Allianz Re seeks profitable, sustainable growth

A combination of markets enjoying rapid economic growth, a vibrant agricultural sector and the introduction of risk-based capital regulations mean opportunities in Asia-Pacific for the right clients, Kenrick Law of Allianz Re told SIRC Today.

Allianz Re has some very specific goals in Asia-Pacific. It has a large portfolio in China, but this has been challenging. It wants to get this side of its business to a point it is sustainable. It has similar challenges in Japan (its second largest market in the region). And it wants to increase its presence in India, where it feels it is under-represented. But the common theme of all of this is developing a profitable and sustainable portfolio.

That is according to Kenrick Law, head of Asia Pacific, Allianz Re.
“We always have some very specific goals but that is the over-arching theme,” he said. “The region has seen a number of years of increases in catastrophe activity, which has come on top of continued political instability and low interest rates. Against this backdrop, we are focused on adding value to our clients and building a sustainable book of business.”
The footprint of Allianz Re’s P/C and agriculture operations in Asia-Pacific is an interesting one. Globally, Allianz Re is responsible for around €6.6 billion of premium of which only around 10 percent was generated in Asia in 2018.

Globally, the majority of this relates to internal business, whereby Allianz Re reinsures and manages the risk of the Allianz Group. In Asia, however, the dynamic is different: some three-quarters of the business this part of the company writes is external business.
“This means that although we are a small part of the overall, our contribution of third-party business is considerably bigger,” Law explained.

“We are an important part of the overall portfolio because we write business in markets where we can help to bring in more diversification to the Allianz Group as a whole.”
Allianz Group has a strong presence in Asia-Pacific, specifically in markets such as Australia, Malaysia and Sri Lanka.

“Where we have a strong presence on the direct side, we are more circumspect about how much reinsurance business we write in those same markets,” Law explained.

“Equally, in countries where the group does not have a strong presence, we try to do more.”
Overlying this strategy, however, is the company’s very client-focused approach in the region. This involves targeting specific clients it believes it can help and add value to regardless of which country they are in. Besides capacity, Law said, Allianz’s expertise on the primary side means that it has the ability to offer expertise and knowledge to clients.

“We focus on the needs of key clients instead of specific countries,” he said. “We want to add value, not just in the form of capacity but in terms of a wider relationship. Because we are owned by a direct insurer, we understand the challenges of product development and risk management and they want to be associated with the strong Allianz brand.

“After that, we consider the nuances and unique challenges clients face because of their regulatory regime or the specific challenges of their markets. Each market and each client will face different challenges and be in a different stage of development. We endeavour to understand the operating environment they are in and what challenges they face.”

Three zones
In terms of growth prospects in the region, there are three areas where Law spies potential expansion. The first is a geographical goal. Some of the countries with fast-growing economies, and thus growing demand for re/insurance, include China, India, and some of the markets in South East Asia. “We see good growth potential in some of these,” Law said.

The second growth target is in the business line of agriculture. Law notes that China and India have the second and third biggest agriculture markets in the world after the US and they are tipped to become first and second in the future.

“We see this as a growing opportunity in the region,” he said.
Finally, as many countries in the region adopt risk-based capital regulation similar to Solvency II, this is driving demand for more sophisticated reinsurance solutions relating to their capital requirements, which will often have increased.

“Their needs are becoming more advanced as a result and we can help with solutions around that,” Law said.

Commenting on market conditions in the region, Law said that for several years in succession reinsurers in the region have been hit by losses from natural catastrophes which intensify, usually in the second half of a year. This has put upward pressure on rates, a trend he expects to continue.

This has been exacerbated by the fact that many specialty players, including a number of Lloyd’s syndicates, have retracted capacity in the region in recent years. This has also put upward pressure on rates.

“It depends on the programme’s loss experience but we hope to see market rates priced at a more sustainable level in future,” he concluded.

Kenrick Law is head of Asia-Pacific at Allianz Re. He can be contacted at:  kenrick.law@allianzre.com