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1 MARKET TRENDS A ENDS MARKET TRENDS MARKET TRENDS ARKET TRENDS MARKET TRENDS MARK RKET ASIAN TRENDS INSURANCE MARKET AND TRENDS REINSURANCE MARKET T TRENDS SURVEY MARKET RESULTS TRENDS 2018, MARKET TRE ARKET TRENDS PART 1: MARKET TRENDS MARK ET TRENDS MARKET SEPTEMBER TRENDS 2018 MARKET TR T TRENDS MARKET TRENDS MARKET TRE RENDS MARKET TRENDS MARKET TREND ARKET TRENDS MARKET TRENDS MARKE T TRENDS MARKET TRENDS MARKET 1 TRE

2 MARKET TRENDS MARKET MARKET TRENDS TRENDS MARKET TRENDS MARKET TRENDS MARKET TRENDS MARKET MARKET TRENDS 02

3 Asian Insurance and Reinsurance Survey Results 2018, Part 1: Market trends This year Trust Re commissioned the 3rd edition of its market research report on trends and developments in insurance and reinsurance in Asia, which was conducted by The Thriving Company, a UK based research company. Brunei Hong Kong Indonesia Malaysia Research conducted in Senior Market Participants China Philippines Singapore South Korea Thailand 40 and countries 9 5 Seniors participated across sectors Survey Areas Improving Reinsurence Services Reinsurers Capabilities 45Minutes Telephone Interview Market Trends Market Capacity Regulatory Changes In the first of this 4-part series, we will shed some light on the key strategic themes emerging from the survey report. 03

4 Market Overview* Asian reinsurance markets are expected to outgrow the region s GDP with reinsurance premiums expanding by 7.8% from US$ 51 billion to US$ 55 billion in Of the nine Asia reinsurance markets that participated in our research, China is by far the largest with reinsurance premiums of US$ 24.6 billion. Singapore with its large offshore insurance market ranks second with reinsurance premiums of US$ 7.6 billion, closely followed by Korea with US$ 7 billion. The large and populous emerging Asian markets of Indonesia and Thailand only follow after Hong Kong (US$ 5.4 billion) with reinsurance premiums of US$ 3.3 billion and US$ 1.8 billion respectively. Obviously, the amount of reinsurance premiums is driven by the respective market s penetration and its risks. China for instance, with an insurance penetration of roughly 5% is dominated by a strong motor sector of 52% of premiums. By contrast, Indonesia, with a penetration of slightly above 2% is dominated by its large energy sector, which An Overview of the Asian market 48% Market Composition 3% The growth potential of these nine Asian economies remains considerable, although at a slower pace. While China s reinsurance market had been growing at a rate of about 10 15% annually for the past five years, it is still expected to continue growing at a compound annual growth rate (CAGR) of 10% from Premium growth in Hong Kong and Singapore will slow down from its fast pace of 8% and 15% CAGR respectively for the period to a rate of 5% and 4% respectively for the next following years. The Philippines and Indonesia, both young and populous economies, will exhibit a growing demand for reinsurance protection, given their wealth in natural resources and infrastructure needs. They are expected to grow by CAGR 10% and 8% respectively, considerably faster than in the previous five years, when reinsurance premiums expanded in the Philippines by a CAGR of 6% and Indonesia by a mere 2%. *Source: Timetric database, data extracted by Trust Re in February % 2% 3.9% 8.8% 14% 9.3% 11% 22.3% 15% South Korea China 5.2% Market Penetration accounts for 42% of premiums. Korea and Singapore by contrast are both insurance markets with a very strong life sector of 31% and 92% respectively. 1% Hong Kong 2% Thailand 0.5% Philippines 2% Malaysia Brunei Singapore 6% 1.5% Indonesia Line of Business Split in South Korea Hong Kong China Thailand Singapore Philippines Malaysia Indonesia Brunei 80 Life Motor Engineering 40 Liabilily Energy 20 Fire Marine Surety Aviation 60 0

5 Market Size - Actual and Projected Reinsurance Premiums in Asia 49% 51% 55% 59% 63% F 2019 F 2020 F Asian Survey insurers Outcomes continue to be bullish The interviewees continue to be bullish about their markets prospects, with future opportunities outweighing future challenges. Sustained GDP growth drives these markets, which, except for the mature South Korean, Hong Kong and Singapore markets, still lag behind the global average in terms of insurance penetration. With the looming trade wars and geopolitical issues battling many economies in Asia, the importance of reading the market trends and development of strategic plans based on those trends will decide the next line of winners. Kevin Quek General Manager, Labuan Branch As affordable income increases, the middle class expands and patterns of consumption change, insurance is expected to maintain its pace of expansion. Governments increasingly recognize the need for the private sector to help meet the rising demand for health, life and savings products. In addition, Asia s global economic integration across trading routes and value chains is strengthening. As a result, new risks emerge, such as cyber, but opportunities also arise in established classes, such as in liability or along with continued investments in infrastructure in construction, engineering and energy. On the flip side, the Asian insurance markets are saturated with excess reinsurance capacity, which drives down rates and intensifies competition. Due to the price pressure, a low capitalization of domestic players and possibly a scarcity in experience and resources, insurers are tempted to focus on large volume business, which requires less niche expertise and where barriers of entry are low. As a result, more and more capacity is chasing the same premium pot. As insurers fail to differentiate themselves through unique service propositions or an innovative product suite, business continues to commoditize, with margins further eroding. Premium levels are very low reinsurers are complacent with pricing. There is bound to be a huge earthquake in the next years if you look at activity but there is no much reinsurance capacity out there people are writing at silly levels. (Broker, Pan-Asia). Across the region and as markets grow, regulators step up their game and tighten insurance regulation. Therefore, these markets tend to witness a market consolidation as players with a low capitalization tend to either exit the market, merge or get acquired. However, regulators also seek to shelter local insurers against excess capacity pouring into the market and against fierce competition by decreeing that a minimum of risk has to be retained nationally. Emerging Asia s insurance markets remain heterogenic The drivers for Asia s emerging insurance markets are slightly different. China and Indonesia raced ahead, with premiums soaring by 16.4% and 21.5%, respectively, in Also, the Philippine insurance market grew robustly at 8.4% in real terms. However, premium volume in Thailand only expanded by 4% and in Malaysia by even less than 2%. Similar to South Korea, Malaysia is undergoing a process of detariffication of both the motor and fire lines of business. 05

6 Price competition & sensitivity Low equity returns excess capacity / High expected GDP Growth Current low penetration levels High Chinese investment Online dist nlower sales cost Low loss ratios Other gov t & Infra investment Other regulation incl IFRS 17 Increased capital requirements New product development Local retention policies Incr awareness of online / cyber risks Market forces and impact Consolidation Self reinsurance? Commoditisation of some risks Competitor entry into various markets Nevertheless, the majority of interviewees expect that these markets will benefit from generally favorable economic conditions, the catch-up potential afforded by below-average insurance penetration levels, continued foreign investments and technological change. InsurTech, Blockchain and Artificial Intelligence offer all different means and approaches to efficiency gains, access to new client segments and improved product design. In a market environment where margins are believed to remain tight and under pressure, technology could enable insurers to operate with a lower cost ratio and to respond more flexibly to rapidly changing market demands. At the same time, Asia s emerging insurance markets have become stronger and healthier with the introduction of new global accounting standards. In addition, increased capital requirements in the form of Risk Based Capital schemes and heightened reporting and governance requirements will further add to the market s transparency and stability. lower investment returns and tighter regulation, the soft market conditions might trigger a market consolidation. Market pressure is not expected to subside any time soon, as more foreign insurers still enter the region and set up shop, even if markets, such as Indonesia become more protective. Finally, in emerging Asia cyber insurance is also seen as one of the largest but also unknown risks that pose both an insurance opportunity as well as a challenge. Asia s close interconnection with other regions and markets expose it to the rise of the same rampant risks from viruses and malware as elsewhere. However, these risks remain difficult to measure and model, potentially giving rise to an accumulation of large losses. Thus, the need for protection and cover might be significant in Asia too. Still, as capacity remains scarce, the volume growth of the line lags behind its potential. However, also the emerging Asian insurance markets are not immune to wider global trends. Excess reinsurance capacity and customers whose behavior is already quite price sensitive, weigh heavily on the industry s risk pricing. In combination with 06

7 Copyright 2018 Trust International Insurance and Reinsurance Company BSC (C) ( Trust Re ) All rights including the Authors rights are reserved to Trust Re. Title: Asian Insurance and Reinsurance Survey Results 2018, Part 1: Market Trends Authors: Labuan Regional Center, supported by Planning and Performance Management Department, Trust Re in conjunction with Henner Alms, Partner, Dr. Schanz, Alms & Company AG. 07

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