct regulation of insurance intermediaries. Currently, the self-regulatory organisations ( SROs ), i.e. the Insurance Agents Registration Board, the Confederation of Insurance Brokers and the Professional Insurance Brokers Association, are responsible for monitoring the intermediaries but in the proposed new regime, SROs will focus on trade associations, representing the interests of their members, and organising continuous professional development programmes, training courses, road-shows and other trade promotion activities. Regulation of insurers: Under the proposal, IIA will retain most of Insurance Authority s powers and also be eligible to initiate investigations, search and seize materials upon obtaining a warrant, prosecute offences summarily, and impose a range of regulatory sanctions in case of misconduct. Regulation of solvency: The Solvency I capital regime is currently used in. But as many European-headquartered insurers were active, they actually adopted Solvency II based on group supervision rules. Adoption of a risk-based capital (RBC) framework: OCI is working on a RBC framework to address the concern that s current solvency standard falls short of the global standards. After the International Association of Insurance Supervisors (IAIS) finished revising its financial adequacy core principles in October 211, it is expected that OCI will put forward a proposal and the new RBC standard, according to OCI, is likely to be "more stringent" than the Solvency II model. Most recent statements for the OCI are targeting implementation of 216. We regard the regulatory approach in as one of laissez faire The new RBC standard is likely to be more stringent than the Solvency II model Asia P&C Insurance Sector 49

50 P&C insurance premiums (S$ mn) as % of region Market snapshot According to Swiss Re data, total premiums written by the life insurance sector in 212 totalled US$9.8 bn, which makes it the 31 th largest P&C insurance market in the world and the seventh largest in Asia ex- with a 3.5% market share. Figure 12: P&C market is 3.5% of NJA NJA P&C insurance premiums by country (%), % 1.9% 2.7%.4% 1.7%.4% 1.3% 3.5% South Korea 21.7% Figure 13: NJA market share has increased % of global and regional market 8.% 7.% 6.% 5.% 4.% 13 November 213 is the seventh largest in Asia ex- with a 3.5% market share.8%.7%.6%.5%.4% 3.%.3% 37.6% 5.5% 2.% 1.%.2%.1% 3.2% 15.3% FY4 FY11 FY1 FY9 FY8 FY7 FY6 FY5 NJA Developed NJA Global (RHS) Source: Swiss Re, Credit Suisse research Its market share in the global context has expanded over the past few years. In the developed Asia region, s market share has grown slightly from 5.5% to 7.% since 23. Similarly, within the NJA region, s market share has been relatively stable around 3.5% in recent years. Figure 14: growth at 9.4% over past ten years S pore P&C insurance prems (SGD mn), growth rate (% p.a.) Figure 15: growth lower than the rest of Asia in 212 P&C insurance premiums (US$ mn) and growth rate (% p.a.) 14, 12, 1, 8, 6, 4, 2, 1yr CAGR = 9.4% 11.1% 28.6% Growth (%pa) 11.9% 2 6.1%.2% 2.8% 11.4% 136.7% 19.2% 5.6% FY FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11-1 FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11 NJA Devleoped NJA Source: Swiss Re, Credit Suisse research The P&C insurance market has grown at 9.4% p.a. over the past ten years in local currency terms. In USD terms, the growth rate is even higher (12.5% p.a.). market growth has been quite volatile over the past 15 years, with explosive growth in 21 and 22, followed by a relatively slow growth period from 23 to 26. The market proved to be quite resilient during the financial crisis, registering decent growth rates since 27. has been growing at 9.4% p.a. over the past ten years The relative maturity of the P&C insurance market is also reflected in both insurance penetration (P&C premiums as a % of GDP) and insurance density (P&C premiums per capita). Over the past ten years, the insurance premium as a % of GDP has Asia P&C Insurance Sector 5

51 P&C insurance premiums as % GDP P&C Insurance premium / capita (S$) P&C insurance premiums / GDP (%) P&C insurance premiums / capita (US$) 13 November 213 not changed much and the ratio (roughly 3%) is only lower than South Korea and New Zealand in the developed Asia region. In terms of life insurance density, is the third highest in Asia with US$1,958 per capita. insurance density is the third highest in Asia Figure 16: penetration increased in 212 Asia P&C insurance premiums / GDP (%) Figure 17: with insurance density NJA s highest Asia P&C insurance premiums / capita (US$) 6.% Developed Developing Emerging Developed Developing Emerging 2,5 5.% 4.% FY2 2, 1.2% 1.8% FY2 1yr CAGR (%pa) 3.% 2.% 1.% 1,5 1, 5 3.6% 4.2% 13.3% 6.3% 19.4% 16.8% 8.7% 13.4% 11.3% 7.7% 17.2% - South Korea South Korea Source: Swiss Re, Credit Suisse research Being a relatively mature market, s P&C insurance penetration has stabilised in the past decade, ranging from 3% to 3.5%. On the other hand, insurance density has been increasing steadily over the past few years despite the financial crisis. Given relatively high insurance penetration and fast improvement of insurance density in recent years, we expect penetration to stay in the narrow range of % and improvement in insurance density to be incremental. Figure 18: penetration has stabilised P&C insurance premiums / GDP (%) 4.% Figure 19: insurance density has been increasing Insurance premium / capita (USD), growth rate (% p.a.) 2,5 16.8% 3.5% 3.5% 3.% 2, 1yr CAGR =7.2% 23.1% 8.8% 2.5% 2.% 1,5 Growth (%pa) 2 1.2% -2.1% 2.8% 11.4% 9.4% 1.5% 1, 1.% 5.5% FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11 - FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11 Source: Swiss Re, Credit Suisse research Asia P&C Insurance Sector 51

52 Gross written premium (THB mn) Growth (%pa) Gross written premium (THB mn) Growth (%pa) 13 November 213 Industry dynamics The market grew at 4.3% p.a. in terms of gross written premium (GWP) from 22 to 212. Among all the segments, motor insurance is the fastest growing segment (and also the largest segment) with a 6.8% growth rate p.a. in the past decade, followed by marine and fire insurance with growth rates of -2.3% and 2.3% p.a., respectively. market has been growing at 4.3% over the past decade Figure 11: market growth at 4.3% p.a SG P&C insurance (GWP in SGD mn) growth (%) Figure 111: motor insurance higher growth rate SG P&C insurance (NEP in SGD mn) and growth (%) 4, 4% 4, 4% 3,5 3, 2,5 1yr CAGR = 4.3% 3% 2% 1% 3,5 3, 2,5 1yr CAGR = 5.1% 3% 2% 2, 2, 1% 1,5 1, % -1% 1,5 1, % 5-2% 5-1% GWP NEP Growth (%pa) 1yr CAGR (%pa) -3% -2% Fire Marine Motor Other Growth (%pa) 1yr CAGR (%pa) Source: MAS, Credit Suisse estimates Motor insurance is the largest segment with a 35.2% market share in 212, followed by fire, work compensation segments and liability. The Top 4 segments in total accounted for about two-thirds of the GWP in 212. The P&C insurance market is highly fragmented with the presence of 5 direct insurers and 2-plus reinsurers. Nonetheless, the industry is relatively concentrated with the Top 5 insurers (AIA, AXA, NTUC, Fairfax and MSIG) having a combined market share of over 58% in 212. The Top 5 insurers have a combined market share of over 58% in 212 AIG has been the market leader in since 25 with a 15.5% share in 212. However, AIA has lost its market leader position in motor insurance to NTUC in recent years but remains the market leader in fire insurance, although its market share in fire insurance has been gradually increasing. AXA has been steadily gaining market share in the past decade and established itself as the market leader in marine insurance. NTUC has close to 25 % market share in the motor insurance segment. Figure 112: Motor is the largest segment in SG P&C market position by segment (NEP SG$ mn, %) Figure 113: Top 1 have about 8% of the market share SG P&C market position by company (GWP SG$ mn, %) Cargo 3.3% Liab 5 Top 5 = 58% Other 18.7% 5.6% 15.5% 6 Top 1 = 79% 2.8% % Health 7.8% Fire 11.4% 3 1.3% 9.8% 1.1% Accident 8.2% % 4.5% 4.1% 3.5% 3.9% Workers Comp 9.7% Motor 35.2% MSIG Fairfax NTUC AXA AIG Motor Fire Marine Other Liberty QBE Tokio Marine Int'l ACE Other Source: MAS, Credit Suisse research Asia P&C Insurance Sector 52

53 13 November 213 Market profitability The combined ratio of P&C insurance has been less than 1% for ten consecutive years since 23, indicating consistent underwriting profit for the P&C insurance industry as a whole. The last time the P&C insurance industry had a more than 1% combined ratio was in 22. The aggregate combined ratio has been less than 1% for ten consecutive years Figure 114: Combined ratio over 1% in recent years SG P&C insurance combined ratio (%) 12% 1% 8% 6% 4% 2% Figure 115: with motor loss ratio relatively high Motor insurance (35.2% market share) loss ratio (%) 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % % Expense % Commission % Loss % 1% Loss % Source: MAS, Credit Suisse research All of the Top 3 segments have been profitable in the past decade. Among them, fire insurance is the most profitable, with the combined ratio less than 4%. Liability insurance was very profitable in 26 and 27, with the combine ratio less than 4%. In the past five years (28-12), the combined ratio for the liability insurance was averaged around 6%. The profitability of the motor insurance segment has been relatively stable, with an average combined ratio of 78% over the past 13 years. All of the top-3 sectors haven been profitable. Fire insurance has been the most profitable segment Figure 116: Fire insurance loss ratio has been very low Fire insurance (11.4% market share) loss ratio (%) 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% Figure 117: liability loss ratio deteriorated recently Liability insurance (5.6% market share) loss ratio (%) 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % % Loss % Loss % Source: MAS, Credit Suisse research Asia P&C Insurance Sector 53

54 13 November 213 Regulatory environment The Monetary Authority of (MAS), s central bank, serves as an integrated supervisor overseeing all financial institutions (including insurers) in. The Insurance Department, which is under MAS Banking and Insurance Group, is charged with administering the industry in conjunction with the framework and related guidelines outlined in the Insurance Act of Its primary objective is to protect the policyholders' interests. The department adopts a risk-focused approach in the prudential and market conduct supervision of insurance companies. The department carries out its responsibilities by way of both on- and off-site supervision, and works with foreign supervisors as part of a holistic supervisory approach. The Capital Markets Intermediaries Department, which is under MAS Capital Markets Group, is responsible for regulating insurance brokers under Part IIB of the Insurance Act. Companies in the insurance market are able to register as either life, general or composite (life plus general) insurers. There are no restrictions on foreign ownership, though an MAS approval is required for changes in effective control (i.e., 2% ownership change) or substantial interest (5% ownership). The Government actively encourages regional insurers to establish operational headquarters in the city by offering tax incentives. These incentives focus on tax minimisation and capital management flexibility. Effectively, dividends received from or distributed to other Group entities are exempt from tax. Risk-based capital (RBC): s insurance sector operates under a risk-based capital (RBC) regime. The MAS implemented the RBC requirements in January 25. This system calculates capital requirements with reference to both insurance risk and asset (i.e., investment) risk. Like, it is widely expected that the introduction of the more mature Solvency II in might follow its Europe application in 213. The MAS requires insurers to maintain at least 1% coverage of RBC requirements (subject to a minimum level of capital of S$5 mn). A warning system is in place for those insurers that fall below the 12% solvency coverage. Recently, MAS also required insurers indicated as systematically important to establish a Risk Management Committee to manage the risk. The MAS is the primary regulatory body for the insurance sector Asia P&C Insurance Sector 54

55 P&C insurance premiums (KW bn) as % of region 13 November 213 Korea Market snapshot According to Swiss Re data, total premiums written by the Korea P&C insurance sector in 212 were US$6.3 bn, which makes the country the tenth largest life insurance market in the world and the second largest in Asia ex- (including ) with a 22% market share just after, which has a 38% market share. Korea is the second largest in Asia ex- with a 22% market share Figure 118: Korea is second largest P&C market in NJA NJA P&C insurance premiums by country (%), % 1.9% 2.7%.4% 1.7%.4% 1.3% 3.5% South Korea 21.7% Figure 119: NJA market share is stable Korea % of global and regional market % 1.4% 8.8% 7.2% 37.6% 5.5% % 4.% 3.2% 15.3% FY FY1 FY11 FY1 FY9 FY8 FY7 FY6 FY5 FY4 FY3 FY2 Asia Developed Asia Global (RHS) Source: Swiss Re, Credit Suisse research Korea s market share in the global context has increased rapidly in the past few years, reaching 3.% in 212 from 1.5% a decade ago. In the developed Asia region, Korea s market share has stabilised at around 43%. However, within the NJA region, given the strong growth from the developing and emerging economies, Korea s market share has dropped from the high of 26% in 26 to the recent 22%. Figure 12: Korea has grown 12.8% p.a. past decade Korea P&C insurance premium (W mn), growth rate (% p.a.) Figure 121: slightly lower than rest of Asia Korea P&C insurance prem (US$ mn) growth rate (% p.a.) 8, 7, 6, 1yr CAGR = 12.8% Growth (%pa) 17.5% 16.% 3 2 5, 4, 3, 2, 1, 11.7% 9.6% 3.4% 7.9% 9.8% 15.5% 13.9% 11.6% 16.% 17.1% FY FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11-2 FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11 Korea NJA Devleoped NJA Source: Swiss Re, Credit Suisse research The Korea P&C insurance market has grown at 12.8% p.a. for the past ten years in local currency terms. In USD terms, the growth rate is even higher (13.8% p.a.). Starting from 22, the Korea P&C market entered a period of high growth. During 23-6, the growth rate of Korea exceeded that of the rest of the Asia. The industry took a step back in 28 due the financial crisis, registering a -14.6% growth rate. Since then, the market has been back to the high-growth trajectory with double-digit growth rates in the past three years. Korea has been growing at 12.8% in the past decade Asia P&C Insurance Sector 55

56 P&C insurance premiums as % GDP P&C insurance premium / capita (KW ") P&C insurance premiums / GDP (%) P&C insurance premiums / capita (US$) 13 November 213 The high growth of the Korea P&C insurance market is also reflected in both insurance penetration (P&C premiums as a % of GDP) and insurance density (P&C premiums per capita). Over the past decade, the insurance penetration has increased from 3.5% in 22 to 5.3% in 212. Korea s insurance penetration is the highest in Asia in 212. In terms of life insurance density, Korea is the fourth highest in Asia with US$1,28 per capita. Korea insurance penetration is the highest in Asia Figure 122: Korea penetration second highest in Asia Asia P&C insurance premiums / GDP (%) 6.% Developed Developing Emerging Figure 123: and insurance density fourth highest Asia P&C insurance premiums / capita (US$) Developed Developing Emerging 5.% 4.% FY2 2,5 2, 1.2% 1.8% FY2 1yr CAGR (%pa) 3.% 2.% 1.% 1,5 1, 5 3.6% 4.2% 13.3% 6.3% 19.4% 16.8% 8.7% 13.4% 11.3% 7.7% 17.2% - South Korea South Korea Source: Swiss Re, Credit Suisse research As a market with high growth in the past, Korea P&C insurance penetration has been on an uptrend in the past decade. Insurance density shows a similar steady growth trajectory, with YoY improvement and a ten-year compounded growth rate of 12.3% p.a. While undoubtedly the Korean P&C insurance sector has experienced steady growth, as reflected in the relatively high insurance penetration and improvement of the insurance density in recent years, we believe the Korea P&C insurance sector is relatively mature and expect any improvement in insurance density in the future to be incremental. Korea insurance density has been growing at 12.3 p.a. over the past decade Figure 124: Korea penetration has been on the up-trend Korea life insurance premiums / GDP (%) 6.% Figure 125: and insurance density is also on the up-trend Korea P&C premium / capita (KW '), growth rate (% p.a.) 1,4 13.6% 5.% 4.% 3.% 2.% 1,2 1, % 16.6% 1yr CAGR = 12.3% 17.% Growth (%pa) 11.2% 13.2% 15.5% 9.3% 9.4% 2.8% 7.3% 1.% 2 - FY11 FY1 FY9 FY8 FY7 FY6 FY5 FY4 FY3 FY2 FY1 FY11 FY1 FY9 FY8 FY7 FY6 FY5 FY4 FY3 FY2 FY1 Source: Swiss Re, Credit Suisse research Asia P&C Insurance Sector 56

57 Gross written premium (KRW bn) Growth (%pa) Gross written premium (KRW bn) Growth (%pa) 13 November 213 Industry dynamics Korea categorises both life and non-life insurance as general insurance. The Korea general insurance market grew at 12.9% p.a. in terms of gross written premium (GWP) from 22 to 212. Among all the P&C segments, casualty insurance is the fastest growth segment with an 11.5% growth rate p.a. in the past decade, followed by motor and marine insurance segments with growth rates of 5.9% and 5.1% p.a., respectively. Fire insurance, the smallest P&C segment, has barely grown in the past decade. Korea general insurance market has been growing at 12.9% past decade Figure 126: Korea market has been growing at 12.9% General insurance (in force prem in W bn) and growth (%) Figure 127: motor is the largest P&C segment General insurance (in force prem W bn) and growth (%) 7, 4% 7, 4% 6, 3% 6, 35% 5, 1yr CAGR = 12.9% 2% 5, 3% 4, 1% 4, 25% 2% 3, % 3, 15% 2, -1% 2, 1% 1, -2% 1, 5% GWP - Direct NWP Growth (%pa) 1yr CAGR (%pa) -3% Fire Marine Motor Casualty Other Growth (%pa) 1yr CAGR (%pa) % Source: KIDI, KNIA, Credit Suisse research Motor insurance is the largest segment with a 21% share of the overall general insurance market in 212, followed by casualty and marine segments. The Korean P&C insurance market is less crowded compared to the other developed Asian economies, with 2-plus direct insurers and reinsurers. The general insurance market in Korea is dominated by a few domestic insurers. Samsung Insurance is the market leader with a 26% share, followed by Hyundai, Dongbu, LGI and Meritz. The Top 5 dominant insurers have a combined market share of ~8% in 212 The industry is highly concentrated with the Top 5 insurers having a combined market share of around 79% in 212. The remaining insurers are small- and medium-sized local insurers as well as foreign insurers. The big insurers are getting bigger the top insurers have been gaining market shares in recent years. Figure 128: Motor is the largest P&C segment Korea general insurance market position by segment (%) Figure 129: the market is dominated by a few insurers Korea general insurance market position (W bn, %) Annuity 5.6% Retirement Annuity 5.2% Retirement.1% Long-term 56.2% Other Index.1% Fire.4% Marine 1.4% Motor 21.2% Guarantee 2.5% Casualty 7.1% Oversea - Direct.5% Oversea - Inward 18, 16, 14, 12, 1, 8, 6, 4, 2, 25.7% Samsung Top 1 = 96% Top 5 = 79% 16.2% 15.8% 14.2% 7.2% 5.9% 4.3% 3.4% 2.5% 1.3% Hanwha Mertiz Dongbu LIG Hyundai Heungkuk Green SGIC Lotte Motor Fire Marine LT Casualty Other 3.6% Other Source: KIDI, KNIA, Credit Suisse research Asia P&C Insurance Sector 57

58 13 November 213 Market profitability The combined ratio of Korea P&C insurance has been slightly above 1% for nine consecutive years since 23, indicating consistent underwriting losses for the P&C sector as a whole. The average combined ratio has been 15% for the past decade, which is largely driven by losses in the motor segment, the largest P&C segment. The average combined ratio for the motor segment has been 16% over the past ten years. The combined ratio has been deteriorating in recent years, reaching a high of 112.5% in 212. The aggregate combined ratio has been slightly above 1% for nine consecutive years Figure 13: P&C sector just about making even Korea P&C insurance combined ratio (%) 14% Figure 131: motor has been an unprofitable segment Motor insurance (23.8% market share) combined ratio (%) 12% 12% 1% 1% 8% 6% 4% 2% 8% 6% 4% 2% % Expense % Loss % 1% % Expense % Loss % 1% Source: KIDI, KNIA, Credit Suisse research Among the Top 3 P&C segments, casualty insurance is the only segment that has been consistently profitable with the combined ratio ranging from 76-9% over the past decade. Marin insurance was profitable before 29. In 29, the marine segment experienced a huge loss and the combined ratio reached 154.5%. Following the unprecedented loss in 29, the combined ratio improved in 21 and 211 but still exceeded 1%, followed by a combined ratio of 9% in 212. Among the Top 3 P&C sectors, only the casualty insurance sector has been profitable in recent years Figure 132: Casualty insurance has been profitable Casualty insurance (7.1% market share) combined ratio (%) 12% 1% 8% 6% 4% 2% Figure 133: marine has been losing money recently Marine insurance (1.5% market share) combined ratio (%) 18% 16% 14% 12% 1% 8% 6% 4% 2% % Expense % Loss % 1% % Expense % Loss % 1% Source: KIDI, KNIA, Credit Suisse research Asia P&C Insurance Sector 58

59 13 November 213 Regulatory environment Korea has a two-tier integrated financial supervisory system comprising the Financial Services Commission (FSC) and a subordinate institution called the Financial Supervisory Service (FSS). Risk-based capital (RBC): The Insurance Business Law was amended in 29 requires all insurers to measure their solvency using the new RBC system starting 1 April 21 after the two-year phase-in period from 1 April 29 to 1 April 211. The RBC ratio is calculated as the available capital divided by the required capital. The ratio has been above 1% to be considered solvent. Similar to the RBC system in the US, Korea s new RBC system categorised individual risk exposure in the five areas of insurance risk, credit risk, interest rate risk, market risk and operational risk. The required capital is then calculated using a formula that incorporates all five areas of risks. Foreign ownership: Korea allows foreign insurers to establish branches or wholly owned subsidiaries or to buy any percentage of a domestic company s equity. Foreign insurers can only be licensed for classes of business which they already write in other territories. Foreign insurers must also hold a recent investment grade credit rating from an international rating agency. In terms of minimum capital requirement, foreign branches are required to have an operating fund of W3 bn (US$3.21 mn). Foreign operations are obliged to retain assets in Korea up to the value of their technical reserves and solvency margin. Financial reporting: From 31 March 212, all insurers are required to report financial results following IFRS. Asia P&C Insurance Sector 59

60 P&C insurance premiums (NT$ bn) as % of region 13 November 213 Market snapshot According to Swiss Re data, total premiums written by the P&C insurance sector in 212 were US$15.2 bn, which makes the 17 th largest life insurance market in the world and the fourth largest in Asia ex- (including ) with a 5.5% market share after, Korea and. is the fourth largest in Asia ex- with a 5.5% market share Figure 134: P&C market is 6% of NJA NJA P&C insurance premiums by country (%), 212 Figure 135: NJA market share declining s % of global and regional market 4.7% 1.9% 2.7%.4% 1.7%.4% 1.3% 3.5% South Korea 21.7% 2 16.% 12.% 1.%.8%.6% 8.%.4% 37.6% 5.5% 4.%.2% 3.2% 15.3% FY FY1 FY11 FY1 FY9 FY8 FY7 FY6 FY5 FY4 FY3 FY2 NJA Developed NJA Global (RHS) Source: Swiss Re, Credit Suisse research s market share in the global context has stabilised and stayed in a narrow range between.6% and.7% over the past decade. Within the NJA or developed regions, given the strong growth in the developing and emerging economies, its market share has shrunk steadily over the preceding decade. Particularly, in the NJA region, s market share declined from above 12% a decade ago to the current level of below 6%. Figure 136: P&C market growth 5.1% p.a P&C insurance premiums (NT$ bn), growth rate (% p.a.) Figure 137: growth is lagging the rest of Asia P&C insurance premiums (US$ mn) growth rate (% p.a.) yr CAGR = 5.1% 5.7% 8.2% 11.2% 11.3% 4.5% Growth (%pa) 2.3% 4.8% 3.3% 4.2% 4.6% 6.4% 7.1% FY FY1 FY2 FY3 FY4 FY5 FY6 Source: Swiss Re, Credit Suisse research FY7 FY8 FY9 The P&C insurance market has grown at 5.1% p.a. in local currency terms over the past decade, lagging the growth rate of the rest of Asia. The market experienced an explosive year in 2, followed by a period of steady growth from 21 to 25. The growth stopped in 29 post the financial crisis and then picked up strongly in 21, 211 and 212. Over the past ten years, has underperformed its developed peers in terms of growth, reflecting the relative maturity of its P&C sector. FY1 FY11 FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11 NJA Devleoped NJA has been growing at 5.1% p.a. over the past ten years Asia P&C Insurance Sector 6

61 P&C insurance premiums as % GDP P&C insurance premium / capita (NT$ ') P&C insurance premiums / GDP (%) P&C insurance premiums / capita (US$) 13 November 213 The relative maturity of the P&C insurance market is also reflected in its insurance penetration (P&C premium as a % of GDP). At 3.2%, s insurance penetration rate is the fourth highest in Asia. In terms of insurance density (i.e. P&C premium per capita), at US$654 per capita, is relatively low compared to its peers in the developed Asia region. insurance penetration fourth highest in Asia, but insurance density is relatively low Figure 138: penetration is the 4 th highest in Asia Asia P&C insurance premiums / GDP (%) 6.% Developed Developing Emerging Figure 139: with relatively low insurance density Asia P&C insurance premiums / capita (US$) Developed Developing Emerging 5.% 4.% FY2 2,5 2, 1.2% 1.8% FY2 1yr CAGR (%pa) 3.% 2.% 1.% 1,5 1, 5 3.6% 4.2% 13.3% 6.3% 19.4% 16.8% 8.7% 13.4% 11.3% 7.7% 17.2% - South Korea South Korea Source: Swiss Re, Credit Suisse research Being a relatively mature market, s P&C insurance penetration has been relatively flat at around 3% in recent years. Insurance density, on the other hand, has improved YoY over the past decade. Given its relatively high penetration rate and more mature economy, one would expect s growth rate to slow to some extent, particularly under more challenging macroeconomic conditions. However, given its record of growth in the past and relatively low insurance density, we believe there is still room for future growth. Figure 14: Insurance penetration has been flat P&C insurance premiums / GDP (%) 3.5% 3.% 2.5% 2.% 1.5% 1.%.5% Figure 141: insurance density has been increasing P&C insurance prem / capita (NT$ '), growth rate (% p.a.) 4.2% 4.2% 2 7.1% 18 Growth (%pa) 5.9% 16 1yr CAGR = 4.7% 4.3% 2.8% 3.6% 1.9% 5.7% % 7.3% FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11 - FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11 Source: Swiss Re, Credit Suisse research Asia P&C Insurance Sector 61

62 Gross written premium (NT$ mn) Growth (%pa) Gross written premium (NT$ mn) Growth (%pa) 13 November 213 Industry dynamics The P&C market grew at 1.7% in terms of gross written premium (GWP) from 22 to 212. Among all P&C segments, motor insurance has been growing at a faster pace, with a 2.1% growth rate p.a. over the past decade. Fire insurance, on the other hand, barely grew in the ten-year period. market has been growing at 1.7% p.a. over the past ten years Figure 142: market growth 1.7% p.a. past decade.. P&C insurance (GWP in NT$ mn) growth (%) Figure 143: with individual life at 65% P&C insurance and growth (%) 14, 4% 14, 3% 12, 1, 1yr CAGR = 1.7% 3% 2% 12, 1, 1yr CAGR = 5.4% 25% 2% 8, 1% 8, 15% 1% 6, % 6, 5% 4, -1% 4, % 2, -2% 2, -5% % % GWP NEP Growth (%pa) 1yr CAGR (%pa) Fire Marine Motor Oth Growth (%pa) 1yr CAGR (%pa) Source: TII, Credit Suisse research Motor insurance is the largest segment with almost half of the market in 212, followed by fire and A&H segments. The Top 3 segments have a combined market share of more than 8% in 212. In 212, 19 P&C insurance companies were doing business in and 14 of them were domestic insurers. The P&C market is rather concentrated and dominated by the domestic insurers. The Top 5 insurers are all domestic companies and jointly account for roughly 61% of the market share in terms of premium. In the past year, leading domestic insurers have further consolidated their market positions by taking up the assets of foreign insurers who have been looking to exit the market. With some smaller foreign operations in still seeking to exit, the sector should continue to consolidate. Uniquely in, the three biggest life insurers (Fubon, Cathay Century and Shin Kong) are all part of financial holding companies that also operate bank subsidiaries. Fubon has been the market leader in the past decade, with approximately 22% market share in 212. Cathay Century has been growing rapidly and now is the second largest insurer. Top 5 insurers have 61% of the P&C market share Figure 144: Motor is the largest segment in P&C market position by segment (GWP NT$, %) Figure 145: Top 5 insurers have a 61% share P&C market position by company (GWP NT$ mn, %) CRE.9% A&H 11.6% Oth 1.2% FIRE 18.4% 3, 25, 2, 22.1% Top 5 = 6% Top 1 = 85% ENG 3.9% LIAB 6.8% AVI.7% CARGO 4.7% MARINE 2.3% 15, 1, 5, 12.7% 1.2% 8.9% 7.1% 5.7% 5.5% 5.4% 4.9% 4.6% 13.% MOTOR 49.5% Motor Fire Marine Other Source: TII, Credit Suisse estimates Asia P&C Insurance Sector 62

63 13 November 213 Market profitability The aggregate combined ratio of P&C insurance was barely less than 1% in recent years. Over the past decade, the average combined ratio is around 98%, indicating low underwriting profit for the P&C insurance industry as a whole. In 212, the combined ratio was 92.1%, the second best in recent years. The loss ratio, a component of the combined ratio, is relatively stable at around 52% for the P&C industry as a whole. The aggregate combined ratio has been less than 1% in recent years Figure 146: Combined ratio stays below 1% P&C insurance combined ratio (%) 12% Figure 147: motor has slightly higher loss ratios Motor insurance (49.5% market share) loss ratio (%) 1% 1% 8% 6% 4% 2% 9% 8% 7% 6% 5% 4% 3% 2% Loss % % Expense % Commission % Loss % 1% Source: TII, Credit Suisse research Among the Top 3 segments, motor insurance has the highest loss ratios. Over the past decade, the average loss ratio is 59%, or 7% higher than the overall P&C industry. The historical loss ratios were volatile for the fire segment, ranging from 3% to 7%, but the average loss ratio (at around 42%) is well below the aggregate industry level. Finally, the loss ratio of the A&H segment has been relatively flat at roughly 4% over the past seven years, well below the industry average. 1% % Figure 148: Loss ratio of fire insurance has picked up Fire insurance (18.4% market share) loss ratio (%) 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% Figure 149: A&H has stable and low loss ratio A&H insurance (11.6% market share) loss ratio (%) 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % % Loss % Loss % Source: TII, Credit Suisse research Asia P&C Insurance Sector 63

64 13 November 213 Regulatory environment The Insurance Bureau (IB), a branch of the Financial Supervisory Commission in, is the main insurance regulatory body. The principal functions of the Insurance Bureau are to ensure that the interests of policyholders or potential policyholders are protected and to promote the general stability of the insurance industry. De-tarrification: continues to work towards fulfilling its May 1997 commitment to liberalise insurance premium rates and policy clauses. In 22, adopted a threephase premium deregulation programme. During the first phase of deregulation (from April 22 to March 25), permitted insurance companies to set loading (or operating) expenses, one of the two components of the premiums, within a range between 5% above and 5% below standards set by the regulatory authorities. During the second phase of insurance deregulation from April 25 to March 28, permitted non-life insurance firms to set risk premiums for motor and fire insurance. Beginning in April 28, completely deregulated premium rate setting, except for compulsory insurance. There are now no ceiling or lower limits on loading expenses and insurance companies are required to demonstrate their capability to control loading expenses Minimum capital requirement: The minimum capital requirement is NT$2 bn (US$69 mn) for establishing an insurance company and is on a cash basis only. A bond equal to 15% of the total amount of its paid-in capital or paid-in fund must be posted with the national treasury. For branches set up by a foreign insurer, the head office must set aside a minimum working capital for each branch in accordance with its business plan and no less than NT$5 mn (US$1.725 mn). A bond equal to 15% of the total amount of its paid-in capital or paid-in fund must be posted with the national treasury. Solvency margin: The Insurance Bureau has adopted a financial early warning system, referred to as Dynamic Financial Analysis, which is based on the US Financial Analysis and Solvency Tracking (FAST) and Insurance Regulation Information System (IRIS). The new system uploads financial information and compares it with the financial indicators. Insurers are required to maintain a minimum RBC ratio of 2% and this ratio is only reported semi-annually. If an insurance company s RBC ratio falls below the minimum required, it is usually given a certain timeframe to conduct capital-raising and a takeover happens only if there is a serious solvency issue. The scope of risks underlying the RBC includes asset risks, credit risks, underwriting risks, asset-liability mismatch risk and other risks. Foreign ownership: A foreign insurance insurer may not start operations in unless it has received permission from the competent authority, completed establishment registration, posted bond and secured a business licence in accordance with the law. Unless otherwise provided by this Act, the provisions of this Act regarding insurance enterprises shall apply with regards to relevant sections to foreign insurance enterprises. Recent development: Like its regional counterparts, the IB has been in the process of studying the current regime with international developments such as Solvency II, FATCA, and IFRS 4 Phase II. The ese market is also keen to track changes to the US supervisory regime, to which s current RBC system takes reference. Asia P&C Insurance Sector 64

65 LP&C insurance premiums (A$ mn) as % of region 13 November 213 Market snapshot According to Swiss Re data, total premiums written by the P&C insurance sector in 212 were US$42.5 bn, which makes the 11 th largest life insurance market in the world and the third largest in NJA with a 15% market share after and Korea. is the third largest in Asia ex- with a 15% market share Figure 15: P&C market is 15% of NJA market NJA P&C insurance premiums by country (%), % 1.9% 2.7%.4% 1.7%.4% 1.3% 3.5% South Korea 21.7% Figure 151: NJA market share reducing % of global and regional market 4 35.% 3 25.% 2 2.4% 2.2% 2.% 1.8% 1.6% 37.6% 5.5% 15.% 1 1.4% 1.2% 3.2% 15.3% 5.% FY FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11 1.%.8% NJA Developed NJA Global (RHS) Source: Swiss Re, Credit Suisse research s market share in the global context has increased from around 1.3% in 22 to north of 2.1% in 212. However, in the NJA context, given the strong growth in the developing and emerging economies, its market share has fallen steadily over the years. Within the developed NJA region, it holds about 3.3% market share. Figure 152: market growth at 5.% p.a. AU P&C insurance premiums (A$ mn), growth rate (% p.a.) 45, 4, 35, 3, 25, 2, 15, 1, Growth (%pa) 6.7% 1yr CAGR = 5.% 5.7% 1.8% 5.8% 17.9% 5.1% 1.7% 1.1% 2.% 2.8% 14.4% -.6% Figure 153: with growth improved AU P&C insurance premiums (US$ mn) growth rate (% p.a.) , - FY FY1 FY2 FY3 FY4 FY5 FY6 Source: Swiss Re, Credit Suisse research FY7 FY8 FY9 The P&C insurance market has grown at 5.% p.a. in local currency terms over the past decade. Historical growth rates were volatile. Following the explosive growth in 23, the P&C market entered a period with growth rate lagging the rest of the Asia. The industry took a small step back during the financial crisis (28-9 period). Since then, the market has rebounded strongly and posted decent growth rates in 21, 211 and 212. FY1 FY FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11 NJA Devleoped NJA n has been growing at 5.% p.a. over the past decade Asia P&C Insurance Sector 65

66 P&C insurance premiums as % GDP P&C insurance premium / capita (A$) P&C insurance premiums / GDP (%) P&C insurance premiums / capita (US$) 13 November 213 The maturity of the n P&C market is reflected in both insurance penetration (P&C premiums as a % of GDP) and insurance density (P&C premiums per capita). Over the past decade, insurance penetration has decreased slightly from 3.5% to 2.8%. Insurance density improved dramatically over the preceding ten-year period from US$694 per capita in 22 to US$1,933 per capita in 212, the highest in Asia. At US$1,867 per capita, s insurance density is the highest in Asia Figure 154: Penetration rates down given super regime Asia P&C insurance premiums / GDP (%) 6.% Developed Developing Emerging Figure 155: insurance density is the highest in Asia Asia P&C insurance prem / capita (US$) Developed Developing Emerging 5.% 4.% FY2 2,5 2, 1.2% 1.8% FY2 1yr CAGR (%pa) 3.% 2.% 1.% 1,5 1, 5 3.6% 4.2% 13.3% 6.3% 19.4% 16.8% 8.7% 13.4% 11.3% 7.7% 17.2% - South Korea South Korea Source: Swiss Re, Credit Suisse research n P&C insurance penetration has been stabilised at around 3% in recent years, indicating that P&C insurance premium has been growing at about the same pace of the GDP growth. Insurance density, however, showed YoY improvement over the past ten years, indicating the population growth has been slower than the P&C insurance premium growth or the GDP growth. Given relatively high insurance penetration and density, we expect s future P&C growth to be in line with GDP growth. Given the current challenging macro environment, we expect insurance density to come down from the recent high. Figure 156: Penetration decreased from the 23 high P&C insurance premiums / GDP (%) Figure 157: with density increasing past decade P&C insurance premium / capita (A$), growth rate (% p.a.) 4.5% 4.% 3.5% 2, 1,8 1,6 1yr CAGR = 3.9% Growth (%pa) 17.9% 4.%.7%.1%.6% 1.3% 4.3% 4.7%.4% 5.8% 3.% 2.5% 2.% 1.5% 1,4 1,2 1, % 1.% 4.5% 2 - FY11 FY1 FY9 FY8 FY7 FY6 FY5 FY4 FY3 FY2 FY1 FY11 FY1 FY9 FY8 FY7 FY6 FY5 FY4 FY3 FY2 FY1 Source: Swiss Re, Credit Suisse research Asia P&C Insurance Sector 66

67 13 November 213 Regulatory environment The n Prudential Regulation Authority (ARPA) and the n Securities and Investment Commission (ASIC) are the ultimate regulatory authorities for the insurance industry in. The APRA supervises insurance companies, both life and non-life, authorised under the Life Insurance Act 1995 with a view to maximising the likelihood that these companies will be able to meet their obligations to policyholders. Minimum capital requirement: The General Insurance Reform Act 21 (the Act) imposed a new Minimum Capital Requirement of A$5 mn (US$5.35 mn) effective from 1 July 22. There is no explicit capital requirement for foreign branches, though these are required to maintain assets in in excess of their liabilities in of an amount at least equal to their capital adequacy standard. Solvency margin: has a risk-based capital solvency regime with minimum solvency levels below which an insurer is technically insolvent and capital adequacy levels below which APRA may intervene in the running of the company or impose conditions to prevent breach of minimum solvency levels. Recent development: has implemented a common framework for required capital and eligible capital across general and life insurers. The new framework ensures greater risk sensitivity in the calculations of the required capital. The new standards were effective from 1 January 213. An important aim of the insurance capital review is to move from a minimum capital requirement (MCR) to a prudential capital requirement (PCR). Under the new PCR regime, insurers will be required to hold a minimum amount of risk-based capital calculated by the new formula, plus any supervisory adjustment required by APRA. The supervisory adjustment may be greater or less than the current buffer of 2% of the MCR depending on the dynamics of the insurer s business. The Prudential Regulation Authority (APRA) supervises insurance companies Asia P&C Insurance Sector 67

68 P&C insurance premiums (Rmb mn) as % of region 13 November 213 Market snapshot According to Swiss Re data, total premiums written by the P&C insurance sector in 212 were worth US$14 bn, which makes the country the sixth largest life insurance market in the world and the largest in Asia ex- (including ) with a 38% market share, more than 2% higher than the next largest market of Korea. is the largest in Asia ex- with a 38% market share Figure 158: life market is the largest in NJA NJA P&C insurance premiums by country (%), 212 Figure 159: market share of Asia increasing % of global and regional market 4.7% 1.9% 2.7%.4% 1.7%.4% 1.3% 3.5% South Korea 21.7% % 8.% 7.% 6.% 5.% 4 4.% 37.6% 5.5% % 2.% 3.2% 15.3% 1 FY FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11 1.% NJA Developing NJA Global (RHS) Source: Swiss Re, Credit Suisse research s market share in both the global and the Asia context has expanded very rapidly as the economy grows, property and car ownership increases and insurance penetration deepens, underpinned by the customers insurance needs, a large population base and an ageing population. In 212, accounted for 5.2% of the global P&C life insurance premiums, growing from less than 1% a decade ago. Similarly, in the NJA context, s market share doubled over the preceding decade (22-12). Figure 16: has grown >2% p.a. past decade P&C insurance prem (Rmb mn), growth rate (% p.a.) Figure 161: growth significantly higher than NJA P&C insurance premiums (US$) growth rate (% p.a.) 7, 6, 5, 1yr CAGR = 21.1% Growth (%pa) 31.8% 16.4% 16.6% 8 6 4, 3, 2, 1, 21.8% 13.9% 22.% 24.4% 2.4% 1.3% 25.4% 21.6% 17.7% FY FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11-2 FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11 NJA Source: Swiss Re, Credit Suisse research The P&C insurance market has grown at 21.1% p.a. over the past decade in local currency (Rmb) terms. In USD terms, given appreciation of the RMB against the USD in 22, the growth rate is lower (2.2% p.a.). s growth rate has surpassed the rest of Asia in almost every single year over the past 12 years, expect for 23. The market also has been growing at 21.1% p.a. over the past decade Asia P&C Insurance Sector 68

69 P&C insurance premiums as % GDP P&C insurance premium / capita (Rmb) P&C insurance premiums / GDP (%) P&C insurance premiums / capita (US$) 13 November 213 proved to be very resilient during the financial crisis, still managing to register growth rates over 2% when the growth in the rest of Asia slowed down. Despite the fast growth in the past, s insurance penetration remains to be the lowest in the developing Asian region and also significantly lower than some of the developed economies such as, South Korea,, and. s P&C insurance density expanded seven-fold from US$76 per capita in 22 to US$479 per capita in 212. Despite the explosive growth, it is still the lowest in developing Asia context and significantly lowered than the developed economies. In our opinion, the P&C insurance market still presents a huge growth potential. insurance penetration and density remain to be low despite rapid growth Figure 162: penetration lowest in developing Asia P&C insurance premiums / GDP (%) 6.% Developed Developing Emerging Figure 163: density also lowest in developing markets Asia P&C insurance premiums / capita (US$) Developed Developing Emerging 5.% 4.% FY2 2,5 2, 1.2% 1.8% FY2 1yr CAGR (%pa) 3.% 2.% 1.% 1,5 1, 5 3.6% 4.2% 13.3% 6.3% 19.4% 16.8% 8.7% 13.4% 11.3% 7.7% 17.2% - South Korea South Korea Source: Swiss Re, Credit Suisse research s strong growth profile (P&C insurance premium growth exceeding GDP growth) helped insurance penetration to expand. Given the P&C market has been growing much faster than the population, insurance density has been improving steadily over the past decade YoY and the CAGR is as high as 2%. We believe the structural growth will continue in the medium term In spite of the explosive growth in the P&C market in the past, we believe the structural growth will continue in the medium term. We expect Chinese P&C insurance to experience growth rates above 15% p.a. for the next decade despite lower population growth. Figure 164: penetration is growing P&C insurance premiums / GDP (%) Figure 165: insurance density increased at a fast pace insurance prem / capita (Rmb), growth rate (% p.a.) 1.6% 6 1.4% 5 1yr CAGR = 2.3% Growth (%pa) 15.9% 1.2% 1.% % 3.8%.8%.6%.4% % 16.9% 2.9% 25.% 19.4% 13.9% 21.4% 23.8%.2% FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11 - FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11 Source: Swiss Re, Credit Suisse estimates Asia P&C Insurance Sector 69

70 13 November 213 Industry dynamics P&C sector growth has been reasonably subdued so far in 213, with growth rate staying at 16%. After a slow start to 213, growth has picked up over the past few months. Motor vehicle insurance, agriculture and health insurance have been the fastest growing segments of the P&C market, while commercial property and accident insurance have been growing at a much slower pace. P&C market growth has been subdued so far in 213 to 16% Figure 166: Growth rate has stayed at 16% in 213 so far.. P&C insurance premium (Rmb mn) and growth (%) 6, 4% Figure 167: motor growth rate above average at 27% P&C insurance growth rate by segment (5Y CAGR %) 4 92% 48% 525, 35% 35.% 45, 3% 3 375, 25% 25.% 3, 2% 2 225, 15% 15.% 15, 1% 1 75, 5% 5.% Premiums (Rmb mn) Growth 1yr CAGR (%pa) 212 to Aug 13 % Auto Commercial Property Agriculture Liability Accident Engineering Health Other Total Source: CIRC, Credit Suisse research Motor vehicle insurance is the biggest segment with a 77% market share. Home insurance, both contents and building, remains a very small fraction of the P&C market, which we believe to be a legacy of s socialist background. While we do not expect a dramatic change in penetration any time soon, we highlight it as a key medium-term growth segment that would normally present 15-2% of a mature P&C market. Motor is the largest segment in with a 77% market share s non-motor P&C segments are less developed compared to other developed and developing economies which presents tremendous growth potential, in our opinion Figure 168: P&C market is still mainly motor Global P&C market by segment 212 (%) Accident 2.1% Agriculture 3.1% Liability 3.% Commercial Property 6.3% Engineering 1.4% Health 1.2% Other 5.6% Figure 169: non-motor segments less developed P&C insurance growth rate by segment (5Y CAGR %) 1% 8% 6% 4% Auto 77.2% 2% % USA Motor Property Liability A&H Other Source: CIRC, Towers Watson, Credit Suisse research The P&C market has historically been dominated by three domestic insurers PICC, Ping An and Pacific. The market is quite concentrated, with the Top 5 insurers controlling about 7% of the market. Although PICC has slowly lost market shares over the years, it remains to be the market leader with more than one third of the market share in 212. Asia P&C Insurance Sector 7

71 Market share (%) 13 November 213 Figure 17: New business growth has slowed life insurers new business growth by company (%) Life 3.3% 18.6% Top 5 = 73% 7.8% Ping An Life New Life Pacific 8.4% 6.3% Source: CIRC, Credit Suisse research 5.6% 4.6%.7% PICC Life Tai Kang Tai Ping Life AIA Others Dec-6 Dec-9 Dec-12 Aug % Figure 171: with smaller companies retreating P&C insurance market shares (%) % 16.% 14.% 12.% 1 8.% 6.% 4.% 2.% Pacific While PICC has lost market share, the second largest P&C insurer (Ping An) has gained a bigger piece of the pie. Many of the more aggressive smaller P&C companies in have been losing market shares in recent years. We believe the solvency standards (June 28) and document 7 (August 28) have had a big impact on the smaller insurers, leading to a more rational market, in our view. We believe that the gradual deregulation or pricing should not affect this situation in the near term, given (1) many smaller insurers will not qualify to set their own pricing, at least initially; and (2) smaller insurers will lose their qualification if they pursue aggressive pricing strategy that leads to underwriting losses in two conservative years. Simply put, it will be hard for the small players simply to buy market share with low prices CCIC Yong An United Sunshine 211 Ping An 212 Life P&C to Aug 13 Aggressive smaller P&C companies in have been losing market share Asia P&C Insurance Sector 71

72 Dec-99 Dec- Dec-1 Dec-2 Dec-3 Dec-4 Dec-5 Dec-6 Dec-7 Dec-8 Dec-9 Dec-1 Dec-11 Combined ratio (%) Loss ratio (%) 13 November 213 Market profitability The profitability of the Chinese P&C insurance industry has materially improved since 27, mainly due to regulatory changes that have led to a more rational industry structure. We note that the combined ratio has picked up since 211, with competition picking up a bit since then. We highlight that two-thirds of P&C insurers are now loss making, hence regulatory intervention has picked up over the last 12 months and we have seen combined ratio deterioration slowing. Profitability has materially improved since 27, peaking in 211 Figure 172: Profitability has improved since 27 Combined ratio by insurer (%) 24-14E % Sichuan earthquake / snowstorms F'casts ----> Figure 173: with loss ratios stable over past few years Loss ratio by insurer (%) 24-14E 85.% F'casts ----> 8 15.% 12.5% Underwriting loss Taiping 75.% 7 PICC 1 Underwriting profit 65.% 97.5% 95.% ROE = 15% 6 55.% Pacific Ping An 92.5% 9 1H4 2H4 1H5 2H5 1H6 2H6 1H7 2H7 1H8 2H8 1H9 Ping An 2H1 1H1 2H9 1H11 2H11 Pacific 1H12 2H12 1H13 PICC 2H13F 1H14F 5 45.% 1H4 2H4 1H5 2H5 1H6 2H6 1H7 2H7 1H8 2H8 1H9 2H9 1H1 2H1 Taiping 2H12 1H12 2H11 1H11 1H13 2H13F 1H14F Source: Reuters, Credit Suisse estimates While we do not yet have all full date for 213 for all P&C insurers, we note that the Top 3 insurers had combined ratios less than 1% in 212. A few smaller insurers, however, have combined ratios exceeding 1%. Given larger insures enjoy a significant cost advantage over the smaller ones, we expect their profitability to remain above industry level. Figure 174: Combined ratios over 1% for many Top 23 P&C insurers combined ratio (%) % % 1 95.% 9 85.% 8 75.% Figure 175: Some increase in loss ratio, but remains low 12-month rolling industry loss ratio (%) % 6% 55% 5% 45% 7 PICC Ping An Pacific United Life CCIC Sunshine Sinosure Tian An An Bang Yong An Taiping Alltrust Sinosafe Huatai Tian Ping Du-Bang BOC An Hua Agr Dazhong An Cheng Sunshine Agr Bohai 4% % Source: Reuters, Credit Suisse estimates Asia P&C Insurance Sector 72

73 13 November 213 Regulatory environment The Insurance Regulatory Committee (CIRC) has always been a key driving force behind the healthy growth of the insurance industry. We list out all the major initiatives in Figure 176 that the CIRC has taken over the past five years including the auto insurance reform, the introduction of No. 7 document and solvency regulations. We also provide a brief summary of the more important regulatory rules and changes. Figure 176: P&C insurance regulatory history Date Sector Doc no Issuer Type Summary Jul-6 P&C Mandatory CIRC Mandatory motor introduced Jul-6 P&C Voluntary CIRC Standard voluntary motor rates introduced (A. B. C) Apr-7 P&C Voluntary CIRC Voluntary auto premium rates revised (2nd edition) Feb-8 P&C Mandatory CIRC Mandatory motor premium rates revised Feb-8 P&C Voluntary CIRC Voluntary auto premium rates revised (3rd edition) Jun-8 Solvency No. 1 CIRC Final Minimum solvency standards introduced Aug-8 P&C No. 7 CIRC Final Eliminated irregularities and prevent damage to market discipline Oct-9 P&C Voluntary CIRC Voluntary auto premium rates revised (4th edition) Jan-1 P&C Voluntary CIRC Beijing 'floating rate' voluntary auto insurance pricing 'trial' Dec-1 P&C No. 17 CIRC Final Regulate agency and protect market discipline Dec-1 Solvency CIRC Consultation Maximum gearing reduced from 1% to 5% Dec-1 P&C BJ Govt Quota restrictions on vehicles Jan-11 P&C Voluntary CIRC Shenzhen 'market rate' voluntary auto pricing 'trial' Apr-11 P&C Voluntary CIRC Xiamen 'floating rate' voluntary auto insurance pricing 'trial' Oct-11 Solvency 211 (2) CIRC Final Raise amount and other quant standard are stated Mar-12 P&C CIRC Final Auto pricing reform Source: CIRC, Credit Suisse Mandatory auto In 26, the Insurance Regulatory Commission (CIRC) effectively implemented one set of standard auto insurance scheme nation-wide by introducing mandatory auto insurance and a voluntary auto insurance on top of standard liability coverage and premium rates. This uniform auto insurance scheme has its success in meeting the basic insurance needs and streamlining the industry. Mandatory auto was introduced in July 26 It has taken into account basic factors such as the vehicle categories, nature of use and claims experiences in terms of risk selection and differentiation. However, the nation-wide policy fails to allow for differences in underwriting experiences in different areas in due to different basic infrastructure, traffic intensity, repair cost, etc. Recently the key initiative of the CIRC regarding auto insurance was to promote the pricing reform on a city by city basis to allow for a greater degree of customer segmentation and risk selection. Typically, these programmes incorporate additional risk factors such as driving experiences, driver information, sales channel, among others. The CIRC also encourages the local insurance association to set up online auto insurance information sharing platform which helps ensure accurate underwriting and proper claims handling. Mandatory third party auto insurance was introduced in July 26 which provides death and injury, medical and property loss insurance. The regulator set the standard premium rate and liability coverage limit and capped the commission rate at 4%. CIRC designed it to be a no profit no loss social insurance scheme. After one year of implementation, traffic accident as a floating factor and corresponding floating discount/premium rate, ranging from -/+3%, was added into the system for better risk differentiation (Figure 177). Following a review of the operating and actuarial results of mandatory auto business of the P&C insurers, in February 28, CIRC raised the liability coverage limit by c.1% (Figure 178) and lowered premium rates by 5-39% for different categories (Figure 179). Asia P&C Insurance Sector 73

74 13 November 213 Starting from Shanghai, CIRC began to localise mandatory auto insurance by implementing pricing reform and subsequently launched similar localised schemes in Jiangsu, Fujian and most recently in Chongqing. In some cases of serious traffic law violation, the premium could be lifted by as much as 7%. Jiangsu is also studying the possibility of introducing different premium rates in different regions inside the province to better reflect the risk. Figure 18: Major regulatory changes on mandatory auto insurance Date Event 1-Jul-26 1-Jul-27 1-Feb-28 1-Apr-28 1-Mar-21 1-May-21 1-Jun Jun Jun-21 1-Jul Aug-21 2-Aug-21 1-Feb Feb Mar-211 Source: CIRC, Credit Suisse Mandatory motor introduced Accident experience as a floating factor introduced Mandatory motor premium rates revised Shanghai introduced traffic violation as floating factor Jiangsu introduced traffic violation as floating factor Sichuan introduced traffic violation as floating factor Gansu introduced traffic violation as floating factor Liaoning introduced traffic violation as floating factor Hainan introduced traffic violation as floating factor Fujian introduced traffic violation as floating factor Zhejiang introduced traffic violation as floating factor Hunan introduced traffic violation as floating factor Chongqing introduced traffic violation as floating factor Shenzhen introduced traffic violation as floating factor Jiangsu would trial regional differentiated premium rate Insurance Association of has released the mandatory auto business financial and actuarial results for the past four years. In 29, the total industry suffered an underwriting loss of Rmb5.3 bn and a total net loss of Rmb2.9 bn including investment income after the premium rates adjustment in February 28. Voluntary auto Voluntary auto insurance provides additional cover on top of the mandatory auto insurance. The CIRC approved three standard voluntary auto insurance policies developed by PICC, Ping An P&C and CPIC P&C and asked the other P&C insurers to comply with one out of the three. Voluntary auto insurance generally includes coverage of third party liability, vehicle damage, theft protection and passenger's liability. Customers could purchase one or several of the coverage plus any additional insurance coverage they feel necessary. Similar to what happened in mandatory auto insurance, several major cities started to launch city specific voluntary auto insurance pricing reform which not only incorporates the basic feature of the national policy but also adjusts the premium rate and discount factors according to city specific traffic condition, underwriting experiences, etc. Often, the new voluntary auto insurance offers a higher discount rate on no-claims experience and imposes heavier penalty on numerous claims experience or severe law violation activities. The difference in the premium rate could be as high as eight times for a good driver and a bad one which effectively achieves risk differentiation. Asia P&C Insurance Sector 74

75 13 November 213 Figure 181: Major regulatory changes on voluntary auto insurance Date Event 7-Jan-26 Standard voluntary motor rates introduced (A. B. C) 4/1/27 Voluntary auto premium rates revised (2nd edition) 2/1/28 Voluntary auto premium rates revised (3rd edition) 1/1/29 Voluntary auto premium rates revised (4th edition) 1/1/21 Beijing 'floating rate' voluntary auto insurance pricing 'trial' 1/1/211 Beijing 2nd 'floating rate' voluntary auto insurance pricing 'trial' 1/1/211 Shenzhen 'market rate' voluntary auto pricing 'trial' 4/1/211 Xiamen 'floating rate' voluntary auto insurance pricing 'trial' 7/1/211 Guangxi 'floating rate' voluntary auto insurance pricing 'trial' 2/23/212 Motor premium rate pricing reform 3/5/212 Motor claim service management plan Source: CIRC, Credit Suisse Due to the penalty imposed on numerous claims experiences, some drivers choose not to claim under their voluntary insurance cover for small accidents to keep a clean record and enjoy a better premium rate the next year. Hence, the enhanced scheme promotes a lower claims frequency. It is reported that in Beijing, after nearly one year of enforcement of the new voluntary auto insurance scheme, the number of reported claims dropped by 6.1% and claims frequency dropped by 27.4% in the first 11 months of 21 compared to 29. Online information sharing platform A crucial part of the success of the auto insurance pricing reform is the set-up of an effective online auto insurance information sharing platform which contains key information such as vehicle basic information, drivers record, underwriting experience and claims experience. This platform could ensure proper claims handling process and fair pricing for the insurance companies as well as the policyholders and prevent fake claims. This platform has been built on a city level and is rolled out in major cities such as Beijing, Shanghai and Shenzhen, among others. No. 7 document After several years of the P&C market chaos, the CIRC finally came into action by way of issuing the No. 7 document on 29 August 28. The enforcement of No. 7 document is viewed as a milestone in tightening the regulation as well as improving P&C market conditions. The No. 7 document was generally to address the market irregularities and promote an orderly, fair and efficient market. CIRC issued No. 7 document in August 28 The main focus areas include: Ensure the accurateness of the operational and financial data Ensure accurate premium recognition Prevent fraudulent claims Ensure correct booking of expense, no commission expense under claims or administration expenses Ensure standardised and strict reserving practice Enforce strict compliance of the regulator approved insurance policy and premium rate Promote a standardised claims procedure and improve the service quality Strengthen the internal control Strengthen solvency control and restrict business expansion The CIRC also laid out measures which include: Apply severe legal punishment for mis-conduct Asia P&C Insurance Sector 75

76 13 November 213 Suspend the new business for as long as six months Change the responsible management Charge legal fine Withdraw business licence Apply criminal punishment Enhance information disclosure, report the illegal conduct and punishment to the public in a timely manner Strengthen solvency regulation, in case of insolvency Restrict new branch expansion Restrict business scope Cap management compensation Limit shareholder dividend Force more reinsurance Force replenish of capital Build close supervision and investigation system at the headquarters, set up regulatory talk with headquarter principal Set up report system with major shareholder, independent director and supervisor Set up explicit and strict management accountability system Solvency regulation Solvency is key to insurance companies' capital management and remains one of the most effective measures for the regulator to promote healthy industry conditions. The current solvency regulation is being implemented from September 28 and the discussion on this topic appears in numerous other regulatory documents including No. 7 document that we discussed in the above. Solvency regulation was implemented from September 28 The current solvency regulation requires that Insurance companies should follow the CIRC solvency rule to prepare solvency report and ensure the authenticity, accurateness, completeness and compliance The board of governance and management are responsible for the solvency report Submit audited annual solvency report Submit quarterly solvency report Report to the CIRC within five working days if insolvent Report to the CIRC within five working days if any major event happens which could cause insolvency which includes Significant investment loss Significant claim, massive surrender or major litigation Subsidiary or associate companies face financial distress or taken over by the regulator Headquarters of foreign insurance companies receive legal punishment because of solvency issue, face forced regulatory action or files for bankruptcy Parent company faces financial distress or taken over by the regulator Asia P&C Insurance Sector 76

77 13 November 213 Major assets face liquidation or other major legal punishment Other events that could make significant negative impact on solvency It classifies insurance companies into three categories: Insolvent, whose solvency margin ratio is less than 1% Solvent I, whose solvency margin ratio is between 1% and 15% Solvent II, whose solvency margin ratio is over 15% For the insolvent insurance companies, the following measures would be applied Increase capital base or limit shareholder dividend Set management compensation cap Restrict commercial advertisement Restrict branch expansion Restrict business scope Restrict new business Force assets auction or restrict fixed assets purchase Restrict capital usage Change management Takeover by regulator Other actions that CIRC deems necessary The CIRC could ask Solvent I companies to submit plans to prevent insolvency. It could require restructuring or other necessary actions if Solvent I and Solvency II companies face significant solvency risk. Sub-debt The CIRC is also planning to tighten regulations for insurance firms raising capital through subordinated debt and issued a consultation paper in December 21. Insurance firms that are going to issue subordinated debt need to Be in operation for at least three years Have predicted dynamic solvency in the coming year less than 1% Be profitable in the most recent year Have net assets above Rmb1 bn (US$15 mn) Have sub-debt not exceed 5% of total net assets compared with 1% currently In 211, the CIRC is set to lower hurdles for insurers seeking to raise capital through subordinated bonds. Insurance companies only need to demonstrate their solvency or two-year projected solvency of lower than 15% (instead of 1%) and have net assets above Rmb5 mn (instead of Rmb1 bn). CIRC has issued a consultation paper to reduce maximum gearing levels Asia P&C Insurance Sector 77

78 P&C insurance premiums (Thb mn) as % of region 13 November 213 Market snapshot According to Swiss Re data, total premiums written by the P&C insurance sector in 212 were US$7.6 bn, which makes the country the 33 rd largest P&C insurance market in the world and the eighth largest in Asia ex- (including ) with a 2.7% market share. is the eighth largest in NJA with a 2.7% market share Figure 182: P&C market is 2.7% of NJA NJA P&C insurance premiums by country (%), 212 Figure 183: with increased global market share % of global and regional market 4.7% 1.9% 2.7%.4% 1.7%.4% 1.3% 3.5% South Korea 21.7% 14.% 12.% 1 8.%.4%.35%.3%.25% 6.%.2% 37.6% 5.5% 4.% 2.%.15%.1% 3.2% 15.3% FY FY1 FY11 FY1 FY9 FY8 FY7 FY6 FY5 FY4 FY3 FY2 NJA Developing NJA Global (RHS).5% Source: Swiss Re, Credit Suisse research s market share in the global context has been on a path of steady expansion. Most recently, s share was.4% of the global life insurance volume. Within the NJA region, s market share has been stable at slight shy of 3% despite its rapid growth. In the developing NJA region, s market share has declined from more than 13% in 1999 to around 6.5% in 212 given the strong growth of and. Figure 184: Thai has grown 11% p.a. past decade P&C insurance prems (Thb mn), growth rate (% p.a.) 25, 1yr CAGR = 11.% 24.8% Figure 185: growth higher than NJA region P&C insurance premiums (US$ mn) growth rate (% p.a.) 7 2, 15, 1, Growth (%pa) 6.8% 8.7% 6.6% 8.6% 9.% 17.4% 5.6% 4.4% 12.6% 12.3% 5 3 5, 12.9% 1 - FY FY1 FY2 FY3 FY4 FY5 FY6 Source: Swiss Re, Credit Suisse estimates FY7 FY8 FY9 Over the past ten years, the P&C insurance market has grown significantly at 11% p.a. in local currency terms. In USD terms, given the strengthening of the local currency against the USD, the growth rate is even higher (at 17.9% p.a.). The growth slowed in 29 after the financial crisis to just.3%, but quickly recovered to over 2% in 21. s growth rate generally lagged the rest of Asia in the past except for 23 when it had an explosive year and 212. FY1 FY11-1 FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11 NJA Devleoped NJA Asia P&C Insurance Sector 78

79 P&C insurance premiums as % GDP P&C insurance premium / capita (Thb) P&C insurance premiums / GDP (%) P&C insurance premiums / capita (US$) 13 November 213 After fast growth in the past decade, P&C insurance penetration (insurance premium as a % of GDP) increased to 2.1% in 212, from 1.2% a decade ago. Currently, its insurance penetration is the highest in developing Asia. s P&C insurance density (P&C premiums per capita) more than quadrupled from merely US$23 per capita in 23 to US$19 per capita in 212. Despite the tremendous improvement, insurance density is still low relative to the developed economies. Low insurance penetration and increasing household wealth, in our view, present a substantial growth opportunity in. insurance penetration has substantial potential to grow, in our view Figure 186: penetration has increased Asia P&C insurance premiums / GDP (%) 6.% Developed Developing Emerging Figure 187: insurance density is still low Asia P&C insurance premiums / capita (US$) Developed Developing Emerging 5.% 4.% FY2 2,5 2, 1.2% 1.8% FY2 1yr CAGR (%pa) 3.% 2.% 1.% 1,5 1, 5 3.6% 4.2% 13.3% 6.3% 19.4% 16.8% 8.7% 13.4% 11.3% 7.7% 17.2% - South Korea South Korea Source: Swiss Re, Credit Suisse estimates As a market with stable growth in the past, P&C insurance penetration has stabilised in recent years after a sharp increase from 2 to 23. Insurance density shows a very healthy growth profile as the growth in P&C insurance premium has significantly surpassed the population growth. In our view, s P&C insurance sector has further room for structural expansion, especially given its strong economic growth outlook, increasing household income and urbanisation. However, the high level of political instability also creates uncertainty to the future economy growth and posts a real threat to the foreign capital infusion. Figure 188: penetration is picking up again P&C insurance premiums/ GDP (%) Figure 189: insurance density growing at 1% p.a. P&C insurance prem / capita (US$), growth rate (% p.a.) 2.5% 4, 3,5 1yr CAGR = 1 Growth (%pa) 24.3% 2.% 1.5% 1.% 3, 2,5 2, 1,5 18.9% 49.7% 8.3% 5.2% 6.% 11.7% 12.% 1.2% 6.1% -1.% 1,.5% 5 FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11 - FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11 Source: Swiss Re, Credit Suisse estimates Asia P&C Insurance Sector 79

80 Gross written premium (THB mn) Growth (%pa) Gross written premium (THB mn) Growth (%pa) 13 November 213 Industry dynamics The P&C industry had registered steady growth in the past. Even when the political unrest in May 21 affected the economic and social climate of the Thai economy, the P&C insurance industry still witnessed decent growth in 21 and 211. Growth in the P&C sector can be partially attributed to the continuous support and promotion by Thai government. had registered steady growth in the past Figure 19: market grew steadily in the past P&C insurance (in force Bt mn) and growth (%) 175, 25% Figure 191: mostly motor insurance P&C product mix market share and growth (%) 12, 17.5% 15, 1yr CAGR = 9.4% 2% 15, 15.% 125, 1, 75, 15% 1% 9, 75, 6, 45, 12.5% 1 7.5% 5, 5% 3, 5.% 25, % 15, 2.5% % GWP - Direct GWP - Reins Growth (%pa) 1yr CAGR (%pa) Fire Marine Motor Other Growth (%pa) 1yr CAGR (%pa) Source: OIC, Credit Suisse research Motor insurance is the largest segment in the P&C insurance industry with around twothirds of the market share. It has grown on the back of compulsory motor insurance as well as increasing car sales. The P&C market is fragmented with the presence of a number of insurers. The Top 5 P&C insurers jointly constitute about 41.4% of the total market share in 212. Viriyah is the market leader with a 15.5% share of the P&C sector and a 24% share of the motor segment. In 212, many new channels of distribution were introduced such as direct marketing, telemarketing, convenient store or pay-point service. All P&C insurance companies also increased their advertisement and public relations efforts and developed new products for all groups of customers. Several local Thai insurers have established affiliations with foreign insurers. Motor insurance has grown on the back of compulsory motor insurance and increasing car sales Figure 192: Motor is the largest P&C segment P&C market share by segment (%) Figure 193: s P&C market is highly fragmented P&C market position (Bt mn, % p.a.) Personal accident 8.8% Health 3.8% Engineering.5% Other 4.7% Fire 5.4% Hull.1% Cargo 2.3% Compulsory motor 1 3, 25, 2, 15, 15.5% 1 Top 5 = 44% Motor Fire Marine Other Top 1 = 61% 42.8% Voluntary motor 63.3% 1, 5, 7.2% 4.9% 3.8% 3.9% 3.4% 3.2% 1.8% 3.3% Other Thanachart ACE Tokio Marine LMG IAG Muang Thai Synmunkong Bangkok Dhipaya Viriyah Source: OIC, Credit Suisse estimates Asia P&C Insurance Sector 8

81 13 November 213 Market profitability The combined ratio of P&C insurance has managed to stay just below 1% in the past decade except 211, indicating strong competition and compressed underwriting profit margin for the industry as a whole. The average combined ratio is 19.3% for the past decade. The average combined ratio for the biggest segment, voluntary motor, is 91.8% over the past ten years. The combined ratio deteriorated in 211 to stay above 2%, which was mainly due to the flood, a US$15 bn event so will see P&L impact over more than one year. The aggregate combined ratio has been just slightly below 1% in the past decade except 211 Figure 194: 211 flood had huge impact on profitability P&C insurance company combined ratio (%) 25% Figure 195: with voluntary motor not overly profitable Voluntary motor (63% market share) combined ratio (%) 12% 2% 1% 8% 15% 6% 1% 4% 5% 2% % Expense % Commission % Loss % 1% % Expense % Commission % Loss % 1% Source: OIC, Credit Suisse estimates For the second and third largest segments, compulsory motor and personal accident, the profitability bettered in 211 as the combined ratio went below 1% for both segments. The compulsory motor segment was profitable in the past, with an average combined ratio of approximately 9% before 21. The loss in 21 for the compulsory motor segment is largely due to the abnormally high loss ratio, which can be attributed to the social unrest in May 21. At 63% in 21, the loss ratio is significantly higher than the normal level of below 5%. We deem the adverse experience in 21 as non-occurring and expect the profitability for this segment to normalise in the medium term. Figure 196: Compulsory motor not profitable of late Compulsory motor (1% market share) combined ratio (%) 12% Figure 197: same can be said for personal accident Personal accident (1% market share) combined ratio (%) 12% 1% 1% 8% 8% 6% 6% 4% 4% 2% 2% % % Expense % Commission % Loss % 1% Expense % Commission % Loss % 1% Source: OIC, Credit Suisse research Asia P&C Insurance Sector 81

82 13 November 213 Regulatory environment The primary regulator of life insurance in is the Office of Insurance Commission (OIC), which reports to the Ministry of Finance. The OIC took over regulatory powers for the insurance industry from the Department of Insurance (which resided under the Ministry of Commerce) on 1 September 27. There are two major reforms that have occurred or appear to be in the pipeline in the country: Minimum capital requirement: The Non-Life Insurance Act 1992 established a minimum capital requirement of Bt3 mn (US$$.9 mn) but companies subsequently licensed in 1997 were required to have a minimum paid-up capital of Bt3 mn (US$$9 mn). Many non-life insurers registered prior to 1997 therefore have less than the required Bt3 mn (US$9 mn) capital. Insurers are also required to deposit security with the OIC of Bt3.5 mn (US$15,) for each class of business written. Risk-based capital (RBC): Starting 3 September 211, the OCI has administered new regulations on measurement of the adequacy of an insurer s capital based on a standardised RBC framework. The implementation of the RBC framework is widely considered as a big step forward for the industry as it is likely to help strengthen risk management, improve financial transparency and ensure better risk-returns. The RBC framework defines the capital adequacy ratio (CAR) which measures the adequacy of the capital available to the insurer to support the total capital required under various circumstances. CAR is calculated as total capital available divided by total capital required. Total capital available is made of Tier 1 and 2 capital, which are all specified in the framework. The initial minimum CAR was set to be 125% when RBC was first implemented in September 211. The ratio then increased to 14% by 1 January 213. Total capital required consists of capital charges from four risk areas: insurance, market, credit and concentration. Financial reporting: For regulatory filings, IFRS is not allowed. Thai GAAP (Thai Accounting Standards, or TAS) have been revised or newly issued to increasingly align with existing IFRS. It is anticipated TAS will be fully compliant with IFRS in the near future. Asia P&C Insurance Sector 82

83 P&C insurance premiums (MYR mn) as % of region 13 November 213 Market snapshot According to Swiss Re data, total premiums written by the P&C insurance sector in 212 were US$5.3 bn, which makes it the 39 th largest P&C insurance market in the world and the ninth largest in Asia ex- (including ) with a 2% market share. One unique feature of the insurance market is that it is an international financial hub for Takaful (Shari a-compliant) offerings. is an international financial hub for Takaful (Shari a-compliant) offerings Figure 198: life market is ~2% of NJA NJA P&C insurance premiums by country (%), % 1.9% 2.7%.4% 1.7%.4% 1.3% 3.5% South Korea 21.7% Figure 199: global market share increased but not NJA % of global and regional market 16.%.4% 14.%.35% 12.%.3% 1.25% 8.%.2% 6.%.15% 37.6% 5.5% 4.% 2.%.1%.5% 3.2% 15.3% FY FY1 FY11 FY1 FY9 FY8 FY7 FY6 FY5 FY4 FY3 FY2 NJA Developing NJA Global (RHS).% Source: Swiss Re, Credit Suisse estimates Its market share in the global context increased recently. Most recently, was almost.27% of the P&C life insurance premium volume. However, in both NJA and developing NJA, given the strong growth from developing and emerging economies (including and ), s market share has declined dramatically from its late 199s high to the current historical low level (2% of NJA and 4.5% of developing NJA). According to Bank Negara, in 21 general Takaful contributions grew by 26.3% While the data was not broken down for the P&C insurance sector, we have reasons to believe Takaful P&C insurance also enjoyed rapid growth in 21. Figure 2: market grown 8% p.a. past decade P&C insurance prem (MYR mn), growth rate (% p.a.) Figure 21: growth slower recently than NJA average P&C insurance premiums (US$ mn) growth rate (% p.a.) 18, 16, 14, 12, 1, 8, 6, 1yr CAGR = 8.2% Growth (%pa) 1 3.2% 3.7% 8.5% 9.9% 4.3% 16.3% 6.8% 5.7% 9.2% 2.8% 8.% 3 1 4, 2, - FY FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11-1 FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11 NJA Devleoped NJA Source: Swiss Re, Credit Suisse research Asia P&C Insurance Sector 83

84 P&C insurance premiums as % GDP P&C insurance premium / capita (MYR) P&C insurance premiums / GDP (%) P&C insurance premiums / capita (US$) 13 November 213 Over the past ten years, the P&C insurance market has grown rapidly at 8.2 % p.a. in local currency terms. In USD terms, given the strengthening of the local currency against the USD, the growth rate is higher at 1.5% p.a. s growth rate has historically lagged the rest of the Asia but did not have a year with negative growth in the past decade, even during the financial crisis. Like the rest of Asia, after two years (in 28 and 29) with relatively low growth post the financial crisis, the market rebounded significantly in 21 and 211. In 212, the market registered a growth rate of 7%, falling behind the rest of Asia. P&C market has been growing at 8.2% p.a. over the past decade As the result of the robust growth in the past decade, s P&C insurance penetration reached 1.7% in 212, the highest in developing Asia but still significantly lagging some of the developed Asian economies. In terms of insurance density, is at US$185 per capita in 212, leading the nondeveloped Asian countries but still materially lagging the developed Asian economies. Figure 22: Penetration 2 nd highest in developing NJA NJA P&C insurance premiums / GDP (%) 6.% Developed Developing Emerging Figure 23: and the highest density in developing NJA NJA P&C insurance premiums / capita (US$) Developed Developing Emerging 5.% 4.% FY2 2,5 2, 1.2% 1.8% FY2 1yr CAGR (%pa) 3.% 2.% 1.% 1,5 1, 5 3.6% 4.2% 13.3% 6.3% 19.4% 16.8% 8.7% 13.4% 11.3% 7.7% 17.2% - South Korea South Korea Source: Swiss Re, Cr Credit Suisse research As a market with steady growth in the past, s P&C insurance penetration has stabilised in recent years after a sharp increase in the early 2s. Insurance density shows a very healthy growth profile as the growth in P&C insurance premium has surpassed the population growth In our view, s P&C insurance sector has room for further structural expansion, especially given the indigenous Malay population with a relatively young population and increasing household income. Figure 24: Penetration has stabilised P&C insurance premiums / GDP (%) 2.5% 2.% 1.5% 1.%.5% Figure 25: insurance density is on an uptrend P&C insurance premium/ capita (RM), growth rate (% p.a.) 3.8% 6 6.5% 7.7% 1yr CAGR = 6.5% 18.6% 5 Growth (%pa) 4 8.7% 2.%.5% 6.9% 13.% 9.% 2.2% FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11 - FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11 Source: Swiss Re, Credit Suisse research Asia P&C Insurance Sector 84

85 Gross written premium (RM mn) Growth (%pa) Gross written premium (RM mn) Growth (%pa) 13 November 213 Industry dynamics The P&C market grew at 7.% in terms of gross written premium (GWP) from 22 to 212. Among all P&C segments, medial and liability insurances are the segments with the fastest growth over the past decade. In fact, all P&C segments have been growing and the segment with the lowest growth rate is fire insurance (5% ten-year CAGR). market has been growing steadily over the past decade Figure 26: has a steady growth profile P&C insurance (GWP RM mn) and growth (%) 15, 2 1yr CAGR = 7.% 17.5% 12,5 15.% 1, 12.5% 7, % 5, 5.% 2,5 2.5% Figure 27: all segments have been growing P&C insurance (NEP in RM mn) and growth (%) 14, 2% 18% 12, 16% 1, 14% 12% 8, 1% 6, 8% 4, 6% 4% 2, 2% % GWP NEP Growth (%pa) 1yr CAGR (%pa) Fire Marine Motor Other Growth (%pa) 1yr CAGR (%pa) Source: Bank Negara, Credit Suisse estimates Motor insurance is the largest segment in the P&C insurance industry with a 47% market share, driven by increasing car sales. Medical and fire insurance are the second and third largest segments, with 14% and 16% market shares, respectively. The n P&C market is fragmented with the presence of more than 3 insurers. In 212, the Top 5 P&C insurers jointly constitute about 46.5% of the total market. Among the Top 5 insurers, four of them are foreign insurance companies and the only domestic player is Etiqa, the insurance and Takaful arm of Maybank Group. IAG had been the market leader in the past but lost the position to Allianz in 21. In 212, IAG regained the top spot with a 13.4% market share. IAG s product mix is highly skewed to motor which constituted more 8% of the total premium in 211. Etiqa, on the other hand, has more than 4% market share in marine insurance. Top 5 P&C insurers jointly constitute about 47% of the total market share in 212 Figure 28: Motor is the largest segment in P&C market position by segment (NEP %), 212 Figure 29: Top 1 have about 67% market share P&C market position by company (GWP RM mn, % ) 2,5 Worker's comp Marine & 1% Other Aviation Liability 1% Engineering 2, 5% 13.4% 3% 4% Top 5 = 46% Top 1 = 68% 33.4% 1,5 11.1% 9.6% Motor 47% Fire 16% 1, 5 6.2% 6.1% 5.4% 4.8% 3.7% 3.7% 2.4% Medical 14% IAG Allianz MSIG Lonpac Tokio Marine Berjaya Zurich AIG ACE AXA Motor Fire Marine Other Other Source: Bank Negara, Credit Suisse research Asia P&C Insurance Sector 85

86 13 November 213 Market profitability The aggregate combined ratio of P&C insurance industry has been staying below 1% for the past 12 years. Over the past decade, the average combined ratio is around 86%, indicating consistent and handsome underwriting profit for the industry as a whole. In 212, the combined ratio was 81%. The loss ratio, a component of the combined ratio, is relatively stable at around 61% for the P&C industry as a whole. The aggregate combined ratio has been well below 1% in the past Figure 21: Combined ratio has been below 1% P&C insurance combined ratio (%) 12% 1% 8% 6% 4% 2% Figure 211: motor insurance has higher loss ratio Motor insurance (47% market share) loss ratio (%) 1% 9% 8% 7% 6% 5% 4% 3% 2% % Expense % Commission % Loss % 1% 1% % Source: Bank Negara, Credit Suisse research Among the Top 3 segments, motor insurance has the highest loss ratios. Over the past decade, the average loss ratio is around 76%, or 15% higher than the industry average. The loss ratio for the medical segment has averaged 51% over the past decade, well below the aggregate industry level. Finally, the loss ratio of the fire insurance segment has been even lower with a ten-year average of 38%, significantly below the industry average. Figure 212: Medical insurance has lower loss ratio Medical insurance (14% market share) loss ratio (%) 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% Figure 213: even lower loss ratio for fire insurance Fire insurance (16% market share) loss ratio (%) 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % % Source: Bank Negara, Credit Suisse research Asia P&C Insurance Sector 86

87 13 November 213 Regulatory environment The insurance supervisory authority is the Bank Negara (BNM). The local nonlife association is the General Insurance Association of (Persatuan Insuran Am - PIAM) Other insurance and reinsurance related entities set up in Labuan Internal Business Financial Centres are regulated separately under the Labuan Financial Services Authority. Up until 1963, had no specific legislation regulating the insurance practices. The existing law was drawn from the legislation in the United Kingdom in 199. After received its independence in 1957, the government stepped in and introduced the Insurance Act 1963 which is now replaced by the Insurance Act Takaful: In 1972, the National Fatwa Committee of the n Islamic Affairs Council declared that the conventional life insurance business contradicted with the Islamic principles. Subsequently in 1985, the Fiqh Academy of the OIC made a declaration that all forms of conventional insurance do not conform with the Islamic principles. The government realised that they need solve the economic problems facing the Muslim community, as majority of the n population are Muslims. In 1984, the first Takaful operator, Syarikat Takaful n Sdn Bhd, was incorporated with a paid-up capital of RM1 mn. In the same year, the Takaful Act 1984 was introduced to supervise the Takaful activities in, as the Insurance Act was not applicable to the Takaful business. With the growth in Takaful insurance, BNM is seeking to bring reporting for Takaful operators in line with conventional insurers in the near future. In April 211, BNM released the draft of risk-based capital (RBC) guidelines for Takaful operators. The draft guidelines are released with considerations made to align it to Shari a-specific requirements. The RBC framework for Takaful operators is expected to be finalised by 213. Foreign ownership: In April 29, the n central bank, Bank Negara (BNM), announced plans to boost the financial services sector by relaxing existing restrictions on shareholding and market access for foreign insurers. The reforms announced include: To permit foreign equity participation in insurance companies and Takaful operators up to 7%. A higher foreign equity limit beyond 7% for insurance companies will also be considered on a case-by-case basis for companies that can facilitate consolidation and rationalisation of the insurance industry. Existing foreign insurers that participate in the process will be accorded flexibility in meeting any divestment requirement. Up to two new Takaful licences will be granted in 29 to insurance companies that can offer a significant value proposition to. The regulator aims to encourage development of the Takaful industry, reinforcing 's position as an international Islamic financial hub. To improve insurance and Takaful penetration in the country, locally incorporated foreign insurance companies and Takaful operators may now establish branches nationwide without restriction. In addition, the restriction against locally incorporated foreign insurance companies and Takaful operators entering into bancassurance or banctakaful arrangements with banking institutions has also been lifted. Now the regulator is considering putting Takaful insurers under the same financial reporting and reserve requirement system as traditional insurers. Asia P&C Insurance Sector 87

88 P&C insurance premiums (INR bn) as % of region 13 November 213 Market snapshot According to Swiss Re research data, total premiums written by the P&C insurance sector in 212 were US$13.1 bn, which makes the country the 19 th largest life insurance market in the world and the fifthe largest in non- Asia (including ) with a 4.7% market share after, Korea, and. is the third largest in non- Asia with a 4.7% market share Figure 214: P&C market is 4.7% of NJA NJA P&C insurance premiums by country (%), 212 Figure 215:NJA market share is held steady % of global and regional market 4.7% 1.9% 2.7%.4% 1.7%.4% 1.3% 3.5% South Korea 21.7% 25.% 2 15.%.8%.6%.5% 1.3% 37.6% 5.5% 5.%.2% 3.2% 15.3% FY FY1 FY11 FY1 FY9 FY8 FY7 FY6 FY5 FY4 FY3 FY2 NJA Emerging NJA Global (RHS) Source: Swiss Re, Credit Suisse research s market share in the global context has been expanding steadily since the late 199s. At the end of 212, accounted for.7% of the global P&C insurance volume. Within the NJA region, its market share has been held steadily at around 5%. In the emerging NJA region, given the faster growth of other emerging NJA economies, s market share shrank quite substantially from 25.7% in 1999 to 11.2% in 212. Figure 216: Market growth 16.7% over the last decade IN P&C insurance premiums (Rs mn), growth rate (% p.a.) 8 1yr CAGR = 16.7% 19.5% % 6 Figure 217: Growth lagged the rest of Asia in 212 P&C insurance premiums (US$ mn) and growth rate (% p.a.) % Growth (%pa) 16.9% 1.1% 12.3% 27.2% 15.6% 2.9% 11.7% 8.4% 17.1% FY FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11-1 FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11 NJA Devleoped NJA Source: Swiss Re, Credit Suisse estimates The P&C insurance market has grown rapidly at an annualised rate of 16.7 % over the past decade, fuelled by the expanding middle-class population, increasing car ownership and rising income level. After having a year with negative growth in 28, the market recovered strongly in subsequent years. In 212, the market registered a growth rate of 5.4%, falling behind the rest of Asia. has been growing at 16.7% p.a. over the past decade Asia P&C Insurance Sector 88

89 P&C insurance premiums as % GDP P&C insurance premium / capita (INR ') P&C insurance premiums / GDP (%) P&C insurance premiums / capita (US$) 13 November 213 Despite achieving an impressive growth and having the second largest population in the world, still has one of the lowest insurance penetration rates (P&C premiums as a % of GDP) and density levels (P&C premium per capita). In 212, s P&C insurance penetration was.8%, which barely changed from a decade ago as the growth of the P&C insurance premium has been largely in line with the GDP growth. In terms of insurance density, is at US$11 per capita in 212, significantly lagging the developing and developed Asian economies. Figure 218: Insurance penetration is still relatively low NJA P&C insurance premiums / GDP (%) 6.% Developed Developing Emerging Figure 219: with density still among the lowest NJA P&C insurance premiums / capita (US$) Developed Developing Emerging 5.% 4.% FY2 2,5 2, 1.2% 1.8% FY2 1yr CAGR (%pa) 3.% 2.% 1.% 1,5 1, 5 3.6% 4.2% 13.3% 6.3% 19.4% 16.8% 8.7% 13.4% 11.3% 7.7% 17.2% - South Korea South Korea Source: Swiss Re, Credit Suisse research While insurance penetration has been flat in the past decade, insurance density has quadrupled over the same period. However, given s large population and the low base to start with, its insurance density at US$11 per capita is still one of the lowest. In our view, s low insurance penetration and density present substantial growth potential. We believe the following factors will continue to facilitate the sector s growth in the long run: (1) the population demographics, especially the growing middle-class population, creates a favourable growth environment; (2) a growing economy that is shifting towards industrial and services; (3) increasing disposable income and health awareness; and (4) growing demand for more sophisticated and customised risk solution. s low penetration and density present substantial growth potential While we do not expect to be immune from challenging global macroeconomic conditions in the short term, we believe the sector remains far from tapped and the longterm prospects present ample opportunities for growth. Figure 22: Penetration has been slowly trending up IN P&C insurance premiums / GDP (%).9% Figure 221: Insurance density growing at 14.7% p.a. IN P&C insurance prem / capita (US$), growth rate (% p.a.) 7.8% 6 1yr CAGR = 14.7% 18.%.7%.6%.5%.4%.3%.2%.1% Growth (%pa) 25.3% 13.1% 18.7% 11.2% 6.% 7.7% 8.5% 24.6% 18.9% 15.6% FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11 - FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11 Source: Swiss Re, Credit Suisse research Asia P&C Insurance Sector 89

90 Gross written premium (RM mn) Growth (%pa) Gross written premium (Rp mn) Growth (%pa) Gross written premium (Rp mn) Growth (%pa) 13 November 213 Industry dynamics Over the past decade, the P&C market has been growing at about 16% p.a. in terms of the gross written premium (GWP), which makes it one of the fastest growing P&C insurance markets in NJA. Driven by an ageing population, improving health awareness and increasing healthcare offerings by the employers, health insurance has been the fastest growing segment with a ten-year CAGR of 26%. Motor and marine insurance segments have also had double-digit growth rates in the past decade with respective ten-year CAGRs of 17.7% and 1. Health, motor and marine segments all have had double-digit growth rates in the past decade Figure 222: market growing rapidly P&C insurance (GWP Rs mn) and growth (%) Figure 223: motor is a fast growing P&C sector P&C insurance (NEP in Rs mn) and growth 5, 25% 45, 25% 4, 4, 2% 35, 2% 3, 3, 15% 25, 15% 2, 1% 2, 15, 1% 1, 5% 1, 5% 5, % % GWP NEP Growth (%pa) 1yr CAGR (%pa) Fire Marine Motor Other Growth (%pa) 1yr CAGR (%pa) Source: IRDA, Credit Suisse research In terms of product mix, mandatory motor (third party and own damage) continues to be the largest business segment with a 46% market share. Within the motor segment, own damage insurance accounts for roughly two-thirds of the premium and the rest is thirdparty liability insurance. Motor premium has dropped since the de-tariffication (removal of tariffs) in January 27 as expected, but the effect was partly offset by an increase in car sales. GWP quadrupled from Rs44 bn in 22 to Rs242 bn in 212. Private sector insurers gaining market share Health insurance is the second largest contributor of premium after motor with a 22.3% market share, followed by the fire segment which accounted for 1.3% of the market in 212. It used to have a higher market share (19% in 25-6) and the shrinkage can be attributed to the premium correction (approximately 6-7%) post the de-tariffication. Figure 224: Motor is the largest P&C segment P&C insurance (GWP INR mn) and growth (%) Figure 225: motor is a fast growing P&C sector P&C insurance (NEP in Rs mn) and growth Other 16.2% Fire 1.3% Marine 5.4% 3, 25, 45% 4% 35% 2, 3% 15, 25% 2% Health 22.3% 1, 15% Motor 45.8% 5, 1% 5% GWP Growth (%pa) 1yr CAGR (%pa) % Source: IRDA, Credit Suisse research Asia P&C Insurance Sector 9

91 13 November 213 In terms of distribution channels, the Top 3 channels (individual agents, direct sales and brokers) jointly have generated more than 85% of total volumes. n P&C continues to be dominated by the public sector insurers, although they have been losing market share to the private sector incumbents post the liberalisation in 22. The four subsidiaries of the national insurer General Insurance Corporation of (GIC) National Insurance Company, New Assurance, Oriental Insurance and United Insurance jointly constitute approximately 57% market share in 212. The tremendous potential of the n P&C sector has attracted large private sector financial services providers in to form joint ventures in collaboration with global insurers. Due to their aggressive growth strategies with focuses on building a large multichannel distribution network and developing a customer-focused service approach, the private sector insurers have captured a significant share of the market at the expense of the four public sector incumbents. The largest private sector insurer is ICICI Lombard, a joint venture between ICICI Bank Limited and Canadian insurer Fairfax Financial Holdings Limited, with a 1% market share in 212. The market continues to be dominated by the four public sector incumbents. Figure 226: Top 3 channels account for 85% volume P&C market distribution channels mix (%) Figure 227: the public sector has a 57% market share P&C market position by company (GWP Rs mn, %) 1, Other 6.7% 16.2% Top 5 = 7% 8, 15.5% 14.7% Direct 32.% Individual Agents 36.1% 6, 11.4% 9.7% 12.7% 4, 6.2% 2, 3.7% 3.2% 3.5% 3.1% Referral.3% Brokers 17.1% Banks 5.6% Corporate Agents 2.1% New HDFC Ergo Reliance IFFCO-Tokio Bajaj Allianz ICICI Lombard Oriental National United Motor Fire Marine Health Other Tata AIG Other Source: IRDA, Credit Suisse research Asia P&C Insurance Sector 91

92 13 November 213 Market profitability Profitable underwriting has remained the biggest challenge for the P&C sector owing to intense competition. Over the past seven years, the average combined ratio for the industry is approximately 123%, indicating large underwriting losses for the industry. The biggest challenge is still profitability The P&C sector has been operating on a business model of replying on the investment income on float to offset underwriting losses. This is, in our opinion, an unsustainable business model in the long run because the investment income is vulnerable and sensitive to market volatility. Figure 228: Overall profitability is poor in IN P&C insurance combined ratio (%) 14% Figure 229: Motor loss ratio improved in 212 Motor insurance (45.8% market share) loss ratio (%) 12% 12% 1% 8% 6% 1% 8% 6% 4% 4% 2% 2% % Expense % Commission % Loss % 1% % Source: United Nations, Credit Suisse estimates Motor insurance has been a loss-making segment due to aggressive pricing and very high-claim payouts. The average loss ratio in the past seven years is 86% and the loss ratio reached 89% in 212. We expect the 'declined risk pool system' for third party motor insurance recently implemented by the IRDA to likely reduce the losses incurred in this space. We also expect the loss ratio in the commercial vehicle insurance space to decline in the future from price increases. However, the magnitude of the decrease depends on the level of the price correction in the coming years. Motor has been a lossmaking business but we expect the situation to improve in the future Health insurance had a high level of underwriting losses in the past (26-7) mainly due to the low premium structure in the group health portfolio for the public sector insures. Although it has improved since 28, the loss ratio remains at the elevated level. Figure 23: Health loss ratio improved but still high Health insurance (22.3% market share) loss ratio (%) 16% Figure 231: Loss ratio of fire segment is on the rise Fire insurance (1.3% market share) loss ratio (%) 12% 14% 1% 12% 1% 8% 8% 6% 6% 4% 4% 2% 2% % % Source: United Nations, Credit Suisse estimates Asia P&C Insurance Sector 92

93 13 November 213 Regulatory environment n s insurance sector is regulated by the Insurance Regulatory and Development Authority (IRDA). De-tariffication: All segments, with the exception of third-party motor, have been progressively de-tariffed. De-tarrification of the P&C insurance sector has taken place in three phases. Before January 27, companies could only change the premium rates subject to floor rates determined by the IRDA and companies were not allowed to change product features. In late 27 and early 28, controls on premium rates were completely removed for auto, fire and engineering segments, but companies were required to fill the pricing mechanisms with the IRDA. In January 28, IRDA started to allow complete freedom in product design and pricing. Figure 232: n general insurance market de-tarrification roadmap De-tarrification of the general insurance by segment Aviation Aviation Aviation Liability Liability Liability PA & Health PA & Health PA & Health Marine cargo Marine cargo Marine cargo Marine hull Marine hull Marine hull Fire Fire Fire Engineering Engineering Engineering Auto OD Auto OD Auto OD detariffed Auto TP Auto TP Auto TP tariffed Source: IRDA 1994 Aprial 25 Janurary 27 Minimum capital requirement: The Insurance Regulatory and Development Authority Act, 1999 has set a minimum capital for direct insurance companies (life and non-life) of Rs1 bn (US$21.7 mn) and Rs2 bn (US$43.4 mn) for professional reinsurers. Solvency margin: In accordance with the provisions of the 1999 Act, which amended the Insurance Act 1938, the required solvency margin (RSM) shall be the maximum of the following amounts: (1) Rs5 mn (US$1.85 mn) (Rs1 bn (US$21.7 mn) for reinsurers) or (2) a sum equivalent to 2% of net premium income or (3) a sum equivalent to 3% of net incurred claims. Foreign direct investment (FDI) limit: FDI of 26% was allowed when the n insurance sector was liberalised in The 26% FDI limit has added increasing pressure of capital infusion on the n promoters and has been cited as a key deterrent to entry by the foreign investors. The Insurance Laws (Amendment) Bill 28, the piece of legislation that will increase the FDI limit from 26% to 49%, has been pending in the Parliament due to a strong opposition. Recent political developments make it increasingly unlikely that the FDI limit will be raised in the near term. Current development: The IRDA has been active and unveiled a stream of new rules and proposals recently. The IRDA is looking to shift from the current Solvency I type capital requirements to a risk-based reporting regime and is planning for such reporting to commence in the next three to four years. The IRDA is also placing major emphasis on various Enterprise Risk Management (ERM) components. Asia P&C Insurance Sector 93

94 13 November 213 In June 211, the IRDA released guidelines regarding mergers and acquisitions for nonlife private insurers. The guidelines outline the approval process and state minimum solvency margins. In August 211, the new IRDA guidelines became effective. The guidelines outline a common framework for supervision of life, non-life and reinsurance companies assetliability management (ALM) through stress testing. In May 212, the IRDA announced the implementation of the 'declined risk pool system' for third party motor insurance. According to the regulator, 2% of the gross premium would be retained by the insurance companies in their accounts, 1% is given to GIC and the rest 7% would go to the motor pool. This new regulation aims to encourage more prudent underwriting and reduce loss ratio in the motor segment. Asia P&C Insurance Sector 94

95 P&C insurance premiums (PHP bn) as % of region 13 November 213 The Market snapshot According to Swiss Re research data, total premiums written by the P&C insurance sector in 212 was US$1.2 bn, which makes it the 6 th largest life insurance market in the world and the 13 th largest in Asia ex- (including ) with just.4% market share. is the 13 th largest in Asia ex- with a.4% market share Figure 233: The P&C market is.4% of NJA NJA P&C insurance premiums by country (%), % 1.9% 2.7%.4% 1.7%.4% 1.3% 3.5% South Korea 21.7% Figure 234: Market share declining in NJA region % of global and regional market 5.% 4.% 3.%.1%.8%.6% 2.%.4% 37.6% 5.5% 1.%.2% 3.2% 15.3% FY FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11.% NJA Emerging NJA Global (RHS) Source: Swiss Re, Credit Suisse research The market share in the global context has been relatively steady for the past decade. However, in both the NJA and emerging NJA context, given the strong growth from developing and emerging economies (including and ), market share has been on a downward trend since the late 199s. Its market in emerging NJA context, for example, had declined from more than 5% in 1999 to the recent low of 1.1%. For most of the past 12 years, the has outperformed the rest of Asia in terms of P&C premium growth. For year 29, it had a growth rate of -2%, significantly underperforming other Asian economies. Since then, the market has recovered from the turbulence of the global financial crisis to record an increase in premium income. In 212, the market registered a growth rate of 17.1%, in line with the rest of Asia. Figure 235: P&C market growth at 7.8% for past ten years PH P&C insurance premiums (PHP mn), growth rate (% p.a.) yr CAGR = 7.8% 16.6% 3.4% 5.2% 5.2% 1.3% Growth (%pa) 17.2% 8.5% 7.% -13.7% 18.6% 16.7% 14.3% Figure 236: Growth slower than rest of Asia in 212 P&C insurance premiums (US$) growth rate (% p.a.) FY FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11-2 FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11 NJA Devleoped NJA Source: Swiss Re, Credit Suisse research Asia P&C Insurance Sector 95

96 P&C insurance premiums as % GDP P&C insurance premium / capita (PHP) P&C insurance premiums / GDP (%) P&C insurance premiums / capita (US$) 13 November 213 At merely.5%, its insurance penetration is among the lowest in Asia. In terms of P&C insurance density, the is low in both absolute and relative terms with only US$12.7 per capita. The insurance penetration and density are among the lowest Figure 237: ' penetration low Asia P&C insurance premiums / GDP (%) 6.% Developed Developing Emerging Figure 238: with density also at a very low level NJA P&C insurance premiums / capita (US$) Developed Developing Emerging 5.% 4.% FY2 2,5 2, 1.2% 1.8% FY2 1yr CAGR (%pa) 3.% 2.% 1.% 1,5 1, 5 3.6% 4.2% 13.3% 6.3% 19.4% 16.8% 8.7% 13.4% 11.3% 7.7% 17.2% - South Korea South Korea Source: Swiss Re, Credit Suisse research Due to the slower premium growth relative to its GDP growth, Philippine P&C insurance penetration actually has declined in the past decade. In our view, a few factors contributed to low penetration. First, the demographic composition contributes to low penetration, with approximately one-third population younger than the working age of 15. Second, insurance demand remains low, even with rising consumer awareness in the wake of the natural catastrophes, especially after the Tropical Storm Ondoy in 29. Third, the high tax burden is also the blame for poor insurance demand. While we believe very low insurance penetration and density, rising disposable income and increasing insurance awareness present tremendous growth potential for the industry in the long term, we also see some of the risks and challenges could hamper the industry s growth. The inadequate infrastructure, if not remedied, will act as a drag on Philippine s economic growth in the long term. The high level of political and financial system risk, if not alleviated, will negatively affect the country s ability to attract the much-need foreign investment. The insurance market presents opportunities but also risks Figure 239: penetration on downtrend P&C insurance premiums / GDP (%) Figure 24: but density has been improving Insurance premium / capita (US), growth rate (% p.a.).7% 6 1yr CAGR = 5.5% 12.3%.6% 5 Growth (%pa) 14.7%.5%.4% % -.4% 3.3% 4.1% 16.2% 4.2% 5.% 16.4% -15.9%.3% 2.2% 1.1% - FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11 FY11 FY1 FY9 FY8 FY7 FY6 FY5 FY4 FY3 FY2 FY1 Source: Swiss Re, Credit Suisse research Asia P&C Insurance Sector 96

97 Gross written premium (Rp mn) Growth (%pa) Gross written premium (Rp mn) Growth (%pa) 13 November 213 Industry dynamics The is one of the Asian countries with the fastest population growth, but it continues to struggle with poverty. The P&C sector has been growing at a slower pace (5.5% p.a. from 23 to 212) the other developing and emerging Asian economies. Insurance demand has been driven partly by compulsory segments, including third-party motor liability insurance and some professional indemnity coverage. The market has been growing at a slower pace than the rest of Asia Among the major P&C insurance segments, motor has been growing faster relatively to marine and fire segments in the past few years. Figure 241: Market growth recovered in 211 PH P&C insurance (GWP P mn) and growth (%) Figure 242: driven by growth in motor PH insurance premium by segment (GWP P mn %) 5, 2% 45, 18% 4, 7yr CAGR (%pa) = 6.9%pa 16% 4, 35, 3, 15% 12% 3, 12% 25, 9% 2, 1, 8% 4% 2, 15, 1, 5, 6% 3% % GWP NEP Growth (%pa) 7yr CAGR (%pa) Source: PIC, Credit Suisse research Motor insurance is the largest segment with a 32% market share in 211, followed by fire and casualty segments. The Top 3 segments jointly accounted for about 72% the premium volume in 211. The P&C insurance market is highly fragmented with the presence of about 3 insurers. The Top 5 insurers have a combined market share of less than 41%. In our view, the increased minimum paid-up capital requirement prescribed by the Department of Finance (DOF), if enforced in the current form, will likely lead to consolidation among the P&C insurers as the small niche players are expected to struggle to meet the heightened capital requirements. % Fire Marine Motor Casualty Other Growth (%pa) 7yr CAGR (%pa) -3% Figure 243: Motor, fire and casualty are Top 3 segments PH P&C market position by segment (P mn, %) Figure 244: The market is fairly fragmented PH P&C market position by company (P mn %) Top 1 = 64% Suretyship 4.2% Life for PR.1% 6, Top 5 = 41% Casualty 23.3% Fire 3.2% 3, Motor 31.7% Marine 1.5% Malayan Prudential BPI/MS Pioneer Standard Chartis UCPB Philippine Charter Federal Phoenix Mapfre Insular PGA Sompo Ins QBE Insurance ( Phils) Other Source: PIC, Credit Suisse research Asia P&C Insurance Sector 97

98 13 November 213 Market profitability Over the past eight years, the average combined ratio for the industry is approximately 96.7%, indicating small underwriting gains for the industry as a whole. Despite recent catastrophes in the Asia Pacific region, pricing has remained under pressure. Additionally, the P&C sector is facing high expense ratios, especially for small insurers, many of which are family-based. Considering the large and scattered population, administration and distribution costs are also high, especially for the personal lines. The industry is facing pricing pressure and high expense ratio Figure 245: Combined ratio improving PH P&C insurance combined ratio (%) 12% Figure 246: driven by motor loss ratio improvements Motor segment (32% market share) loss ratio (%) 6% 1% 8% 4% 6% 4% 2% 2% % Expense % Commission % Loss % 1% % Loss % Source: PIC, Credit Suisse estimates Among the Top 3 P&C segments, motor has stable loss ratio (5% over the past nine years) that is slightly higher than industry average (46% over the past nine years). The loss ratio for the fire segment picked up recently, reaching the high of 5% in 21 before going up to 54% in 211. For the casualty segment, the loss ratio just came down to 33% in 211. Figure 247: Fire loss ratio picked up in recent years Fire segment (3% market share) loss ratio (%) 8% Figure 248: Casualty loss ratio is very stable Casualty segment (23% market share) loss ratio (%) 6% 6% 4% 4% 2% 2% % % Loss % Loss % Source: PIC, Credit Suisse estimates Asia P&C Insurance Sector 98

99 13 November 213 Regulatory environment The principal regulator of the insurance industry in the is the Insurance Commission. The Commission is responsible for promoting growth and financial stability in the industry, lifting professionalism of the sector, increasing awareness of insurance among the population and safeguarding the interests of customers. Minimum capital requirement: The current paid-up capital requirement is P125 mn (US$2.5 mn). In 26, the Department of Finance (DOF) prescribed to increase the minimum capital requirement to P175 mn (US$3.5 mn) and P25 mn (US$5 mn) by the end of 211 and 212, respectively. The purpose of the increase is to align domestic insurers more closely with their competitors in other Southeast Asian insurance markets ahead of the full implementation of the Association of South East Asian Nation (AESN) Free Trade Agreement in 215. Risk-based capital (RBC) framework: RBC requirements were introduced in 26 and are complementary to the minimum capital requirements of Insurance Memorandum Circular No The RBC requirements include five components: fixed income securities, equities, credit risk, loss reserves and net written premiums. Personal equity and retirement accounts (PERA): Arguably, the key piece of sector reform is the passage of legislation related to PERA. This was passed in 27 but has not yet come into force, reflecting the ongoing debate in relation to implementation, including how much investment will be allowed under the tax-assisted scheme and what the permitted investments will be. These discussions involve life companies, the Insurance Commission and tax authorities. Once PERA is implemented, life insurance companies will be allowed into the collective retirement market for the first time. The legislation allows an individual contributor to make a total maximum annual contribution of P1, (US$2,7) to his or her PERA account. This will entitle the contributor to an income tax credit equivalent to 5% of the total PERA contribution. Furthermore, investment income earned from the contribution as well as the eventual distribution of the PERA to the contributor will be tax exempt. Contributions will be invested in a qualified PERA investment product, which may include unit trusts, mutual funds, annuities, insurance or pension products, pre-need pension plans, shares, exchange-traded bonds or any other approved investment products. The investment product must be non-speculative, readily marketable and with a track record to enable its approval by the regulatory authority. The amount held in the PERA account can be withdrawn when the contributor reaches the age of 55 either as a lump-sum or as a pension for a definite period, but early withdrawal penalties will apply before that age. Contributions to PERA may continue after the age of 55 years as well. Asia P&C Insurance Sector 99

100 P&C insurance premiums (IDR bn) as % of region 13 November 213 Market snapshot According to Swiss Re research data, total premiums written by the P&C insurance sector in 212 was US$4.6 bn, which makes it the 42 nd largest P&C insurance market in the world and the tenth largest in Asia ex- (including ) with a 1.7% market share. is the tenth largest in Asia ex- with a 1.7% market share Figure 249: life market is 1.7% of NJA NJA P&C insurance premiums by country (%), 212 Figure 25: global market share has increased % of global and regional market 4.7% 1.9% 2.7%.4% 1.7%.4% 1.3% 3.5% South Korea 21.7% 1 9.% 8.% 7.% 6.% 5.%.5%.45%.4%.35%.3%.25% 4.%.2% 37.6% 5.5% 3.% 2.% 1.%.15%.1%.5% 3.2% 15.3% FY FY1 FY11 FY1 FY9 FY8 FY7 FY6 FY5 FY4 FY3 FY2 NJA Developing NJA Global (RHS).% Source: Swiss Re, Credit Suisse research Its market share in the global context has been growing quickly after the financial crisis. In the developing NJA context, its market share has also recovered steadily after reaching the low in 28. We attribute the growth to its large population base and economic reforms. In the NJA region, s market share has been steady at around 2%. Over the past decade, the P&C insurance market has been growing significantly at 12.7% p.a. The market took a small step back in 28 due to the financial crisis but since then recovered at a faster pace than the rest of Asia. The post-28 growth has been fuelled by solid economic growth, despite the difficulties arising from volatile global financial markets and declining exports. has had a strong recovery since the financial crisis in 28 In 212, s growth rate of 7.6% was lower than that of the rest of Asia. Figure 251: growth at 12.7% pa last ten years P&C insurance premiums (Rp bn), growth rate (% p.a.) 5, 45, 4, 35, 3, 25, 2, 15, 1, 5, 1yr CAGR = 12.7% Growth (%pa) 15.3% 3.4% 5.6% 5.% 15.% 2 5.7% 42.3% 36.6% 8.1% 2.5% 15.1% Figure 252: Low growth in recent years P&C insurance premiums (US$ mn) growth rate (% p.a.) FY FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11-1 FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11 NJA Devleoped NJA Source: Swiss Re, Credit Suisse estimates Asia P&C Insurance Sector 1

101 P&C insurance premiums as % GDP P&C insurance premium / capita (IDR ') P&C insurance premiums / GDP (%) P&C insurance premiums / capita (US$) 13 November 213 Despite achieving an impressive growth in the past, still has one of the lowest insurance penetration rates (P&C premiums as a % of GDP) and density levels (P&C premium per capita). At merely.5%, its insurance penetration is higher than the but is still among the lowest in Asia. At US$19 per capita, insurance density has more than tripped over the past decade but still has a long way ahead. insurance penetration is the highest in the world Figure 253: Penetration has declined in the past decade Asia P&C insurance premiums / GDP (%) 6.% Developed Developing Emerging Figure 254: with density very low Asia P&C insurance premiums / capita (US$) Developed Developing Emerging 5.% 4.% FY2 2,5 2, 1.2% 1.8% FY2 1yr CAGR (%pa) 3.% 2.% 1.% 1,5 1, 5 3.6% 4.2% 13.3% 6.3% 19.4% 16.8% 8.7% 13.4% 11.3% 7.7% 17.2% - South Korea South Korea Source: Swiss Re, Credit Suisse estimates Due to the slower premium growth relative to its GDP growth, the n P&C insurance penetration has declined over the past decade. With nearly half the population living in rural areas, it has been particularly challenging in terms of distribution and product development to reach the diverse population in the untapped market across a vast archipelago. We believe improvements can be seen gradually with the development of Takaful and the growth of miscroinsurance. In our view, very low insurance penetration and density, together with the country s large consumer market, impending compulsory motor insurance, increasing infrastructure investment, Takaful regulatory changes and the promotion of the microinsurance act are positive growth drivers for the P&C business in the long term. However, the social and political instability could hamper the sector s growth and negatively affect the country s ability to attract foreign investment. Figure 255: ID penetration rebounding from the bottom ID P&C insurance premiums / GDP (%) Figure 256: with density improved dramatically ID P&C insurance prem / capita (US$), growth rate (% p.a.).9%.8%.7%.6%.5%.4%.3% yr CAGR = 11.6% Growth (%pa) 13.9% 1.% 2.9% 3.8% 18.3% 7.% 13.4% 39.2% 19.% 7.% 13.9%.2% 4.1% 2 FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11 - FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11 Source: Swiss Re, Credit Suisse research Asia P&C Insurance Sector 11

102 Gross written premium (IDR mn) Growth (%pa) Gross written premium (IDR mn) Growth (%pa) 13 November 213 Industry dynamics s P&C market had gained momentum in the past few years, but stalled in 211. The medium-term growth should be underpinned by GDP growth, rising household income, a large and young population and expanding government spending. Takaful, or Shari a-compliant insurance, should be a key driver of growth in, which has the world s largest Muslim population. Among the major P&C segments, A&H is the fastest growing segment with a 25% growth rate p.a. over the past five years, partly driven by the increasing awareness of healthcare products and growing expenditure on private medical care in. s P&C market is gaining momentum and Takaful has been a key driver Figure 257: market growth slowed P&C insurance (GWP in Rp mn) growth (%) Figure 258: A&H is the fastest growing sector yet small Life insurance in-force premium market product mix (%) 3, 25% 3, 25% 25, 2% 25, 2% 2, 15% 2, 15% 15, 1% 15, 1% 1, 5% 1, 5% 5, % 5, % % % GWP Growth (%pa) 5yr CAGR (%pa) Fire Marine Motor A&H Oth Growth (%pa) 5yr CAGR (%pa) Source: BAPEPAMLK, Credit Suisse research Motor insurance is the largest segment with a 32% market share in 21, followed by fire, A&H and marine. Third-party liability motor insurance is still not compulsory in which, in our opinion, offers a substantial opportunity for further development. A&H is also a segment with potential growth as the new national social security law (BPJS) will remove the public health insurance coverage and require employees to pay premium, thus providing a catalyst for the growth of private health care insurance. With the presence of 69 insurers in 21, the market is highly fragmented and the competition is fierce. The crowded market has made it challenging for the insurers to seize a piece of the pie, leading to pricing pressure as well as market consolidation. Figure 259: Motor is the largest segment P&C market position by segment (%) Figure 26: Fragmented and competitive market ID P&C market position by company (GWP Rp bn, %) 4, 3,5 3, Oth 2.5% Fire 27.7% 2,5 1.3% 8.6% 8.5% Top 5 = 38% Top 1 = 54% 45.9% 2, Marine 9.7% 1,5 1, 5 5.3% 5.1% 3.7% 3.6% 3.4% 3.2% 2.4% Motor 32.3% A&H 9.8% Sinar Mas Jasa Astra Buana Central Asia Tugu Pratama Adira Dinamika Wahana Tata MSIG Jaya Proteksi Allianz Utama Other Motor Fire Marine Other Source: BAPEPAMLK, Credit Suisse research Asia P&C Insurance Sector 12

103 13 November 213 Market profitability Despite the fragmented and competitive market dynamics, the underwriting performance of the P&C industry as a whole has been reasonably robust. Over the past six years, the average combined ratio for the industry is approximately 93.4%, indicating decent underwriting gains for the industry as a whole. Underwriting performance of the P&C industry as a whole has been steady Figure 261: Underwriting profits in the past six years ID P&C insurance loss ratio and combined ratio (%) 12% Figure 262: Motor underwriting performance improved Motor segment (32% market share) combined ratio (%) 12% 1% 1% 8% 8% 6% 6% 4% 4% 2% 2% % % Expense % Commission % Loss % 1% Expense % Commission % Loss % 1% Source: BAPEPAMLK, Credit Suisse research Underwriting profitability of motor insurance, the largest P&C segment, improved recently from 26-7 highs. It is due to the lower commission ratio as well as improved expense ratio. The combined ratio for the fire segment also has come down over the past two years, with better loss ratios. For A&H segments, the combined ratio has been very stable at the 1% level, implying immaterial profits or losses from underwriting for this segment. Figure 263: Fire has shown underwriting profits Fire segment (28% market share) combined ratio (%) 12% Figure 264: A&H combined ratio not great A&H segment (1% market share) combined ratio (%) 12% 1% 1% 8% 8% 6% 6% 4% 4% 2% 2% % % Expense % Commission % Loss % 1% Expense % Commission % Loss % 1% Source: BAPEPAMLK, Credit Suisse research Asia P&C Insurance Sector 13

104 13 November 213 Regulatory environment The regulatory body is Insurance Bureau of the Capital Markets & financial Institutions Supervisory Agency Badan Pengawas Pasar Modal (BAPEPAM). Minimum capital requirements: The following table summarises the minimum capital requirement for each type of company and the corresponding deadline: Figure 265: insurance minimum capital requirement Minimum capital requirements by company and respective deadlines Type of Company Minimum Paid-Up Capital Minimum Paid-Up Capital Insurance Company Or Equity (IDR b) or Equity (USD b) Deadline By Dec Insurance Company By Dec By Dec By Dec Resinusance Company By Dec By Dec Takaful Insurance Company 5 6 By Dec Takaful Resinsurance Company 1 12 By Dec Source: BAPEPAM Risk-based capital (RBC) framework: BAPEPAM has adopted the risk-based capital (RBC) solvency margin ratio where RBC solvency margin ratio is defined as (a) net asset value calculated by standard accounting rules (book value), divided by (b) net asset value recalculated with possible adverse risks taken into accounts (risk based capital). Non-life companies are required to maintain a minimum solvency margin ratio equal to or greater than 12%. Foreign ownership: Changes in ownership of an insurance or reinsurance company have to be approved by the minister of finance. If ownership change involves a foreign company, the foreign partner must be an insurer or holding company affiliate already conducting the same kind of business. Changes resulting from transactions in the Stock Exchange are exempt from these regulations. Recent development: The Institutions Financial Services Authority (Otoritas Jasa Keuangan; OJK) is expected to replace BAPEPAM as the regulator in the near future. Currently, there is no separate licensing requirement for a Takaful operation, which usually is run as a unit of a conventional insurer. One expected regulatory change will separate each Takaful unit as a single entity. Asia P&C Insurance Sector 14

105 P&C insurance premiums (VND bn) as % of region 13 November 213 Market snapshot According to Swiss Re research data, total premiums written by the P&C insurance sector in 212 were US$1.1 bn, which makes the country the 59 th largest P&C insurance market in the world and the 12 h largest in Asia ex- (including ) with a.4% market share. is the 12 th largest in Asia ex- with a.4% market share Figure 266: P&C market is only.4% of NJA NJA P&C insurance premiums by country (%), % 1.9% 2.7%.4% 1.7%.4% 1.3% 3.5% South Korea 21.7% Figure 267: Global and NJA market share increased % of global and regional market 1.6%.8% 1.4%.7% 1.2%.6% 1.%.5%.8%.4%.6%.3% 37.6% 5.5%.4%.2%.2%.1% 3.2% 15.3% FY FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11.% NJA Emerging NJA Global (RHS) Source: Swiss Re, Credit Suisse research s market share in the global context has expanded dramatically in the past decade, albeit from a very low base. In NJA, its market share has also increased steadily. Most recently, accounted for only.4% of the NJA premium volume. Since the open-up of the insurance sector along with s entry into the WTO in 27, the industry has experienced strong premium growth, despite ongoing economic uncertainties around the globe. The take-off of the sector has been driven by the increased awareness of insurance benefit, an emerging middle class with increased income, and compulsory line of business such as motor third-party liability coverage. s growth is the past decade is the among the highest in Asia With a growth rate of 21.9% p.a. in the past decade, is among the countries with the fastest growth in the P&C sector. Figure 268: Growth rate among the highest in Asia VT P&C insurance prem (VND bn), growth rate (% p.a.) 25, 2, 15, 1, 5, - 1yr CAGR = 21.9% FY FY1 27.2% 15.5% 17.3% 19.8% 27.% 44.7% FY2 FY3 FY4 FY5 FY6 Source: Swiss Re, Credit Suisse research Growth (%pa) FY7 33.3% FY8 24.6% FY9 25.% FY1 2.7% FY11 1.6% Figure 269: Growth was slower recently P&C insurance premiums (US$ mn) and growth rate (% p.a.) FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11 NJA Devleoped NJA Asia P&C Insurance Sector 15

106 P&C insurance premiums as % GDP P&C insurance premium / capita (VND ') P&C insurance premiums / GDP (%) P&C insurance premiums / capita (US$) 13 November 213 After impressive growth in the past decade, s P&C insurance penetration (insurance premium as a % of GDP) increased to.8% in 212, from.6% a decade ago. While its insurance penetration is among the highest in the emerging Asian economies, it remains low relative to the developing and developed Asian economies. In terms of P&C insurance density, is low in both absolute and relative terms with only US$12.2 per capita, despite the dramatic improvement from US$2.5 p.c. a decade ago. insurance penetration is still slow relative to the developing and developed Asian economies Figure 27: Penetration highest in emerging Asia Asia P&C insurance premiums / GDP (%) 6.% Developed Developing Emerging Figure 271: Density improved dramatically but still low NJA P&C insurance premiums / capita (US$) Developed Developing Emerging 5.% 4.% FY2 2,5 2, 1.2% 1.8% FY2 1yr CAGR (%pa) 3.% 2.% 1.% 1,5 1, 5 3.6% 4.2% 13.3% 6.3% 19.4% 16.8% 8.7% 13.4% 11.3% 7.7% 17.2% - South Korea South Korea Source: Swiss Re, Credit Suisse research As a market with strong growth momentum, s P&C insurance penetration has also climbed higher over the years. Insurance density has also showed a very healthy growth profile as the growth in P&C insurance premium surpassed population growth. Over the past decade, insurance density has been improving at 17.2% p.a. In our view, s P&C insurance sector has room for further structural expansion, given the burgeoning economy and its demographics, with an emerging middle class that is taking an increased interest in insurance. Increasingly being regarded as a production hub, aims to increase shipment volume further and many construction projects, such as ports and power plants, are on the government s agenda. All of these are likely to drive demand of P&C insurance. While the fundamentals favour the P&C industry, there is also considerable uncertainty While the fundamentals favour the P&C industry, s economic challenges, particularly serious concerns about inflation (it reached 18.8% in 211 and declined to 6.81% in 212) and the considerable uncertainty over s economic policy, continue to create uncertainty for the insurance sector. Figure 272: penetration is picking up life insurance premium / GDP (%) 1.% Figure 273: Improvement in density accelerated Life insurance premium/ capita (US$), growth rate (% p.a.) 35.9%.8%.7% yr CAGR = 2.6% 2.9% 9.5%.6%.5%.4% 2 15 Growth (%pa) 23.7% 25.2% 31.7%.3%.2%.1% % 14.1% 18.9% 14.3% 25.6% FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11 - FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11 Source: Swiss Re, Credit Suisse estimates Asia P&C Insurance Sector 16

107 Gross written premium (VND mn) Growth (%pa) 13 November 213 Industry dynamics Since the liberalisation of the ese insurance market in 28, the P&C sector has achieved rapid growth, with GWP growing by more than 1% YoY. The market, however, is still small and underdeveloped, with total GWP at US$1.1 bn in 212. population growth is slowing Motor insurance is the largest segment with a 28% market share in 212. The growth of the motor segment is fuelled by more people moving from bicycles to mopeds and cars as household income increases as well as the compulsory third-party liability coverage. The cargo & hull segment has an 8% market share and its growth is boosted by s rising status as a manufacturing hub and increasing shipping volumes. Figure 274: Rapid growth since liberalisation P&C insurance (GWP in VND bn) and growth (%) Figure 275: Motor is the largest segment P&C market position by segment (%) in ,, 3% Prop 21% A&H 18% 2,, 15,, 1,, 5,, 25% 2% 15% 1% 5% Credit % Arg 1% Liab 2% Hull 8% Busi % Fire 1% Motor 28% Tran 9% Avi 3% % Series1 NEP Growth (%pa) 3yr CAGR (%pa) Source: United Nations, Credit Suisse estimates With the presence of 29 P&C insurers and more are expected to come, the competition is fierce in s P&C market, particularly the personal lines and small commercial lines. The large domestic insurers are still dominating the market, particularly the personal lines, with the Top 4 jointly constituting 64% of the market. However, the large domestic insurers are steadily losing market shares to the foreign companies. Local insurers generally lack the capacity and expertise to create significant presence in the commercial lines where the foreign insurers are better placed. Profitable underwriting is challenging due to intense competition, increasing frequency and severity of losses, high operating costs, fraudulent claims and pricing difficulties. Figure 276: Domestic insurers still dominating, but P&C market by company (GWP VND bn, %) Figure 277: underwriting profit is hard to achieve P&C insurance loss ratio (%) 6, 5, 23.9% 2.6% 3.6% 12% 1% 4, 8% 3, 2, 1.4% 9.% 5.3% 6% 4% 1, 2% Bao PVI Bao Minh PJICO PTI Other % Motor Fire A&H Prop Other Expense % Commission % Loss % 1% Source: United Nations, Credit Suisse estimates Asia P&C Insurance Sector 17

108 13 November 213 Regulatory environment The Ministry of Finance (MOF) carries out the supervision of the insurance market including insurance and reinsurance companies, agents and brokers. The insurance department became the Insurance Regulatory and Supervisory Administration (IRSA) in 28. Minimum capital requirement: Decree ND-CP and Circular TT-BTC sets the minimum legal capital required for insurers. For a non-life insurer, VND3 bn (US$15 mn) would enable a company to write all lines of business except aviation insurance, petroleum insurance and satellite insurance; if it wishes to write one or all of these lines of business, an additional VND1 bn (US$5 mn) must be paid up. Solvency margin: Solvency margin of an insurer is considered to be the difference between the value of assets and the debts payable at the time of calculation. The assets that may be taken into consideration are specified in Section V of Circular TT- BTC. Reinsurance ceded which fails to meet the minimum requirements laid down by the Insurance Regulatory and Supervisory Administration may not be brought into account. In accordance with Article 16 of Decree No 46/27, the minimum solvency margin of a non-life insurer is the greater of: (a) 25% of the total premiums retained at the time of the calculation, and (b) 12.5% of the total primary insurance premiums plus reinsurance premiums at the time of the calculation. For the purposes of calculating the solvency margin only liquid assets may be used. The minimum solvency margin must be met at all times. Foreign ownership: Foreign ownership is permitted, but has been carefully controlled, and often restrictions have been placed on operating licences to prevent the writing of selected classes of business. Following s accession to the WTO on 7 November 26, however, these restrictions are being eliminated and with effect from 1 January 28, the prohibition of foreign insurers writing obligatory insurances was lifted. The ese government had announced that, within five years of its accession to the World Trade Organisation, it would allow foreign insurers to open direct branches offering non-life insurance and the legislation permitting it has now been implemented. Financial reporting: The Ministry of Finance issued a circular on 6 November 29 on applying IAS32 Financial Instruments: Presentation and IFRS 7 Financial Instruments: Disclosures in financial statements from financial year 211 onwards. No further guidance on other IFRS has been issued yet. However, some insurers have begun reporting their results according to IFRS (including IFRS 4 Insurance Contracts) on a voluntary basis. Recent development: The ese regulator has been very active recently. The Insurance Regulatory and Supervisory Administration is considering a move to Solvency II requirements but it is unlikely to take place in the near future. From 1 July 211, s Law on Insurance Business has been amended in a bid to create a more open and competitive environment and to align the current insurance legislation more closely with the international practices. However, detailed regulations are still pending to be implemented. The legislative changes seek to codify some of the commitments made before it was admitted into the WTO in 27. Such commitments include allowing insurance companies the right to reinsure with overseas reinsurers without reinsuring a part with domestic entities. However, concerns have arisen with the new law, such as the need to tender for group or captive business instead of appointing from within the group. This has led to increased competition among insurers and lower profit margins. Asia P&C Insurance Sector 18

109 13 November 213 In December 211, Decree 123/211/ND-CP was issued. Effective 15 February 212, the decree covers the provisions of the cross-border insurance services, establishment and operation of foreign insurance branches in and legal capital requirement. In addition, the government and the MOF have issued a range of regulations to promote insurance into new sectors, including compulsory and explosion insurance. It is recently reported that the MOF is planning to further restructure the insurance sector and reclassify insurers into four categories. Asia P&C Insurance Sector 19

110 13 November 213 Company positioning by market We highlight that the key feature of a 'regional insurer for us is not just the total size of the company, but also the depth and breadth of its regional positioning. In our view, most key success stories were set up early in various markets and have grown organically since M&A is invariably costly in Asia, and even successful bancassurance relationships often lead to the insurer becoming dependent on one partner/distribution channel in a particular country. Figure 278: Regional insurers have a widespread participation in the APAC region Asia regional company positioning (GWP market share (%) and rank) 212* GWP Tokio 212 IAG QBE Allianz AIG AXA Zurich ACE MS&AD Taiping Marine NKSJ Generali US$mn IAG QBE ALL AIG AXA ZFS ACE MSIG CTIH TM NKSJ GEN Developed 3.5%.1% 4.6% 11.6% 5.8% 2.4% 2.6% 3.7% 2.1% 1.3% % 1.3% 13.3% 11.3% 3.% 8.9% 1.9% 3.6% 1.8% Korea.8%.9%.4% % 2.9% 1.8% 7.1% % 13.% 9.3% 1.4% 3.3% 1.5%.3%.1%.1% % 6.4% 2.9% 2.9% 2.1% % 3.9%.5%.7% 34.2% 27.6% 27.6% Developing.3%.1%.2%.9%.1% 1.%.1% 1.4%.1% %.4% 1.4%.4% 1.4% 1.8% 4.4% 3.2%.3% % 1.1% 11.1% 3.7% 5.4% 3.7% 4.8% 9.6% 6.1% 2.4% Emerging.5% 6.2% 3.1% 1.7% 2.5% 3.7%.8% 1.7% % 2.4% 2.%.8% 1.5% 3.4% 3.4%.3% 2.2%.5% % 5.3% 3.9% 8.2% 1.8% % # countries % 71% 71% 1% 71% 5% 86% 86% 29% 71% 57% 29% Source: Swiss Re, OCI, MAS, KIDI, TII, APRA, ICNZ, ISI, IRI, CIRC, OIC, Bank Negara, IRDA, BAPEPAMLK, PIC, AVI, Company data, Credit Suisse estimates Asia P&C Insurance Sector 11

111 13 November 213 AIG is the leading insurer that has a presence in 12 out of the 14 major Asian countries, with ACE and MS&AD being the next highest. When we examine the regional country spread in more detail, we highlight that AXA is skewed to developed markets with Top 2 positions in both HK and. Allianz has stronger presence in developing markets of and, with strong position in. n insurer IAG is strong in and outside its home base. Figure 279: AIG has strong diverse regional positioning AIG regional company positioning (GWP US$ mn) 1, Developed Developing Emerging 14.% Figure 28: so does MS&AD MS&AD regional company positioning (GWP US$ mn) 1, Developed Developing Emerging % % % % % 4 15.% % 2.% % Korea NZ GWP (US$mn LHS) Market share (% RHS) Korea NZ GWP (US$mn LHS) Market share (% RHS) Figure 281: AXA top 2 in both HK and AXA regional company positioning (GWP US$ mn) Figure 282: ACE skewed to and ACE regional company positioning (GWP US$ mn) 1, Developed Developing Emerging 14.% 1, Developed Developing Emerging 5.% 8 12.% 8 4.5% 4.% 1 3.5% % % 2.5% 4 6.% 4 2.% % 2.% % 1.%.5% Korea NZ GWP (US$mn LHS) Market share (% RHS) Korea NZ GWP (US$mn LHS) Market share (% RHS) Figure 283: Allianz strong in Aust,, Inidia Allianz regional company positioning (GWP US$ mn) Figure 284: IAG recently expanded in / IAG regional company positioning (GWP US$ mn) 1, Developed Developing Emerging 12.% 1, Developed Developing Emerging % 8.% % % % % % Korea NZ GWP (US$mn LHS) Market share (% RHS) Korea NZ GWP (US$mn LHS) Market share (% RHS) Source for all charts: OCI, MAS, KIDI, TII, APRA, ICNZ, ISI, IRI, CIRC, OIC, Bank Negara, IRDA, BAPEPAMLK, PIC, AVI, Company data, Credit Suisse estimates Asia P&C Insurance Sector 111

112 13 November 213 Company positioning We have attempted to allow for various levels of ownership of various companies, but are likely not to have fully captured all ownership levels (given a lack of disclosure in many cases). However, we believe the chart below gives a fair reflection of the regional positioning of the main P&C insurers in the region. Given the relative sizes of and, we have first examined regional positioning excluding these markets: Figure 285: AXA, AIG and MS&AD largest P&C insurers outside and Asia regional company positioning (GWP US$ mn), excluding / / NZ 212* 2,5 Tier 1 Tier 2 Tier 3 2, 1,5 1, 5 AXA AIG MS&AD Taiping Allianz Tokio Marine ACE IAG Zurich QBE NKSJ Generali Korea Source: OCI, MAS, KIDI, TII, APRA, ISI, IRI, CIRC, OIC, Bank Negara, IRDA, BAPEPAMLK, PIC, AVI, Credit Suisse estimate Second, we examine the markets share for non- Asia. Figure 286: AXA, AIG and MS&AD largest P&C insurers outside and Asia regional company positioning (GWP US$ mn), excluding / / NZ 212* 12, Tier 1 Tier 2 Tier 3 1, 8, 6, 4, 2, IAG QBE Allianz AIG AXA Zurich ACE MS&AD Taiping Tokio Marine NKSJ Generali Korea NZ Jaoan Source: OCI, MAS, KIDI, TII, APRA, ISI, IRI, CIRC, OIC, Bank Negara, IRDA, BAPEPAMLK, PIC, AVI, Credit Suisse estimate Asia P&C Insurance Sector 112

113 13 November 213 Company overview AIG (AIG.N) American International Group (AIG.N, US$48.19, RESTRICTED) Figure 287: AIG group regional positioning 212* AIG (AIG.N) Premium (US$mn) 168 Market share (% ).22% 12 Premium (US$mn) 221 Market share (% ) 2.8% 11 Premium (US$mn) 15 Market share (% ).4% 15 Premium (US$mn) 347 Market share (% ) 13.9% 1 Premium (US$mn) 149 Market share (% ) 3.8% 1 Developed Premium (US$mn) 62 Market share (% ) 2.% 11 Korea Korea Premium (US$mn) 41 Market share (% ).9% 11 Premium (US$mn) 14 Market share (% ) 2.8% 11 Premium (US$mn) 177 Market share (% ) 4.4% 5 Premium (US$mn) 54 Market share (% ) 4.7% 7 Premium (US$mn) 546 Market share (% ) 1.6% 8 Developing Emerging Notes: *212 data used where available 211 data used for Philippine,, and. Source: OCI, MAS, KIDI, TII, APRA, ISI, IRI, CIRC, OIC, Bank Negara, IRDA, BAPEPAMLK, PIC, AVI, Credit Suisse estimate Asia P&C Insurance Sector 113

114 13 November 213 AIG Group (AIG.N) Figure 288: AIG's biggest exposure AIG regional positioning (GWP US$ mn, share % and rank)-211 4, Developed Developing Emerging 14.% Figure 289: with robust underwriting performance AIG regional profitability (combined ratio, %) % 14% 3,5 12.% 12% 12% 3, 1 1% 1% 2,5 2, 8.% 8% 8% 1,5 6.% 6% 6% 1, 4.% 4% 4% Korea NZ IF APE (US$mn LHS) Market share (% RHS) 12 2.% 2% % HK Korea 2% % Figure 29: AIG volumes not showing huge growth AIG NJA regional GWP US$ mn, market share % and growth % p.a 3, 2,5 Growth (%pa) 4.% 3.5% 3.% Figure 291: likely due to developed market skew AIG NJA regional GWP US$ mn and growth % p.a. 2,5 2, Growth (%pa) 7% 7% 5% 12% -6% 5% % 2, 2.5% 1,5 1,5 2.% 1, 1.5% 1, 1.% 5.5% Korea Market share (%) Developed Developing Emerging Figure 292: AIG strong in developed markets AIG GWP mix (%) by country Developing 4% Emerging 7% Figure 293: with the most important market AIG GWP mix (%) by country % % 1% 5% 1% % 1% 4% 6% Korea 8% 8% 2% 57% NZ 3% Developed 89% Source for all Figures: OCI, MAS, KIDI, TII, APRA, ISI, IRI, CIRC, OIC, Bank Negara, IRDA, BAPEPAMLK, PIC, AVI, Credit Suisse estimate Asia P&C Insurance Sector 114

115 13 November 213 Figure 294: GWP (US$ mn) and share (%) Figure 295: GWP (US$ mn) and share (%) 25 7.% % % % 2 3.% % % 5 18.% 16.% 14.% 12.% 1 8.% 6.% 4.% 2.% Market share (%) Market share (%) Figure 296: Korea GWP (US$ mn) and share (%) Figure 297: GWP (US$ mn) and share (%) 5 1.2% 2 6.% Korea Market share (%) 1.%.8%.6%.4%.2% Market share (%) 5.% 4.% 3.% 2.% 1.% Figure 298: GWP (US$ mn) and share (%) Figure 299: GWP (US$ mn) and share (%) 9 2.5% 1.5% % % 1.5% %.4%.3%.3% 4 1.% % 3 2.5% %.1% 1 1.1% Market share (%) Market share (%) Figure 3: GWP (US$ mn) and share (%) Figure 31: GWP (US$ mn) and share (%) 25.8% % %.6%.5%.4%.3% % 3.5% 3.% 2.5% 2.% 1.5% % 4 1.%.1% 2.5% Market share (%) Market share (%) Source for all Figures: OCI, MAS, KIDI, TII, APRA, ISI, IRI, CIRC, OIC, Bank Negara, IRDA, BAPEPAMLK, PIC, AVI, Credit Suisse estimate Asia P&C Insurance Sector 115

116 13 November 213 Figure 32: GWP (US$ mn) and share (%) Figure 33: GWP (US$ mn) and share (%) % % % % % #N/A % % 1 3.5% 3.% 2.5% 2.% 1.5% 1.%.5% Market share (%) Market share (%) Figure 34: Philippine GWP (US$ mn) and share (%) % 5.% % 4 3.% % % Market share (%) Source for all Figures: OCI, MAS, KIDI, TII, APRA, ISI, IRI, CIRC, OIC, Bank Negara, IRDA, BAPEPAMLK, PIC, AVI, Credit Suisse estimate Asia P&C Insurance Sector 116

117 13 November 213 ACE (ACE.N) ACE Limited (ACE.N, US$96.41, OUTPERFORM, TP US$16.) Figure 35: ACE group regional positioning 212* Notes: *212 data used where available 211 data used for Philippine,, and. Source: OCI, MAS, KIDI, TII, APRA, ISI, IRI, CIRC, OIC, Bank Negara, IRDA, BAPEPAMLK, PIC, AVI, Credit Suisse estimate Asia P&C Insurance Sector 117

118 13 November 213 ACE Group (ACE.N) Figure 36: ACE has wide exposure in all regions ACE regional positioning (GWP US$ mn, share % and rank)-212 1, Developed Developing Emerging 6.% Figure 37: with robust underwriting profitability ACE regional profitability (combined ratio, %) % 14% 8 5.% 12% 12% 4.% 1% 1% % 8% 8% % 1.% 6% 4% 6% 4% Korea NZ GWP (US$mn LHS) Market share (% RHS) 2% % 2% % Korea HK Figure 38: ACE strong growth in 211/212 ACE NJA regional GWP US$ mn, market share % and growth % p.a 1,2 1, 2.5% 2.% Figure 39: with developing Asia expanding ACE NJA regional GWP US$ mn and growth % p.a. 1,8 1,6 1,4 Growth (%pa) 5% 1% -5% 12% % 11% 1% 8 1.5% 1,2 6 1, 1.% % Korea Market share (%) Developed Developing Emerging Figure 31: Good exposure to developing Asia ACE GWP mix (%) by country Emerging 4% Figure 311: with high exposure in ACE GWP mix (%) by country % % 4% % % 5% 3% Developing 28% 3% Korea 8% 3% 17% 21% Developed 68% 24% NZ 5% Source for all Figures: OCI, MAS, KIDI, TII, APRA, ISI, IRI, CIRC, OIC, Bank Negara, IRDA, BAPEPAMLK, PIC, AVI, Credit Suisse estimate Asia P&C Insurance Sector 118

119 13 November 213 Figure 312: GWP (US$ mn) and share (%) Figure 313: GWP (US$ mn) and share (%) % % % % % % % % 3.5% 3.% 2.5% 2.% 1.5% 1.% 2 2.2% 1.5% % Market share (%) Market share (%) Figure 314: Korea GWP (US$ mn) and share (%) Figure 315: GWP (US$ mn) and share (%) 25.5% 8 2.% %.4%.3%.3% % 1.6% 1.4% 1.2% 1.% Korea Market share (%).2%.2%.1%.1% Market share (%).8%.6%.4%.2% Figure 316: GWP (US$ mn) and share (%) Figure 317: GWP (US$ mn) and share (%) 7 1.8% 5 1.4% % 1.4% 1.2% 1.%.8% % 1.%.8%.6% 2.6% % 1.4%.2% % Market share (%) Market share (%) Figure 318: GWP (US$ mn) and share (%) Figure 319: GWP (US$ mn) and share (%) 1 3.5% 25 6.% % 2.5% % 4.% % 1.5% 1.% % 2.% 1.% 1.5% Market share (%) Market share (%) Source for all Figures: OCI, MAS, KIDI, TII, APRA, ISI, IRI, CIRC, OIC, Bank Negara, IRDA, BAPEPAMLK, PIC, AVI, Credit Suisse estimate Asia P&C Insurance Sector 119

120 13 November 213 Figure 32: GWP (US$ mn) and share (%) Figure 321: GWP (US$ mn) and share (%) % 3.5% %.7% % 2.5% 2.% %.5%.4% 4 1.5% 3.3% %.5% 2 1.2%.1% Market share (%) Market share (%) Source for all Figures: OCI, MAS, KIDI, TII, APRA, ISI, IRI, CIRC, OIC, Bank Negara, IRDA, BAPEPAMLK, PIC, AVI, Credit Suisse estimate Asia P&C Insurance Sector 12

121 13 November 213 Allianz (ALVG.DE) Allianz SE (ALVG.DE, 125.5, NEUTRAL, TP 141.) Figure 322: AIlianz regional positioning 212* Notes: *212 data used where available 211 data used for Philippine,, and. Source: OCI, MAS, KIDI, TII, APRA, ISI, IRI, CIRC, OIC, Bank Negara, IRDA, BAPEPAMLK, PIC, AVI, Credit Suisse estimate Asia P&C Insurance Sector 121

122 13 November 213 Allianz Group (ALVG.DE) Figure 323: contributed most to Allianz Asia Allianz regional positioning (GWP US$ mn, share % and rank)-211 1, Developed Developing Emerging 12.% Figure 324: with weaker underwriting performance Allianz regional profitability (combined ratio, %) % 14% % 12% 4 8.% 1% 1% % 8% 8% % 6% 6% % 4% 4% Korea NZ GWP (US$mn LHS) Market share (% RHS) 2% % 2% % Korea HK Figure 325: Allianz losing market after 28 Allianz NJA regional GWP US$ mn, market share % and growth 6, 5, 4, Growth (%pa) 941% -6% 2% 22% -7% -2% 7% 5% 6.% 5.% 4.% Figure 326: due to more developed market exposure Allianz NJA regional GWP US$ mn and growth % p.a. 6, 5, 4, Growth (%pa) -6% 2% 22% -7% -2% 7% 5% 3, 3.% 3, 2, 2.% 2, 1, 1.% 1, Korea Market share (%) Developed Developing Emerging Figure 327: Three-fourths businesses from developed markets Allianz GWP mix (%) by country Developing 12% Emerging 14% Figure 328: with the most important market Allianz GWP mix (%) by country % 12% 1% % % % Korea % % 1% 1% 1% 1% Developed 74% NZ 4% 69% Source for all Figures: OCI, MAS, KIDI, TII, APRA, ISI, IRI, CIRC, OIC, Bank Negara, IRDA, BAPEPAMLK, PIC, AVI, Credit Suisse estimate Asia P&C Insurance Sector 122

123 13 November 213 Figure 329: GWP (US$ mn) and share (%) Figure 33: GWP (US$ mn) and share (%) 6 1.6% 7 3.5% % 1.2% 1.% % 2.5% % 4 2.% 2.6%.4% % 1.% 1.2% 1.5% Market share (%) Market share (%) Figure 331: GWP (US$ mn) and share (%) Figure 332: GWP (US$ mn) and share (%) 4, 3,5 3, 2,5 2, 1,5 1, % 9.2% 9.% 8.8% 8.6% 8.4% 8.2% 8.% 7.8% %.1%.1%.1% 5 7.6% Market share (%) 7.4% Market share (%) Figure 333: GWP (US$ mn) and share (%) Figure 334: GWP (US$ mn) and share (%) 7 2.% 5 12.% % 1.6% 1.4% % % 1.%.8%.6%.4% % 4.% 2.% Market share (%).2% Market share (%) Figure 335: GWP (US$ mn) and share (%) Figure 336: GWP (US$ mn) and share (%) % % % % % % 3 #N/A % % 1 1.% 1 3.5% 3.% 2.5% 2.% 1.5% 1.%.5% Market share (%) Market share (%) Source for all Figures: OCI, MAS, KIDI, TII, APRA, ISI, IRI, CIRC, OIC, Bank Negara, IRDA, BAPEPAMLK, PIC, AVI, Credit Suisse estimate Asia P&C Insurance Sector 123

124 13 November 213 AXA (AXAF.PA) AXA (AXAF.PA, 18.4, OUTPERFORM, TP 21.1) Figure 337: AXA group regional positioning 212 Notes: *212 data used where available 211 data used for,, and. Source: OCI, MAS, KIDI, TII, APRA, ISI, IRI, CIRC, OIC, Bank Negara, IRDA, BAPEPAMLK, PIC, AVI, Credit Suisse estimate Asia P&C Insurance Sector 124