AGCS forced to mull onshore branches

Allianz Global Corporate & Specialty (AGCS) is considering establishing a branch in India as it attempts to manage the growing trend in Asia of protectionist regulatory measures that favour local reinsurers, Mark Mitchell, regional chief executive officer for Asia at AGCS, told SIRC Today.

Earlier this year it opened a branch in South Korea for similar reasons. Previously, Mitchell said, reinsurance business would flow from South Korea and India and many Asian countries quite freely into Singapore where AGCS historically wrote insurance business for the Singapore market, and accepted reinsurance business from all over Asia.

However, a trend among Asian jurisdictions to adopt more protectionist measures is changing the dynamics in the market for reinsurers like AGCS, and to an extent is forcing them to form operations onshore in some of these markets.

“In Indonesia for example, the regulator has encouraged local Indonesian companies to retain more, which threatens the income streams going into Singapore,” Mitchell said.

“There is also a stream of income from India and South Korea into Singapore that is at risk of being disrupted by the regulatory changes.”

In South Korea, Mitchell noted, 50 percent or more of the country’s reinsurance is purchased overseas. He suggested regulatory changes have been introduced to protect the local economy and to protect national reinsurers, allowing them to retain more premium and profit in this jurisdiction.

In response to these regulatory changes, AGCS received a licence earlier in the year from South Korea’s Financial Services Commission (FSC) to open a branch in Seoul in order to carry on writing South Korean business unhindered.

“That has been the most significant change for us in terms of the regulatory environment,” he said.

In India, steps have been taken to keep more income in the country, through the introduction of a tiering system that gives an order of preference to locally licensed companies in India over foreign reinsurers.

“We are exploring the possibility of going onshore to protect the business we have written historically,” said Mitchell.

Based on its own market analysis, AGCS forecasts India—which is currently a top 25 market in terms of total insurance premium—to be in the top 10 by 2030.

And South Korea, which is already an established market, is considered top 10 in terms of GDP, and will continue to grow.

“By virtue of that growth, we want to be physically on the ground to capitalise on the opportunity,” Mitchell continued. “We need to be positioned closer to the clients present in those markets.”

From a growth perspective, he sees significantly greater opportunities to grow in Asia than in other parts of AGCS’s global organisation.

While industry growth rates in Asia are somewhere between 5 and 6 percent, Allianz has outstripped this growth by about two-and-a-half times, according to Mitchell.

Against a backdrop of Asian governments investing more in infrastructure—particularly in China, for example—Mitchell said there is also a significant trend towards Asian companies investing in companies abroad, which has been occurring over the last four to five years.

Clients are seen as generally more aggressive in Asia in terms of M&A activity, and many companies in China are investing in the US and Europe.

“They have widened their horizons in terms of where they are investing,” he continued. “The amount of money being invested by China into the US and Europe is around two to three times higher than the rate at which foreign companies are investing into China.”

Mitchell sees this as a good growth opportunity for Allianz to offer its services to the many Asian companies looking to branch out.

In terms of current pricing trends in reinsurance for the Asia-Pacific region, Mitchell suggests there are certain pockets of rising rates.

In Hong Kong, Mitchell is seeing some rate rises, specifically on big infrastructure projects. In Macau, for example, Typhoon Hato impacted the casino business in August. He suggested the rate increases are modest here, from single digit to mid-teens.

He said that Hato was largely overshadowed by hurricane activity in the US, but estimates an impact of between $500 million and $1 billion.

“It’s certainly enough in a market that was relatively marginal, and enough to tip it into modest rate increases. For prices globally, it’s still patchy, but there are signs that rates seem to be on the move,” Mitchell concluded.

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