Growth opportunity in long-tail business

Primary insurance writers in Asia are exploring growth opportunities in new, longer tail business segments—but a shortage of experienced actuaries in the region may open up opportunities for reinsurers that have the relevant technical experience and can partner with insurers on writing such business.

This is according to Chi-Yeung Lok, associate director of analytics, AM Best, who spoke to SIRC Today about various trends in markets re/insurers are seeking growth, along with how regulatory changes are shaping the markets in Asia.

“Professional reinsurers are not the only ones who are keen to seize such opportunities. If you look at the offshore business written in Singapore, you will see that insurers have been writing an increasing proportion of the overseas insurance fund business, while reinsurers’ share has changed little over the past five years,” he said.

Lok also noted that some insurers have been expanding into new segments like property or fire, or from big corporate risks into small risks, which is a natural result of growing penetration.

However, he said that underwriting, data quality, risk management and the understanding of these risks has not kept up, resulting in an increasing vulnerability to floods and other natural hazards, along with poor results.

“I wouldn’t say reinsurers are retracing commitments; instead they are trying to change terms, such as higher deductibles,” added Lok.

In terms of regulatory changes, liberalisation and the abolition of tariffs are resulting in a need for expertise in order to help insurers develop, price and distribute new products to survive in what Lok sees as a newly competitive environment.

In cases where cedants have capital and resource constraints, Lok suggested this may create opportunities for reinsurers, though he questions whether such opportunities are always commercially viable.

He noted that cedants are becoming increasingly larger than their domestic reinsurers in a few markets, in terms of capital size, or that they may be owned by well-resourced, large global insurers, reducing their reliance on reinsurers.

With regard to Southeast Asian markets, Lok said these remain fairly limited in size.

That means regulatory changes in any one market, while impacting that domestic market, are unlikely to have a large Asia-wide impact. For example, in Vietnam there is an initiative to make engineering cover compulsory for certain projects. This may create more demand for reinsurance support among domestic insurers, but AM Best does not expect this to have profound impact across the region, he said.

Lok continued: “While ‘liberalisation’ and ‘risk-based capital’ are frequently mentioned slogans, regulators in Southeast Asia—just like in other markets—also see a need for gradualism and minimising disruption.”

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