China & India ready for onshore growth

Local developments in China and India have primed both economies for substantial onshore capacity growth, according to a September 2017 Moody’s report covering reinsurance in Asia, China and India are Primed for Onshore Capacity Growth.

Growth in the Asian reinsurance markets in 2017 has been driven by a global economic recovery that has gained speed since the beginning of the year despite elevated geopolitical risks. “Trade growth has picked up across the region, and domestic demand in Asian economics continues to support ample liquidity—these conditions overall provide a favourable backdrop for cession growth, the report states.

In China, the ‘Belt and Road’ initiative—aimed at developing infrastructure across more than 60 countries—is said to produce significant exposures to commercial and environment risks both domestically and abroad which, the report suggests, raises the need to develop adequate risk management mechanisms in China.

China’s insurance market is said to be dominated by the motor line, but domestic insurers are expanding non-motor business as the liberalisation of pricing for non-mandatory motor insurance could weaken the underwriting profitability of motor portfolios.

Moody’s said there will be new cession opportunities from the role reinsurance can play in the growing areas of non-motor business, such as engineering, liability, marine, credit and surety, and casualty.

These developments have the potential to drive growth of the reinsurance sector in China. The entry of two new reinsurance companies—PICC in February 2017 and Qianhai Reinsurance in December 2016—illustrates that capacity in the market is already set to increase.

The Insurance Regulatory and Development Authority of India (IRDAI) is gradually opening its cession market to foreign reinsurers. IRDAI introduced new rules to incentivise foreign institutions with higher domestic retention rates in January 2017.

Now, a foreign reinsurer with a retention rate of at least 50 percent has the second-highest priority in getting the best terms for cession from an Indian insurer, behind domestic insurers with credit ratings above a certain level for the previous three years.

A number of reinsurers have since decided to set up branches onshore in India, including Munich Re, Swiss Re, Hannover Re, RGA, and XL Catlin. The new rules are expected to encourage foreign reinsurers to seek business in India and ultimately help boost onshore capacity in this market.

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