Why protectionist regulatory regimes in Asia are a worry for Markel

A worrying trend is emerging of regulators across Asia implementing protectionist policies, which risk defeating the key advantages of using the global re/insurance markets, according to Matt Cannock, principal officer & managing director of Markel Asia.

Cannock notes that Markel has been operating in Asia for some time – its Singapore office is now ten years old. And as it continues to expand its footprint across Asia Pacific, the company is involved in regular conversations with financial regulators across the region. This allows Cannock to compare and contrast the different approaches that each takes.

He says that their roles typically include expanding consumer choice and increasing insurance penetration, acting as a financial policeman to ensure regulations are adhered to and that insurers have the necessary financial strength to meet their obligations and to help grow their domestic insurance and reinsurance industries.

But there are also a growing number of exceptions. “Increasingly, we are seeing some worrying trends when it comes to the regulation of offshore reinsurance,” he says. “Whilst the desire to retain premium and capital onshore and develop an indigenous reinsurance market is understandable, it runs the very real risk of defeating the entire purpose of reinsurance which is to transfer risk.”

He explains that capital and premium funds held onshore are likely to be invested in equities, bonds and property – all of which are also vulnerable to rapid devaluation in the event of a major catastrophe. “What comfort the regulators have in knowing that assets are onshore is surely outweighed by the fear that these assets are exposed to the very perils that they are designed to protect against,” he says.

He stresses that the regulators in some natural catastrophe-exposed markets such as Japan and New Zealand understand this and concentrate on carefully managing offshore reinsurers rather than simply outlawing them. “As asset values rise and insurance penetration increases in the newer, catastrophe-exposed Asian economies their regulators would do well to follow this example,” he says.

Adapting in changing times

The regulator challenges facing re/insurers are not limited to Asia, however. Cannock notes that regulators are a branch of government and, just as governments often change their policies or are changed themselves, the industry also needs to remain as flexible as possible.

The exit of the UK from the European Union will undoubtedly affect how European insurers can operate and the election of Donald Trump likewise for US carriers, he notes. “What is always important to remember is that these changes, while challenging, often present great opportunities and approaching any new landscape with an open mind is paramount.

“Protectionist policies are very tempting for governments looking for the popular vote and for indigenous industries, but it should always be noted that no truly world-class company has ever developed in a ‘protected’ market. If insurers are to develop the customer responsiveness that other industry sectors show, we need to embrace competition and focus on getting better at what we do.”

He says that Brexit and the unexpected election victory of Donald Trump have been truly historic events. Equally, in Asia, the passing of King of Thailand has probably had a more profound effect on that country than either of those two events, he says.

“Meanwhile, the election of Duterte in The Philippines has turned many long-standing political alliances on their heads and given us all cause to remember the Strongman governments in South East Asia in the 80s and 90s. But, as Barrack Obama said, ‘The sun will come up tomorrow’ and for insurers, it is very much our role to be there when it does.”

He stresses that the very reason for insurance is to give certainty, and in uncertain times this is more important than ever.

To a certain extent, the industry is benefiting from this in Asia. He says political risk and trade credit insurance are increasingly being used in Asia to allow companies to keep investing through uncertain times.

Trade credit, in particular, grew in significant proportion in 2016 – crossing the $500 million mark in Asia. “We see this trend continuing as the awareness for this product grows combined with the increased requirements for banks to improve risk-return expectations,” Cannock says.

Political risk is another growth area in 2017. “While we have a formidable team in London writing this book of business, the addition of the political risk and contract frustration offering here will complete our trade credit portfolio for the region,” Cannock says.

He continues: “That companies continue to utilise these two products is incredibly important to emerging economies where this investment drives the economic growth that raises the standard of living. In many of these countries, an increase in GDP does not mean their children will get a better education but simply if they get one at all.”

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