China’s insurance companies could soon be given greater investment opportunities and simplified approval procedures after the country’s insurance regulator claimed it would consider such procedures in a bid to improve the industry’s overall contribution to the nation’ economic growth and development going forward.
In a statement released online last week, the China Insurance Regulatory Commission (CIRC) claimed they will begin to gradually increase both the type and scale of unsecured corporate bonds that domestic insurers can invest with this year. As these investment restrictions lift, the regulator will then also work to adjust percentage ceilings on different asset classes within company portfolios, all in order to tighten CIRC supervision over the market and ensure that insurers still maintain their capacity to settle claims. This release was based on remarks made by CIRC Chairman Xiang Junbo during his routine trip to Wenzhou in eastern Zhejiang province over the past week.Read the rest of the Insurers in China Given Increased Investment Range article.
China is heading towards an aging demographic disaster. By 2050, the powerful Asian nation is projected to be the oldest BRIC economy, with the number of senior citizens far outstripping the actual working age population. A new study out this week by the Boston Consulting Group (BCG) and Swiss Re argues that insurance companies could prove integral in addressing this aging issue, and that they should be actively planning on how they will capitalize on both the challenges and opportunities the graying Chinese population presents going forward.Read the rest of the China’s Elderly are an Opportunity for Insurers article.
The global reinsurance industry looks set to rebound, with rates rising to offset some of the worst quarters ever for catastrophe losses following an unprecedented series of natural disasters in 2011 which included, amongst other events, severe flooding in Thailand last year and record earthquakes in Japan and New Zealand. New research data released this past week by insurance market analyst firm A.M. Best Co. notes that the financial positions of international reinsurance companies have remained largely resilient in the face of these challenges, and that positive market trends in the coming months should enable the industry to recover and prosper in the future.
In AM Best’s special report, available here, the firm observed that the global reinsurance industry managed to end 2011 with around the same amount of capital it started with, even though uncertain economic conditions and frequent and significant loss events struck key markets throughout the year. All in all, natural disasters and other catastrophic events cost the global reinsurance sector about US$50 billion in losses during 2011, although to many reinsurers this exposure amounted to little more than a negative earnings event. This fact, according to the ratings agency, demonstrated both the strength of individual reinsurance companies’ risk-management capacity as well as the overall resilience of the marketplace to withstand and rebound from such devastating events without any further dislocation or squeeze on capacity. Furthermore, the report added that 2011’s severe loss events had no reciprocal effect on the rate renewals occurring in January and April this year, which were described as suitably organized and timed. Global reinsurance companies have been able to negotiate better pricing terms and conditions for property and catastrophe (p&c) cover and the broader market has benefited from this stability. AM Best noted that the continued supply of reinsurance capacity in the aftermath of these catastrophic events has enabled pricing to remain generally flat across most other global insurance lines.
According to AM Best’s report, few reinsurers experienced higher losses than they could tolerate last year due to the valuable lessons the international insurance industry learned from 2005, which still holds the record for costliest year thanks to hurricanes Katrina, Rita and Wilma, and a combination of other catastrophic events, that cost insurance company underwriters about US$125 billion in losses. Private and public sector enterprises have worked hard since then to bolster their reinsurance risk management strategies and implement more prudent capital and enterprise risk management tactics. Best also noted that the global reinsurance sector has traditionally been more proactive than its other insurance business counterparts in adopting and developing new risk modelling systems, as they have avoided dependence on any one risk model and frequently tested for proprietary catastrophe situations. “This has tended to result in a more conservative view of risk,” AM Best noted.
These more conservative management strategies, combined with a renewed regulatory interest on solvency margins, have worked to ensure that those within the reinsurance industry regularly test the impact of catastrophe losses on clients across the world. As a result, reinsurance companies have tended to hold a capital cushion well in excess of these tests in order settle ratings agency concerns following a severe loss event and keep financial flexibility; this has been a boost to the market’s overall resilience. AM Best noted that the positive effects of this excess capital cushion could first be seen in the aftermath of the 2008 global financial crisis. Reinsurers were largely able to withstand this decline in capacity and asset values, and didn’t require any further bailout or consolidation efforts to adjust to new market realities.
AM Best went on to state that, in addition to changing reinsurance management attitudes, the technology involved in determining risk exposure and preparation strategy has continued to evolve as well. The report credited the advances made in catastrophe and economic capital modelling schemes in particular with reducing unnecessary loss exposure and improving the overall pricing environment in tow. These tools, according to AM Best, “significantly helped a reinsurer’s ability to better allocate capital within complex risk portfolios. The models, while not perfect, helped keep both individual and cumulative losses in 2011 within stated risk tolerances for most of the global reinsurers,” Best said.
Going forward, the international reinsurance industry is only expected to improve upon its efficiency as risk management practices further evolve. Recent catastrophic events in the Asia Pacific region have only further highlighted this trend. Historically, international reinsurance companies tended to avoid focusing on countries like Australia, New Zealand and Thailand, classifying them as non peak zones. These zones have not been traditionally prone to significant losses and were not expected to produce them in the future, and as such were often underwritten at lower margins in relation to peak zones elsewhere. Now, after the Bangkok floods, Cyclone Yasni and the Christchurch earthquake, those presumptions have quickly changed, and reinsurance companies have responded by reallocating capacity and demanding higher rates to cover these areas. These moves, combined with increased regulatory pressures on solvency margins appear to have driven up reinsurance demand again, especially in loss-prone areas around the world. Reinsurers naturally seek rate increases when uncertainty is prevalent and with natural disasters now apparently more widespread than ever, their risk portfolio can grow.
AM Best believes that recent events have indeed triggered an increased focus on the value of coverage and this could be the lift the reinsurance industry needs. While demand for reinsurance services had fallen over the past five years, the recent spike in global catastrophe activity has reaffirmed interest among primary insurers and has helped push rates up for reinsurance while pricing in casualty classes remains flat. In conclusion, the report indicates that the confluence of these two factors “will support a low double-digit return on equity in 2012 and continue to support reasonable organic growth in capital, assuming a normal level of global catastrophe losses.”
Ratings agencies have long recognized catastrophic events as a key threat to the solvency of both reinsurers, and property and casualty insurers, due to the often unexpected and severe nature of these losses. Global socio-economic trends over the past decade have pushed property values and concentration risk in catastrophe-prone areas upwards, and insured exposure has escalated rapidly in tow. As more and more people and businesses inhabit risk prone areas, insurance companies must take on more responsibility to provide coverage against a wide array of risks, including newfound risks like terrorism. Natural disasters, however, will always be one of the best reminders to prospective clients to have adequate protection against catastrophic loss. As the worldwide insurance industry’s exposure to catastrophe losses continues to rise, solutions need to be found. Luckily it appears as if the reinsurance trade is on the right track.
A.M Best Company was founded in 1899 and is a full-service credit rating organization dedicated to servicing the financial services industries, including the banking and insurance sectors.
With flagging growth forecasts and sovereign debt woes continuing to wrack the Eurozone and other Western economies, international investors are now increasingly turning their attention to emerging financial markets in the Middle East and Asia to further develop and expand their business footprint. It was announced this week that Zurich, one of the world’s largest insurance groups, has signed a landmark 10 year distribution deal with HSBC’s Middle East banking operations.
Read the rest of the Zurich, HSBC to partner in Middle East article
China’s life insurance sector has endured a mixed start to the 2012 business year, with many companies now posting lower premium growth after rapid expansion in recent times.
A new research document out by Deutsche Bank reveals how the country’s top four life insurers ranged quite considerably in their operating performances during the first-quarter reporting period. Life insurance premium revenues varied from a 7.5 percent decline to an increase of 16 percent during the first three months of the year, compared to the corresponding period in 2011, for the companies Deutsche Bank tracks.
China Life Insurance Co, the nation’s biggest insurer, reported that their premium income for the three months ended March 31 was CNY113.8 billion (US$18.1 billion), which was a considerable 7.5 drop on the CNY123 billion (US$19.5 billion) recorded during the corresponding period a year ago. This decline was felt most astutely in March where the CNY 34.4 billion (US$5.46 billion) in premium revenue represented a 10.4 percent decline on 2011’s figures. China Life’s premium revenues for the first two months only dipped by 6.15 percent year-on-year, by comparison. The Beijing-headquartered life insurer’s decline has been attributed to a steep fall in premiums collected from new individual insurance policies in particular. This has likely resulted from a structural adjustment the company underwent last year, a move which has also affected their bancassurance distribution platform.
China Pacific was the other domestic life insurer to post a drop in revenue during the first quarter. Citing a company filing, the insurer’s premiums totaled CNY48.44 billion (US$7.69 billion) for the first three months of the year, which represented a slight 0.62 percent dip on the same period last year. Ping An Insurance, the country’s second largest insurer, meanwhile recorded a marginal 1.7 percent increase in premium revenue, with CNY32.1 billion (US$5.1 billion) collected during the first three months of the year. New China Life, which went public last December, has seen its premium levels rise the fastest in 2012, growing by 16 percent on the year to CNY35.1 billion (US$5.57 billion). Insurers have blamed both equity market volatility and changes made to bancassurance for their more lackluster performances so far this year. Bank sales took a hit last year after the authorities tightened rules on insurance sales made by banks with effect from November 2010. At the same time, banks have been aggressive in attracting customers to save with them and competing with the insurance companies they once partnered with.
Deutsche Bank noted however that while new business growth would remain challenging for Chinese life insurers throughout the first half of the year, many of the concerns these companies are facing have now been documented and priced accordingly into their share values, in anticipation of a rebound in investor confidence. Indeed the share prices of both China Life and Ping An had fallen by more than 16 percent and 13 percent, respectively, in March, which was double the Hang Seng index average at the time. Contrast that to this month where China Life is up 4.5 percent to HK$21.20 (US$2.73) and Ping An is up 8.4 percent to HK$64.15 (US$8.27), outpacing the Hong Kong benchmark’s 1.5 percent rise. China Pacific Insurance meanwhile has added 3.8 per cent to HK$26.15 (US$3.37) and in Shanghai shares of New China Life has jumped 8.4 per cent to CNY33.50 (US$5.32). China’s stocks across the board have risen this past week on renewed speculation that the Mainland government will ease monetary policy (increase the float on its currency) to boost economic growth and introduce other measures to spur domestic consumption of property, insurance and other financial services.
It will of course take more than stable economic growth to continue the development of China’s insurance trade, important internal reforms must be made and the country’s authorities are beginning to act on that. Speaking at an event in Shanghai on Sunday, Chinese Vice Premier Wang Qishan noted that the domestic insurance sector still had great business potential due to the continued industrialization and urbanization of China and the growth opportunities that would provide. However, Wang warned that further reform and market innovation was now required to ensure that the industry develops in a stable fashion and that more Chinese citizens have access to appropriate protection, savings and investment products going forward.
China expects to strengthen its supervision over the domestic insurance industry during the next three to five years in a bid to better guarantee the ability of its insurers to pay their obligations and compete in the international market. New mechanisms have and will be brought in to boost insurers’ capital adequacy supervision, their risk management capacity to guard against systematic risks, and information disclosure to ensure they maintain good financial conditions and can pay off insurance claims on time. According to a Xinhua report, the Mainland government is particularly keen to accelerate reforms that would stimulate the state’s pension, medical and liability insurance sectors. Insurance services related to agriculture, shipping and other technology-based businesses have also been prioritized to help Chinese firms compete on both a domestic and international scale.
Shanghai may introduce a tax-deferred pension plan following Wang Qishan’s remarks on insurance industry reform. The state-run Shanghai Securities News reported on Tuesday that a pilot scheme targeting the city’s residents may start this year in a bid to give the local insurance sector a boost. According to the report, people enrolled in this scheme will be allowed to defer CNY500 (US$79) to CNY1,000 (US$160) in income tax each month if they spend that money instead on buying pension products from insurance companies. China Life, Ping An, China Pacific and New China Life have already been selected to participate in this scheme, which is forecast to generate CNY10 billion (US$1.6 billion) in premiums for the companies’ Shanghai-based branches.
Insurance Companies Mentioned
China Life Insurance
China Life Insurance Company Limited (China Life) is a People’s Republic of China-based life insurance company. The products and services include individual life insurance, group life insurance, accident and health insurance. The Company operates in four business segments: individual life insurance business, group life insurance business, short-term insurance business, and corporate and other business.
China Pacific Insurance (Group) Co., Ltd. (CPIC) is a insurance company providing, through its subsidiaries, a range of life and property and insurance services and pension products to individual and corporate customers throughout the country. CPIC was founded on May 13, 1991, and is headquartered in Shanghai.
Ping An Insurance (Group) Co. of China Ltd.
Ping An Insurance is the first integrated financial services conglomerate in China that blends its core insurance operations into securities brokerage, trust and investment, commercial banking, asset management and corporate pension business to create a highly efficient and diversified business profile. The Group was established in 1988 and headquartered in Shenzhen, Guangdong Province, China.
New China Life
New China Life Insurance Co (NCI) has headquarters in Beijing and was established in 1996 It is a large national insurance company, with products including traditional protection products, bonus products as well as the products that have a strong financial management function. With sustained, healthy and harmonious development of the company, the brand value of NCI is a valuable asset.
Taiwan’s largest life insurance companies have begun the 2012 business year well, overcoming their small and over-saturated home market to post solid first quarter premium growth.
New statistics released by the Life Insurance Association of the Republic of China (LIA-ROC) this week show that Taiwan’s life insurance sector reaped a cumulative NT$310.6 billion (US$10.5 billion) in first-year premium (FYP) revenues during the first quarter of 2012, a record amount for this quarterly reporting period. Key to this record total was the increased involvement of banks in selling protection, savings and investment products in Taiwan.
According to the Taiwan Economic News, over 60 percent of the new premiums recorded during the first quarter were generated through bancassurance channels, which themselves posted a 37 percent growth rate over the corresponding quarterly period in 2011. Bank sales continue to be the most popular distribution channel for life insurance products in Taiwan. The LIA-ROC data showed that banks on the island registered NT$67.6 billion (US$2.29 billion) in FYP revenues during March, equal to 59 percent of the insurance industry’s total for the month.
Taiwan’s life insurance sector has also benefited from strong efforts made by the market’s three largest insurers, Cathay Life Insurance Co., Fubon Life Assurance Co. and Nan Shan Life Insurance Co., to improve their operating performance over the past year. In addition to increased bancassurance development, it has been the continued ability of these three archrival companies to push and sell more conventional insurance products which has kept the Taiwanese market afloat. The LIA-ROC data showed that Cathay Life has led the market this year, recording NT$77.1 billion (US$2.62 billion) in FYP revenues during the first quarter 2012. Of this amount, 47 percent, or NT$36.3 billion (US$1.23 billion), came from bank sales. Second place went to Fubon Life with NT$72.8 billion (US$2.47 billion) in FYP, of which 79 percent, or NT$57.8 billion (US$1.96 billion) came from bank sales. Nan Shan Life meanwhile finished third with NT$42 billion (US$1.42 billion), with 38 percent of which, or NT$16.1 billion (US$550 million), was accounted for by bank sales.
Based on the NT$310.6 billion (US$10.5 billion) FYP earned in the first quarter, market analysts now anticipate that Taiwan’s domestic life insurance industry revenues could exceed NT$600 billion (US$20.35 billion) during the first half of 2012, of which NT$360 billion is estimated to come through bank sales. While much of the work in attaining these ambitious growth targets remains to be done, that such a positive forecast is being made should be welcome news to the Taiwanese market after a difficult couple of years.
Taiwan’s insurance sector has grown stagnant in the aftermath of the global economic crisis, with the market restricted by difficult operating conditions and previous business secured at binding interest rates which are no longer sustainable for many firms. According to LIA-ROC’s annual report, only 16 of the country’s 30 active life insurance companies finished 2011 in the black, with the remaining 14 all incurring annual operating losses. These insurers also saw their first-year premium (FYP) revenues drop by 14 percent to NT$995.1 billion (US$33.75 billion) and their overall revenues fall by 4 percent year-on-year to NT$2.1983 trillion. The life market, as a whole, only registered NT$425 million (US$14.4 million) in gains during 2011, a figure which saw the domestic industry’s net worth shrink by an estimated NT$100 billion (US$3.39 billion) for the year.
Much of this decline can be attributed to moves made by Taiwan’s chief market regulator, the Financial Supervisory Commission (FSC), to reduce the sale of interest-sensitive annuity and wholesale endowment insurance products by insurers to policyholders. Taiwanese consumers tend to favour these short-term insurance products as savings instruments as they tend to offer higher interest yields than conventional bank savings accounts. Having so many clients tied to the performance of the global equity market poses its own risks however, and the FSC decided it was time to act and restrict this trade. Domestic insurers have certainly listened, sales of interest-variable products dropped by 70 percent in 2011. Thus as life insurers place more emphasis on longer-tenor insurance products, sales of shorter term annuity products drop and so do earnings.
The LIA-ROC data revealed that Fubon Life Assurance finished 2011 as Taiwan’s most profitable life insurer with NT$10.1 billion (US$340 million) in after-tax earnings. They were then followed by Nan Shan Life Insurance with earnings of NT$4.895 billion (US$170 million), and China Life Insurance who finished third with NT$4.2 billion (US$140 million). Shin Kong Life, meanwhile, was the fourth most-profitable life insurer in Taiwan with NT$2.47 billion (US$80 million) in after-tax earnings during 2011, but had NT$36.5 billion (US$1.24 million) in unrealized losses in financial assets – the highest among all domestic life insurers last year. In terms of FYP revenues, Cathay Life Insurance Co. finished first by scoring NT$255.5 billion (US$8.67 billion) in new premiums during 2011, followed by Fubon Life Assurance with NT$222.8 billion (US$7.56 billion), and then China Life Insurance Co. with NT$91.7 billion (US$3.11 billion).
As cross-strait economic ties with Mainland China improve expect these numbers to grow further. Moves made by both countries’ regulatory authorities in recent years have worked to make business in the world’s second largest economy much more accessible for Taiwanese businesses in particular. The country’s life insurers can now afford to take more risk with their overseas investment strategies. Expanding into the massive Mainland insurance market should work to both improve their competitiveness internationally and maximize shareholder returns at home.
Founded on Novenber 16, 1998, The Life Insurance Association of the Republic of China (LIA-ROC) works to investigate, research, analyze, oversee and promote the interests of life insurance companies in Taiwan
Taiwan’s Financial Supervisory Commission (FSC) was founded on July 1st 2004 to promote the interests of the country’s financial services sector. The FSC now works to oversee Taiwan’s banking, securities and insurance sectors, and acts as a single regulator for all of these financial service industries.
Zurich Insurance Group, one of the world’s largest insurers, has worked to expand its presence in international insurance markets with the launch of two new offices in the Asia Pacific and Middle East, areas ripe for further business development, this past week.
On Wednesday the Swiss insurance group announced that it had successfully set up a new subsidiary in Singapore, Zurich Life Insurance (Singapore) Pte, after receiving the prerequisite license from the Monetary Authority of Singapore (MAS) to register and operate as a ‘direct insurer’ in the country. With its expansion plans for the city-state, Zurich Insurance aims to double its premiums generated in Singapore over the next three years
Zurich has been active in the Singaporean insurance market since 2006 but previously operated only under a defined market segment licence. This limited their business to only corporate and high net worth clients, who are able to invest more than US$5,000 a year for 10 years or more in Singapore. This market segment, comprised mainly of expatriates or high net-worth individuals, accounted for roughly 5 percent of the overall marketplace. Singapore’s life insurance industry is divided into companies with normal licenses and those with ‘defined market segment’ (DMS) insurance licenses. DMS insurers are specifically registered with the MAS to conduct only non CPF-related business (the country’s mandatory savings and retirement fund) and are required to stay within certain product lines and maintain minimum policy sizes. In addition to Zurich, several other multinational insurers currently hold a DMS license in Singapore, including Friends Provident, Generali, Royal Skandia and Transamerica. According to the Life Insurance Association of Singapore (LIA), these insurers contributed 5 percent of new insurance sales in 2011, while insurers holding normal licenses represented the other 95 percent last year.
Now that Zurich is registered as a direct insurer, the company can target the rest of the Singapore insurance market outside of the defined market segment with a wider range of savings, investment and protection products. As part of these expansion plans, Zurich said that they will expand their multi-channel distribution strategy to include partnerships with independent financial advisers, insurance brokers, banks, and other employee benefit consultants, in order to expose their products to a wider group of investors. These new services will compliment those being offered through their existing branch office business at Zurich International Life. As part of the launch of the new subsidiary, Zurich also confirmed their intentions to double their in-house agency force in Singapore, from around 50 at present to over 100 by the end of 2012.
Zurich is choosing to expand their presence in the Singapore life insurance market at the right time, as life insurance sales in the Asia Pacific city-state grew by a remarkable 22 percent last year. According to the LIA year-end fact sheet, four consecutive quarters of growth saw domestic insurers reap roughly S$2 billion (US$1.6 billion) in weighted new business premiums during the 2011 reporting period, up from the S$1,651.3 million (US$1.3 billion) recorded in 2010.A rising demand for protection and investment services amongst Singapore’s middle-class population should provide local insurers with enough momentum to achieve sustainable premium growth in their home market going forward. Added to this, of course, is the relatively high concentration of wealth and high net worth individuals in Singapore, a fact that makes the domestic insurance and financial services market particularly attractive. In their company statement, Zurich cites a 2008 Barclays Wealth report that predicted Singapore will have the greatest concentration of per-capita wealth in Asia by 2017. Singapore currently ranks second behind Hong Kong in terms of wealth concentration in the Asia Pacific region, with just under a quarter of the population having a net worth in excess of S$1million (US$800,000).
Graham Morrall, the recently-appointed head of Zurich’s new Singapore insurance subsidiary, confirmed that the company would continue to focus on the country’s affluent and emerging affluent customer segments, even though their new license gives them the ability to test the greater insurance market at large. This segment, comprised of clients with monthly incomes between S$6,000 (US$4800) and S$8,000 (US$6400), and S$200,000 (US$160,000) in assets, according to Morrall, offers the most considerable growth potential for Zurich going forward and is estimated to now be worth about S$800 million (US$640 million). Singapore’s mass market insurance industry is already quite crowded with several well establish companies and some 12,000 insurance agents vying for the business of an island nation with a 5 million population. Competing in this broader market segment would thus prove quite difficult for Zurich and because of this “The launch of the new subsidiary reaffirms our commitment to the Singapore market, and positions us for further profitable growth,” Morrall said, adding that “we aspire to be the best insurer for the affluent and emerging affluent customer segments, as measured by our customers, distributors and employees.”
Prior to his Singapore move, Morrall headed up Zurich International Life’s Middle East operations, out of Dubai, an office that has also seen changes in the past week. Zurich announced on Tuesday that it will relocate its MENA general insurance offices to Sama Tower, Dubai, in order to better accommodate their growing operations in the United Arab Emirates. The move will also increase service standards for Zurich customers and business partners as it will allow more clients to settle insurance needs and register claims with their frontline staff face to face. “The relocation of our offices in Dubai is a testament to Zurich’s ambitious plans for the UAE, and reflects our focus on enhancing customer convenience,” said Maround Mourad, CEO of Zurich’s general insurance business in the Middle East.
Many multinational insurers are now shifting their focus away from stagnant western economies to the growth markets in Asia and the Middle East in order to capitalize on the increasing affluence in the region. Zurich expects these emerging markets to account for about half of its new life insurance business by 2013, and the moves made this week surely work towards that ambition.
Insurance Company Mentioned
Headquartered in Zurich, Switzerland, Zurich Financial Services Group is an insurance-based financial services provider with a network of subsidiaries and offices in North America and Europe and also in Asia-Pacific, Latin America and other markets. Zurich is one of the world’s largest insurance groups, and one of the few to operate on a truly global basis. With 60,000 employees serving customers in more than 170 countries, our business is concentrated in three business segments: General Insurance, Global Life, and Farmers.
Important new details surrounding China’s ambitious plans to improve their national healthcare and insurance systems are beginning to emerge. A circular issued by the State Council General Office on Wednesday outlines several of the Mainland government’s reform objectives for 2012, and how this could impact those involved in the state healthcare system over the coming year.
The rapid economic rise of China over the past few decades has brought many benefits to the country, lifting millions out of poverty and improving the overall health standards of their citizens greatly in tow. However, despite this notable progress, many structural health issues in China remain unresolved. The adverse health consequences of more urbanized, ageing, and increasingly quality-demanding populace have placed the communist state’s over-strained medical infrastructure and healthcare system under considerable pressure. There are also large disparities between the country’s more affluent urban dwellers and poor urban and rural inhabitants in terms of access to medical services, affordability and quality of care. China’s healthcare system has been described by critics as an overloaded pay-as-you-go bureaucracy with medical services often proving too difficult to access, too expensive, and too variable in quality between various parts of the country, particularly in rural regions. Many among the rural poor have limited their use of healthcare services for purely financial reasons, since the costs of treating a serious illness or injury could wipe out a family’s life savings.
China’s central government has taken some steps in addressing these problems. China launched a RMB 850 billion (US$125 billion) healthcare reform plan in 2009 and a far-reaching social insurance law last year. Important advances have been because of this investment, especially with regard to improved access and equality to medical services and insurance coverage across China. According to government statistics, around 96 percent of the Chinese population are now covered by some basic form of medical insurance, compared to just around 15 percent a decade ago. The country’s infant mortality rate meanwhile has fallen to under 12 per thousand from 15 per thousand over the past three years, while the rate of mothers dying in childbirth falling to 26 per 10,000 from 34 during that period as well. However, despite these notable strides, medical costs have continued to rise as a share of total household expenditure in China. Alleviating these cost concerns thus remains a pressing concern for the Chinese government, as it needs citizens to start spending more of their considerable savings, rather than holding onto their money for medical emergencies, to boost domestic consumption.
New insurance mechanisms are being implemented by the government to cover a significant portion of medical costs and to help lower the impact of high out-of-pocket payments. The Mainland government’s chief objective is to continue expanding their state medical care insurance plan until no less than 95 percent of the population are covered and have access to affordable public healthcare facilities. According to the circular, the government will work to achieve this target by administering an annual subsidy of CNY240 (US$40) per-capita that will cover some basic medical services for urban and rural residents starting this year.
A big obstacle to healthcare reform in China is the state’s public hospital system, which has long been the country’s predominant treatment network due to the continued lack of primary care facilities and other options. Chinese public hospital monopolies and their staff benefit from the current health system because they are allowed to make up for the lower government-set prices on medical services by charging their own higher prices on patients for drugs and diagnostic tests. These public hospitals have come to rely on the non-subsidized services for a big chunk of their revenues. According to industry experts, this has helped foster a healthcare environment burdened by fraud where expensive drugs are over-prescribed and unnecessary diagnostic tests are frequently pushed on patients for kickbacks from pharmaceutical companies. As insurance coverage has extended throughout the country, these practices have in fact gotten worse. Public hospitals now use every means available to get money out of the patients themselves or the national insurance fund to cover their operational expenses.
The government has taken note of this development and are apparently determined to drive down healthcare costs despite facing numerous challenges from vested hospital interests that see reform as a threat, both to their for-profit status and to the income of practicing doctors and hospital administrators. The circular stressed the importance of improving regulatory oversight with regards to pharmaceutical quality, compensation and distribution mechanisms in China over the next couple of years. As part of this arrangement, the government will soon release a list of which drugs will be made subsidized for Chinese citizens under the state’s medical insurance scheme. The drugs on this list have their prices kept artificially low as part of the government’s plan to contain out-of-pocket costs for Chinese patients. Not only will the number of essential pharmaceuticals increase but so will the type and quality of drug. More specialty products, including those for common illness like cancer and cardiovascular disease, are expected to be added to the list soon. The government intends to take a more active role in negotiating better prices for patients and public hospitals.
These are all part of the effort to continue increasing the access and service capacity of grassroots medical facilities in rural areas across China in 2012. According to the circular, the 2012 reform plan includes a pilot program that will change how 300 county hospitals are funded for the year. County-level hospital were selected for the scheme as they generally receive a manageable number of rural patients and are under control of local health departments, which makes reform efforts easier. Instead of depending on drug sales, inducements and other kickbacks for income, these public hospitals will instead by financed by increased government subsidies and key adjustments made to staff salaries and medical service and supply pricing systems. The experience gained from this preliminary initiative will then be used when developing a similar reform agenda for the more trafficked and complex public hospitals in urban areas.
Speaking on the healthcare reform agenda outlined in the circular, Vice-Premier Li Keqiang told reporters that more work would be done to accelerate the development of the country’s medical insurance system, expand the coverage of the state healthcare network, lower drug prices, and raise healthcare subsidies for all Chinese citizens. To do this Li pledged that the state would separate medical services from pharmaceutical management, increase doctors’ income and restructure the funding equation between patients, hospitals and insurance providers. Crucial to this development too will be the input of the private healthcare and insurance sectors.
Insurance Australia Group (IAG) has taken another step towards increasing its pan-Asian footprint, with the announcement of a planned acquisition of shares in Vietnam’s fifth largest motor insurance company this week.
In a statement released to the Australian stock exchange on Tuesday, the Sydney-based insurance giant confirmed that it had entered into a conditional agreement to acquire a 30 percent stake in AAA Assurance Corporation (AAA). According to IAG, the stake is valued at less than AUD 20 million (US$20.7 million), and comes with the added option to increase its shareholding in the Ho Chi Minh City-based insurer to 49 percent at a later date. As per the terms of the deal, IAG will also be given board representation, the right to appoint certain key personnel, and confirmatory voting rights over important business matters. The Vietnamese investment remains subject to regulatory approval and is expected to be completed by June 2012.
AAA is a general insurance company that focuses primarily on selling motor protection products directly to clients through a comprehensive distribution network, which comprises several regional and city-based branches across Vietnam. In its press release, IAG claimed that AAA has become one of the country’s most successful insurance brands through strong underwriting control, risk management and customer service since its establishment in 2005, and now ranks as the fifth largest motor and eighth largest general insurer in Vietnam by market value.
IAG’s Managing Director and CEO, Mike Wilkins, heralded the acquisition as a strategic investment that would give the company valuable exposure to Vietnam’s rapidly developing insurance sector through an already well established market participant in AAA. Vietnam’s burgeoning economy, with an emerging middle class more aware of insurance services, has already had a profound effect on the non-life insurance sector in particular. As per capita wealth increases, more people move from owning bicycles up to mopeds and then to cars. Similar to other Southeast Asian insurance markets, compulsory motor third-party liability coverage laws have also been a critical growth component to the overall insurance market. Motor insurance represents the largest segment of Vietnam’s non-life sector, accounting for almost a third of the country’s total direct written premiums as of 2010.
According to IAG, the Vietnamese general insurance market has been expanding by a compound annual growth rate (CAGR) of 25 percent since 2009, and with coverage rates still low and economic indicators largely positive, the market is forecast to continue developing at similar levels for another three to five years. There are currently 29 insurance companies operating in Vietnam’s non-life market, with more expected to follow due to this potential for growth. The intense competition has however made profitable underwriting difficult to achieve in the current environment, especially in personal and small commercial lines. As the market has opened up, the 4 big, partially state-owned non-life insurers have been losing market share to smaller largely-foreign competitors who have implemented aggressive growth strategies at the expense of cost-effective underwriting. While local insurers have controlled the market in personal lines, most lack the sufficient capacity and expertise to establish a presence in commercial lines. Foreign firms, like IAG, will be better placed to provide both personal and commercial non-life insurance in Vietnam going forward.
IAG’s deal in Vietnam is part of the insurer’s regional development strategy. According to CEO Mike Wilkins, IAG wants to increase its existing footprint in Asia until it accounts for at least 10 percent of the company’s gross written premiums on a proportional basis by 2016, compared with approximately 3 percent as of last year. IAG has targeted six markets in the region for further merger and acquisition opportunities to attain this objective: India, China, Malaysia and Thailand, where they already have a presence, and Vietnam and Indonesia, where they would now like to.
The acquisition of a 30 percent stake in AAA follows last week’s announcement that IAG’s 49 percent owned Malaysian associate, AmG Insurance, could now finalize a deal to purchase smaller rival Kurnia Insurans Berhard, after receiving the appropriate regulatory approval from governmental authorities. The deal, priced at MYR1.55 billion (US$510 million), will see AmG become the largest general and motor insurer in Malaysia. The Australian insurer also recently completed an AUD228 million (US$235 million) buyout of New Zealand’s AMI and confirmed a 20 percent stake in Chinese insurer Bohai Property Insurance for US$100 million, its first foray into the world’s second largest economy. In his closing remarks, Justin Breheny, IAG’s Chief Executive Officer for Asia, explained that the Australian insurer’s move into Vietnam would look to build upon the strong growth momentum now being generated across the Asia Pacific region. “In line with our strategy, IAG would bring to this partnership proven capabilities in the areas of underwriting, pricing and actuarial, and risk and claims management, enabling AAA to expand its operations and become a more significant player in this exciting market,” Mr Breheny said, adding that “we have a successful track record with other partners in the Asian region and we look forward to working with AAA as we continue to grow this successful general insurance business together.”
Insurance Companies Mentioned
AAA Assurance Corporation
Established in Ho Chi Minh City in 2005, AAA Assurance Corporation (AAA) is a privately owned Vietnamese insurance company with over 700 employees nationwide. AAA focuses primarily on motor insurance and distributes its products via a national network of over 100 branches including transaction centers, and 5,000 insurance agents nationwide.
Insurance Australia Group
Insurance Australia Group Limited (IAG) is the parent company of an international general insurance group, with operations in Australia, New Zealand, the United Kingdom and Asia. Its current businesses underwrite over $8 billion of premium per annum, selling insurance under several different brands, including NRMA Insurance, CGU, SGIC, SGIO and Swann Insurance.
German insurance group ERGO announced Friday that they will finally be entering the Chinese insurance market after receiving the necessary start-up permissions from local regulators to launch a joint venture operation with a Mainland government-backed partner.
ERGO Insurance, a subsidiary of global reinsurance giant Munich Re, had first agreed to establish a public-private joint venture insurance company with Shandong’s State-owned Assets Investment Holding Company (SSAIH) back in January 2011. ERGO is currently Germany’s second largest primary insurer by market value, after Allianz SE. The financial investment unit of SSAIH is part of the provincial government of Shandong. In 2011, the company, which employs over 8,000 local staff, held assets worth around €2.7 billion (US$3.52 billion). Now that the regulatory approval for commencing the start-up has been given by the Chinese Insurance Regulatory Commission (CIRC), the two firms can begin to establish their distribution platform, recruitment mechanisms and overall market strategy under a preparatory license. As per the terms of the partnership, ERGO and SSAIH, which is part of the provincial government of Shandong’s asset manager, will each hold a 50 percent share in the venture and the headquarters will be located in Jinan city, the capital of Shandong province.
This new joint venture company, which yet has to be named, will primarily focus on selling life insurance and other savings-related products to retail customers across Shandong. Speaking on the significance of this bold new venture at the signing ceremony, ERGO Insurance Group Board of Management, Dr. Jochen Messemer explained that adding the Chinese market to their international operations portfolio would prove to be a strategic move going forward, despite regulatory hurdles. “China is one of the strongest growth regions in Asia. As a consequence, both private customers and companies have an increasing requirement for provident products and a safeguarding against risks,” Dr. Messemer said, adding that “by entering the Chinese insurance market, we are strengthening our position in the emerging Asian markets, which are a focal point of our international growth strategy.” The Chinese market will no doubt continue to offer enormous potential for further growth.
China’s insurance sector has proven durable in the aftermath of the global financial crisis, consistently delivering high growth rates in recent years as both the number and sophistication of insurance policies sold continue to rise in tow. ERGO has had a presence in China for several years through its’ representative office in Beijing and their new life insurance joint venture will enable them to position another office 250 miles further south in Jinan. ERGO has spent their time Beijing analyzing the Chinese insurance market and how, in particular, foreign insurers have fared once they’ve entered the market. The primary-insurer felt that the time was right to test the country’s life sector through a partnership with SSAIH. The decision to enter Shandong province was taken because the region plays an important role within the Chinese economy and has become the third largest domestic insurance market over the past few years. The province has a population of 96 million people, and this offers ERGO huge potential for sustainable premium growth alongside their Chinese public sector partners.
While the continued growth of China’s economy no doubt offers substantial business opportunities going forward, ERGO is well aware that the highly competitive and often duplicitous nature of their market environment has been particularly challenging for foreign insurance entrants, with some foreign invested joint venture companies already leaving the market in recent years, citing exorbitant claims figures, poor competitive positions and stifling industry regulations. Once again, Dr. Messemer assured shareholders that a German insurer could survive and thrive in China, saying that “we are confident that – based on our technical and risk management expertise and international know-how in setting-up life insurance operations – we will set strong foundations for being successful in China in the long run. We have chosen a focused approach for entering the market in the Shandong province.” ERGO plans on sharing its international insurance expertise in areas of sales, risk management and product development to hopefully impact and lift the business practices and customer service standards in the local market. Subject to final regulatory approval, the ERGO-SSAIH joint venture is expected to formally launch its business operations sometime during the first half of 2013.
Many multinational insurers are now shifting their focus away from stagnant western economies to the growth markets in Asia in order to capitalize on the increasing affluence in the region. China is ranked as roughly the sixth largest insurance market in the world, and the second largest in Asia. Many industry observers fully expect the Chinese insurance market to eventually overtake the United States and become the number one overall protection and investment market in the world, possibly by as early as 2020.
Insurance Companies Mentioned
ERGO is a subsidiary of Munich Re and offers a wide spectrum of insurance provision and services across 30 countries; it currently has more than 40 million customers. ERGO has a strategic focus in Central and Eastern Europe and certain Asian markets. The German insurer has become one of the leading health and legal expenses insurance companies within Europe. In addition ERGO provides property and personal accident insurance in India. In 2011, ERGO recorded a premium income of 20 billion euros and paid out benefits to customers amounting to E17.5 billion.
Munich Re stands for exceptional solution-based expertise, consistent risk management, financial stability and client proximity. This is how Munich Re creates value for clients, shareholders and staff. It operates in all lines of insurance, with around 47,000 employees throughout the world. Especially when clients require solutions for complex risks, Munich Re is a much sought-after risk carrier. The primary insurance operations are mainly concentrated in the ERGO Insurance Group. ERGO is one of the largest insurance groups in Europe and Germany and 40 million clients in over 30 countries place their trust in the services and security it provides. In international healthcare business, Munich Re pools its insurance and reinsurance operations, as well as related services, under the Munich Health brand.
India’s fast growing demand for affordable health cover is attracting greater business attention, with both life and non-life insurance companies now entering the market with innovative new protection and savings medical insurance products. This intense competition for health insurance customers has only intensified in recent months, with the introduction of new savings-linked and investment-oriented health insurance schemes by some of the country’s largest insurance groups.
India’s insurance sector first opened up to private and international investors in 2001. Over the past ten years coverage rates across the populous South Asian country have doubled and the domestic insurance industry has overtaken several more developed financial markets in the process. The overall number of insurance policies sold has increased several times over, and combined premium income is now projected to reach between US$350 to US$400 billion by 2020. Health insurance, in particular, has become as one of the country’s fastest growing insurance lines, accounting for almost a third of new written premiums last year. Sales of medical insurance products have been driven by three key factors: a low penetration rate of about 5 percent at present, surging treatment costs, and a lack of other social safety options across most of India. With total expenditure on healthcare, through both Indian government schemes and private sector activity, expected to exceed US$200 billion by 2015, even more significant opportunities for the country’s health insurance sector will likely emerge. Over the next three years, health insurance has the potential to become an INR300 billion market (US$6 billion), according to industry observers.
The introduction and increased proliferation of private sector players in India’s health insurance sector has worked to both develop innovative new coverage products and increase service standards for clients in the domestic market. Of particular note has been how the entrance of several major life insurance brands, including Life Insurance Corporation of India, Aviva Life Insurance and Max Life Insurance, has affected the market recently. These life insurers offer largely savings-based health plans that provide lump sum compensation to clients in case of a critical illness or other malady specifically defined by a specific policy. These long-term products have tenures that can last up to 20 years. When the policy expires, customers are entitled to receive the fund value. Normally this is not a cashless process as payment is reimbursed on submission of medical bills. Most of these health insurance plans sold by life insurance companies are unit-linked insurance products (Ulips), whereby returns are determined by the performance of the stock market.
While life insurer health plans are tied to equity returns, medical insurance policies sold through non-life companies tend to provide cashless hospitalization cover for policyholders in the event of an illness or accident. These plans, with premiums reviewed and renewed annually, also offer customers a variety of additional value-added benefits such as hospital cash allowance, home nursing allowance and recovery grants. Some insurance companies offer these outpatient services as add-on covers with their hospitalization plans, while others provide discounts through certain affiliated hospital networks. These products have so far proven to be the most popular in India. Health insurance policies sold through non-life and dedicated medical insurers currently dominate the market, accounting for roughly INR100-120 billion (US$1.9-2.3billion) of the country’s INR150 billion (US$3 billion) health insurance sector. It is expected that increased intra-market competition going forward will enable successful insurers to meet the country’s changing healthcare needs.
Despite the positive growth indicators, India’s health insurance market still has many problems to contend with in order to match its true potential going forward. The most important challenge for insurers remains the low level of awareness concerning the value of obtaining adequate coverage as a valuable savings and investment tool across much of the country. This problem is slowly being addressed as more insurers develop their product and distribution platforms to reach previously untapped regions and client bases with more innovative and affordable coverage products, including microinsurance and local bank and government tie-ins.
Of the Indian consumers already aware and enrolled in health insurance schemes, the industry faces the continuing challenge of keeping them happy. Customer satisfaction levels for health insurance in India have consistently ranked below comparable levels elsewhere, with critics frequently citing the low coverage of plans in terms of both the diseases and number of hospitals covered. Unlike other homogenous general insurance products, premiums for medical plans are based on the health of an individual policyholder and this had lead to confusion and fraud in the Indian market and increased policy cancellations from customers who do not find any value in their health insurance policies.
The Insurance Regulatory Authority of India (IRDA) has come to the forefront in tackling these service standard issues recently. Speaking at the first meeting of the India Health Insurance Forum in Hyderabad last Thursday, IRDA chairman J Harinarayan said the industry must now work to improve communication with its customers, particularly with regard to health insurance policy documentation, as a third of all consumer complaints this year have been directed towards health insurers. According to IRDA data, of the 92,898 complaints levied at the non-life sector so far in 2012, 38,891, or 37.5 percent have been focused on health insurance issues. “If one-third of complaints are from the health side, I will conclude that the nature of communication on health insurance policies and the understanding of the policy by the consumer are areas of concern. Probably, the lack of clarity is reflected in the increasing number of complaints,” IRDA chairman J Harinarayan said, adding that “good communication is the responsibility of the insurance company and not of the policy holder. An insurance policy, as a contingent contract, has to be specific and unambiguous.”
Insurance Australia Group (IAG) finalized its acquisition of a 20 percent stake in China’s Bohai Property Insurance Ltd this week, marking the Australian giant’s first venture into the fast-moving Chinese insurance market. The move comes as part of the company’s long-term effort to boost its presence across Asia’s rapidly developing insurance markets.
IAG confirmed their purchase of a strategic interest in Bohai following the receipt of all required regulatory approvals in a statement made to the Australian Securities Exchange yesterday. The deal, for a reported sum of US$100 million, presents the Australian general insurer with its long sought-after foray into the world’s second largest economy. Under current Chinese market regulations, 20 percent is the maximum holding a single foreign investor is allowed to have in a domestic general insurance company. IAG first announced their investment plans for Bohai back in August, 2011.
IAG chief executive Mike Wilkins said that the acquisition was another important step for the company and one that would contribute to their growth target of having around 10 percent of premium income generated from Asia by 2016, “Bohai Insurance is an attractive partner and provides an exciting opportunity for us to meet our long held ambition of entering China’s general insurance market,” Mr Wilkins said in a press statement. IAG has reported a net profit of US$167 million in the first half of its 2012 financial year.
IAG and Suncorp dominate the Australian insurance sector and control almost 70 percent of the country’s insurance business between them. As this situation offers limited scope for domestic expansion, IAG now looks to the Asia Pacific region for sustainable premium growth. Over the past 5 years, the firm has seen its Asian footprint grow as far as Thailand, Malaysia and India. The insurer’s ambitious global growth strategy has also seen it buy a controlling stake in New Zealand’s AMI insurance business in the past week. IAG’s Asian business currently accounts for roughly US$430 million towards the company’s US$8 billion total in gross written premiums.
The Australian insurer has targeted a partnership in China specifically due to its expanding economy, low insurance penetration rates and a now more favorable business environment. Bohai Insurance was first identified as a strong strategic fit for IAG’s investment last year. Since its inception in 2005, Bohai has been able to generate annual gross written premium in excess of US$200 million. The Chinese non-life insurer has been a well-run company focused primarily on motor insurance, a product line that IAG has had traditional competitive strength in. In addition to this, Bohai have strong local government support, a recognizable brand, and an established multi-channel distribution network of roughly 265 provincial and city-based branches. The insurer has also demonstrated a commitment on underwriting discipline and risk management, which is particularly important for cautious Western investors. The price IAG has paid for their 20 percent stake would put the cumulative value of Bohai’s business at around US$500 million. According to market estimates, Bohai will be on track to turn an profit by the 2013/14 financial year.
IAG have also highlighted the importance of the company’s location within China. Bohai is based in Tianjin, the centre of the pan-Bohai economic development region in China’s north-east. The area is one of the most economically significant regions in China and receives direct central Government funding and supervision for new development initiatives. Currently the pan-Bohai region accounts for both a third of China’s gross domestic product (GDP) and a similar proportion of the country’s annual US$60 billion insurance premium pool (almost twice Australia’s totals). By comparison, IAG noted that the size of the pan-Bohai economy would be equivalent to the entire Indian or Russian market.
China’s continued economic development will continue to support it’s growing insurance industry, and thus the decision to enter this lucrative market was an easy one for IAG. China’s GDP is forecast to continue growing at over 9 percent per annum for at least the next couple of years. According to IAG, the country’s general insurance market is also expected to grow by about 10 percent to 15 percent over the next decade at least. In conjunction with rising insurance demand, IAG also credited improvements to industry regulations in China with improving the sector’s underwriting discipline and overall business forecast. These infrastructure efforts have, in turn, encouraged greater foreign investment in the country. The Chinese general insurance market, once dominated by four big state-owned players has become more open, enabling smaller companies, like Bohai, to remain commercially sound and present more profound and diverse opportunities for the international insurance industry. IAG and Bohai are confident that by combining their strengths, they will be able to create a solid platform for long term insurance growth and profitability in China.
Insurance Companies Mentioned
Insurance Australia Group
Insurance Australia Group (IAG) provides personal and corporate insurance policies under several different brands, including NRMA Insurance, CGU, SGIC, SGIO and Swann Insurance. The company has been the largest general insurer for Australia and New Zealand and is now expanding out of its home markets and looking to Asia for growth.
Bohai Property Insurance Pty Ltd
Bohai Insurance is a Tianjin-based insurance provider. The company was founded in October 2005 and today has over 250 provincial and city-based branches and a large network of agents.
A massive undersea earthquake registering a magnitude of 8.6 struck off the coast of Indonesia’s Sumatra Island yesterday, causing tremors in nearby provinces and countries and triggering tsunami warnings across the Indian Ocean. Although the incident now appears to have produced little in terms of property damage or any casualties, insurers have once again been reminded of the sizeable risks that catastrophes can pose in the Asia Pacific region.Read the rest of the Indonesia Quakes Could Cause Coverage Concern article.
The Emirate of Dubai is reaffirming their commitment to medical tourism by increasing cooperation between public and private healthcare operators through a new national development initiative.
Last week, the Crown Prince of Dubai, Shaikh Hamdan bin Mohammed bin Rashid Al Maktoum, called a meeting with top officials from various government and private sector bodies to discuss the Dubai Health Authority’s (DHA) new initiative on medical tourism and what could be done to fast-track development and promotion efforts going forward. The Dubai government wants to establish the city as both a regional and global hub for medical tourism in order to further diversify the local economy away from natural resource extraction. If successful, new healthcare facilities targeting foreign patients could also work to lift local health standards and create more investment and job opportunities at home. The crown prince made it clear at the meeting that Dubai’s healthcare sector needed a unified approach going forward to overcome previous inter-departmental squabbling and muddled promotional efforts, which have resulted in many citizens leaving the emirate and heading overseas for medical treatment. A lack of cooperation between state and private sector players has been cited by industry analysts as a key impediment to further developing the Dubai medical tourism sector in the past.
Read the rest of the Dubai Ramps Up Medical Tourism Effort and Health Insurance article
South Korea’s largest insurance companies have incurred sizeable losses in overseas markets over the past year due to the rise in costs associated with launching and operating branches in foreign countries. A new report from the country’s financial watchdog revealed both the overall extent of the losses and what might be done to alleviate the transition from local to international insurance markets for Korean insurers going forward.
A briefing released by the Financial Supervisory Service (FSS) last week, revealed that the eight overseas subsidiaries representing South Korea’s three major life insurance firms, Samsung Life Insurance, Korea Life Insurance and Kyobo Life Insurance, posted a combined net loss of KW18.2 billion (US$16 million) during the 2011 reporting period. These losses were 22 percent higher than the corresponding figures for 2010, the Korea Herald noted.
According to the FSS, these losses could be attributed to the increase in payouts and administrative costs Korean life insurance firms faced while expanding overseas in 2011. As a result of this development, the FSS are beginning to develop plans to increase their industry oversight capabilities. South Korea’s financial regulator wants to monitor the financial health of domestic insurer overseas units going forward. As part of this, the FSS will instruct insurance companies to both bolster their existing risk management practices and sufficiently review business operating environments abroad before they attempt to make inroads into overseas insurance markets.
These costs surpassed what would otherwise have been a decent reporting period for these insurers, as profit from collecting insurance premiums abroad increased by 32.3 percent overall for eight subsidiary companies of Samsung Life, Kyobo Life and Korea Life. Furthermore, by expanding into new insurance markets abroad, the FFS dataset revealed that the combined assets for Samsung, Korea Life and Kyobo stood at US$410 million as of year-end 2011, which represented a 14.7 percent increase on the previous year.
In addition to these overseas operating losses, Korea’s life insurance companies have also suffered a poor year with regards to their stock market investments through equity-linked products, a once popular form of savings and investment throughout the Asia Pacific region. Equity-linked, or variable insurance, products invest a proportion of a given customer’s premiums (typically between 80-95 percent) in stocks and bonds to provide a combination of insurance protection and longer-term financial returns. Demand for these types of products from life insurers began to rebound following the 2008 global economic crisis but recent stock market turmoil, tied to the ongoing Euro sovereign debt fallout, is now bringing old troubles to the fore once again. According to the Korea Life Insurance Association, the combined rate of return on investment for variable insurance products fell by over 12.8 percent for Korean life firms last year. Among the big three companies, Samsung Life posted the lowest earnings rate at -10.4 percent, while Korea Life and Kyobo finished the year with higher rates of -6.28 percent and -6.94 percent respectively. As these funds incur losses, many in Korea are now wondering whether they should begin to withdraw their investments. Insurance firms remain adamant however that short-term fluctuations shouldn’t impact variable insurance sales much going forward.
Korea’s non-life insurance companies have also seen their overseas portfolios struggle over the past year, with several insurers experiencing operating challenges similar to their life sector counterparts abroad. According to the latest FSS data, the country’s top six general insurers posted a 52.2 percent decline in overseas earnings in 2011, as a high frequency of natural disasters and relatively weak risk management practices in foreign markets took their toll on company balance sheets.
According to the FSS, this decline was lead by tepid overseas performance of three Korean general insurance companies in particular: Samsung Fire & Marine, Korea Re and LIG Insurance. Samsung Fire & Marine’s overseas branch reported a considerable 40 percent decline in net profit from US$9.34 million in the third quarter of 2010 to US$5.43 million in the same quarter of 2011. Korean Re meanwhile went from a profit of US$6.03 million between April and September last year to a net loss of $1.8 million during the same period of 2011. Finally, LIG Insurance reported a loss of US$1.62 million this year, compared to an overall profit of $220,000 a year earlier. Despite this drop in earnings, the FSS expect Korea’s non-life insurers to continue expanding abroad as growth opportunities at home remain muted. Similar to their plans for the life sector, the FSS also intend to provide local companies with more detailed and comprehensive information on overseas markets and sound risk management practices, in coordination with the International Association of Insurance Supervisors (IAIS), to hopefully mitigate costs for Korean firms looking to expand their operations overseas going forward.
Expanding outside of their saturated home market has become very important for Korean insurance companies. South Korea is one of the worlds most competitive and sophisticated insurance markets, with a particularly high insurance-penetration rate in terms of premiums to gross domestic product. According to a Swiss Re sigma study, the country overtook Japan with a 11.2 percent insurance penetration rate in 2010, and now ranks behind only Taiwan (18.4 percent) and Hong Kong (11.4 percent), as the third most insured customer base in Asia. Going forward South Korea offers limited organic growth opportunities compared with other markets in the region, in particular China and India where insurance market penetration holds rates of 3.8 percent and 5.1 percent respectively, as of 2010. In those countries, insurers are focused on their home market growth, and feature large populations and favorable demographic factors which should continue to support and drive premium growth. Thus, Korea’s most prominent insurance companies must now look towards expanding into other international markets as a balance to the escalating competition and declining profitability in their saturated domestic market.
Korea Life Insurance
Korea Life Insurance is an insurance company specialized in providing life insurance business. The company offers a wide range of insurance products including whole life/term insurance, survival insurance, death insurance, group insurance, annuity insurance and many other services for both individual and corporate customers. Substantial loan services, credit options, fund products and risk management services are also offered. Korea Life Insurance was founded as Daehan Life Insurance in 1946. The company is headquartered in Seoul, South Korea with additional offices in Ho Chi Minh City and Hanoi, Vietnam.
Samsung Life Insurance Co. is the largest insurance company in South Korea. Founded in 1957, Samsung Life sells life and health insurance and annuities through a vast branch and agency network nationwide. The company also have operations in China, India, Japan, Thailand, the United Kingdom, and the United States. Non-life insurance is provided through its sister company Samsung Fire & Marine.
Kyobo Life Insurance is one of South Korea’s largest life insurance groups. Founded in 1958, the company now provides life, health, pension, and asset management products to more than 10 million customers.
2011 was a year of heavy storms, devastating floods, and record-shattering earthquakes, but how much did these catastrophic events actually cost the global economy? A new report from Swiss Re, the world’s second largest reinsurance group, aims to find out.
In their latest sigma study, released last week, the Zurich-based reinsurer put the combined economic losses (both insured and uninsured) experienced last year due to natural catastrophes and man-made disasters at an all-time record of US$370 billion, versus US$226 billion recorded in 2010. Swiss Re noted that, of this historic total, US$116 was borne out by the international insurance industry, who largely managed to uphold their obligations with regards to risk management and post-disaster financing to clients in the face of these challenging circumstances. The insured loss total represented a 142 percent increase over 2010’s expenses.
According to Swiss Re’s study, 325 catastrophic events occurred in 2011, of which 175 were classified as natural catastrophes and 150 were declared man-made disasters. Broken down more succinctly, Swiss Re estimated insured losses for natural catastrophes finished the year at around US$110 billion, while losses resulting from man-made disasters accounted for the remaining US$6 billion. Altogether, 2011 represented the second-most costly year ever for the international insurance and reinsurance industry. With US$123 billion in insured losses, 2005 still ranks as the costliest year for the international insurance industry when 3 Atlantic hurricanes, Katrina, Wilma and Rita, battered the United States.
Swiss Re observed that the majority of these economic losses resulted from just a few cataclysmic events: the devastating earthquakes that hit Japan and New Zealand, the Thailand floods, and a record-setting tornado season in the United States. The study singled out the 2011 Japan earthquake, the largest known in terms of magnitude to have ever hit the country, as a particularly costly event that in fact accounted for some 57 percent of 2011’s total catastrophe loss. Due to the extreme magnitude of the event (a 9 on the Richter scale) and the subsequent tsunami and nuclear fallout risk that followed, the 2011 Japan earthquake ended up costing the domestic and global insurance industry around US$35 billion, making it the most expensive earthquake in history. Interestingly, because earthquake insurance penetration in Japan is very low, particularly for commercial properties, insurers are only expected to cover 17 percent of the total losses, with the national government, corporations and individuals bearing the remaining cost. Swiss Re contrasts this situation with what occurred in New Zealand last year, where individual earthquake coverage rate was high. The 6.3 earthquake that struck Christchurch in February triggered insurance claims worth US$12 billion, which meant the industry covered around 80 percent of the country’s rebuilding costs. Had Japan been more thoroughly insured like New Zealand, 2011 would certainly have been ranked the most expensive year ever in terms of insured losses as well, according to Swiss Re.
In addition to earthquakes, unprecedented flood losses also impacted the Asia Pacific region and global insurers. First there were the floods in Australia, which triggered claims worth over US$2 billion and became the country’s most expensive disaster on record. This event was soon eclipsed however by what occurred in Thailand. According to the Swiss Re study, the Thailand floods cost insurance and reinsurance companies about US$12 billion last year. That is the highest ever insured loss recorded for flooding from river water. “Flood losses can be just as tremendous as earthquake and storm losses. The flooding in Thailand is a painful reminder that, given the high risk of flooding in many countries, other parts of the globe could be prone to similar or even bigger losses,” wrote Jens Mehlhorn, Head of Flood Perils at Swiss Re and co-author of the study. Altogether, as a consequence of the historical earthquake in Japan and the unprecedented flood in Thailand, both insured and economic losses finished the year highest in Asia, where they respectively reached an estimated US$49 billion and US$ 260 billion, according to Swiss Re,
The United States, often the most costly insurance market, chipped in with insured catastrophe losses worth US$25 billion following an unprecedented tornado season that caused record property damage across the middle of the country. There was good news to be found in hurricane claims however. Outside of Hurricane Irene, storm damage remained moderate in the US, which meant that domestic insurance losses overall remained far lower than 2005’s record totals. While flooding also hit the US during 2011, Swiss re noted that sophisticated risk management systems managed to contain flood-related insured property losses much better than in other regions.
Overall, the international insurance industry weathered the extreme events of 2011 quite well. Despite facing historic disaster losses and uncertain financial markets, insurers proved themselves effective at performing their key role in dispensing much needed funds to affected policyholders when called upon, be they individuals, businesses or governments throughout 2011. The conclusion Swiss Re wants you to draw from their report is that more should now be done to ensure that risk-models are updated and that insurance coverage is expanded across the world.
In a press statement, Kurt Karl, Swiss Re’s Chief Economist explained that “last year saw extraordinary and devastating catastrophic events. The earthquakes in Japan, New Zealand, and Turkey, as well as the floods in Australia and Thailand, were unprecedented and brought not only massive destruction but also the loss of thousands of people’s lives,” Karl said, adding “Yet two-thirds of the staggering USD 370 billion in economic damage will be shouldered by corporations, governments, relief organizations, and ultimately individuals, pointing to the still widespread lack of insurance protection worldwide.” Indeed this US$254 billion gap between insured and non-insured economic losses points to a widespread lack of coverage that needs to be addressed going forward.
Swiss Reinsurance Company Ltd was established in 1863 and is present in more than 20 countries. Swiss Re provides reinsurance products and financial service solutions. It offers various reinsurance products covering property, casualty, life, health and special lines – such as agricultural, aviation, space, engineering, HMO reinsurance, marine, nuclear energy, and special risks.
The Middle East and North Africa (MENA) offer considerable growth opportunities for insurance due to the region’s rising income levels, pronounced infrastructure investments and low existing coverage rates relative to global standards. Despite these positive factors however, insurers in the region still face numerous challenges both big and small when competing in their respective market, and recent economic and political turmoil have not helped matters either. In order to better capture the MENA region’s business potential going forward, a new study argues that local insurance companies must begin to gradually evolve their businesses from small fragmented companies to become national champions and then hopefully regional and even international players.
This conclusion was determined by a survey of MENA Insurance CEO Club (MICC) members conducted last year by international consultancy firm Oliver Wyman. The survey, titled “A Successful Future,” was carried out by the MICC to address and tabulate some of the key challenges and concerns facing MENA region insurers today and what responses may be required by both industry regulators and participants going forward to ensure a better future for insurance business in the region. Oliver Wyman conducted extensive interviews with 12 MICC members, each representing different markets, product segments and sizes of business in the region, to produce their findings.
While the MICC survey included a range of insurance companies with highly different profiles, the responses showed many common areas of interest and concern amongst members. Overall the club noted that the consensus forecast for the MENA insurance industry has remained bright amongst local insurers, despite them facing increased market completion, heightened socio-political tensions and other unsolved operational challenges. The survey showed an interesting combination of apprehension and optimism amongst respondents when asked about the short term business prospects in the market. Although half (57 percent) of the respondents believed that the MENA insurance industry would face more challenges than opportunities during 2012, over 85 percent were confident that their own individual companies would probably enjoy more opportunities than challenges over the next 12 months. In interviews, MICC members noted that the underlying growth drivers supporting the regional insurance industry have remained strong in the face of heavy claims losses and moribund interest rate returns as of late. Lavish state-funded infrastructure projects and the regulatory introduction of new compulsory lines of insurance have increased demand for certain lines of business that hadn’t had traction in the MENA market before.
When asked to review their outlook regarding the MENA region’s overall operating and competitive landscape, most of the MICC members surveyed (86 percent) believed that larger and more sophisticated insurance groups would cope with operational and investment challenges better over the next year. The majority (67 percent) or respondents also felt that more foreign insurance companies would enter regional markets in pursuit of sustainable premium growth opportunities soon. These large, sophisticated are predominantly foreign insurers are expected to succeed in the MENA and increase their market share due to the need for improved insurance skills and capabilities across the region, which they are of course better qualified to provide.
The survey then examined what effects the current level of competition was having on price structure in the MENA insurance market. While the number of insurance companies competing has continued to grow, MICC respondents noted that there other factors outside of over-crowding that worked to put undue pressure on pricing, and therefore company margins, over the past few years. The survey cites both the introduction of international insurance brokers to MENA markets and increased price sensitivity and knowledge amongst local customers with keeping premium levels stubbornly low. There was also a view that new market entrants and large global reinsurance companies have been complicit in supporting weak pricing across the region. While irate on pricing practices, MICC respondents meanwhile differed on the issue of what will happen to insurance distribution in the Middle East and North Africa. Almost 60 percent claimed that brokers would become a much more prominent distribution channel soon while the remaining 40 percent believe that bancassurance will become more important than ever over the coming year.
Most MICC respondents believe that the region’s individual insurance sectors needs to become more disciplined and bottom line focused in order to address the challenges that face them. In order for this to happen, insurers need their respective industry regulators and legal authorities to become more active in dealing with weaknesses in the market as well as encouraging best business practices amongst competing insurers, both young and old. Most MICC members surveyed believed that their market regulators should take a stronger stance on several key issues in particular, such as insurance fraud, reporting and statutory violations, dealing with insolvent insurance companies, and improving risk management practices and reporting standards.
When asked to pontificate on the future of the MENA region’s insurance sector, MICC members believed that the markets would soon consist largely of national champions, regional champions and smaller specialized firms. These firms are expected to emerge from increased consolidation activity, initially locally and then later through cross-border m&a deals with other MENA champions. According to the MICC, the growth of dominant national insurance champions caused by consolidation within each MENA market will lead to a greater balance between market share and profitability, which will result in companies shifting their competitive priorities from lower pricing to improved quality of service. While this will likely lead to a smaller number of local insurers actively competing in the MENA market, the ones who stay and can evolve their operations, either through consolidation or specialization, will have the capability to compete with the multinational insurers.
The MENA Insurance CEO Club (MICC) is an independent think-tank consisting of regional industry professionals who work to serve and promote the interests of Middle East insurance internationally.
Founded in 1984, Oliver Wyman has become a leading global management consulting firm. Oliver Wyman is now a wholly owned subsidiary of Marsh & McLennan Companies
Taiwanese insurance companies looking to diversify and prosper outside their over-crowded home market will soon be given greater capacity to capture business opportunities overseas. It was announced this past week that Taiwan’s chief industry regulator, The Financial Supervisory Commission (FSC) will begin to loosen overseas investment rules for domestic insurers later this year.
According to the FSC’s revised measures governing foreign investments by insurance firms, published online last Thursday, Taiwanese insurers who maintain adequate solvency standards will soon be allowed to invest up to 60 percent of their equity holdings in BBB+ graded foreign bonds, up from the 40 percent allocation permitted originally. This regulatory revision, scheduled to take effect during the second quarter of 2012, is expected to give Taiwan-based insurance companies an additional investment quota worth NT$100 billion (US$3.4 billion) to further grow and diversify their businesses.
In addition to this regulation, The FSC also stated that any insurer with a risk-based capital ratio (RBC) above 200 percent can now apply to the commission for a new overseas investment quota, which will exclude the purchase of foreign currency-based insurance policies going forward. This move, according to Taiwan Economic News, is forecast to give the Taiwanese insurance industry an extra share of NT$300 billion (US$10.2 billion) for overseas investments.
While any international market could in theory now be targeted by Taiwanese insurers for investment, this liberalization move by the national government is intended to encourage greater cross-strait financial ties with Mainland China in particular. As part of this effort, the FSC has agreed to lower the required RBC ratio from 250 to 200 percent for insurance firms looking to invest in Chinese securities, including yuan-denominated stocks and bonds, going forward. The commission noted that several prominent insurance firms had dropped below the previous solvency threshold due to investment losses and international debt contagion issues last year and adjustments had to be made to reflect these new economic realities.
Taiwan’s banks and insurance companies, long struggling with an over saturated home market, have been clamoring for better access to China’s huge capital market. The FSC began allowing domestic banks and insurance firms to invest in Mainland China stocks and bonds last year, and since then the acquisition activity has been fervent. Seven Taiwanese insurance companies have now obtained the prerequisite QFII (qualified foreign institutional investors) license from the China Securities Regulatory Commission to begin investing in the Mainland stock market. These insurers are Shin Kong, China Life, Taiwan Life, Mercuries, Global Life, Cathay Life, and Fubon Life.
All foreign investors in China have to be both QFII licensed and also granted a specific investment quota by the State Administration of Foreign Exchange (SAFE) in order to legally buy and sell on the country’s stock exchanges. This second step has proven more elusive for Taiwanese insurers so far, with several QFII licensed companies only receiving their yuan-denominated investment allocation in the past month. Shin Kong Life Insurance announced on the 1st of March that it had been granted a quota of US$100 million to trade on the Chinese stock market, becoming the first Taiwanese insurer to clinch their allocation. That same day, Cathay Life Insurance Co, the nation’s largest life insurer by market value, said it gained a QFII license from China, with investment quota impending. Taiwan-based China Life Insurance then released a statement on the 8th of March saying that it had become the second insurance company to get a quota. According to SAFE, the Mainland government approved a record US$2.11 billion worth of foreign investment through the QFII program in March, a sum that exceeded the total amount approved last year. Going forward the government agency intends to further expedite their review process in order to better support China’s capital market reforms and development.
For Taiwanese insurers, the decision to increase and diversify their investments on the Mainland could prove particularly important in 2012. A new report published last week by prominent local consultancy group, Taiwan Ratings Corp, expects stubbornly low interest rates and intense intra-market competition to constrain earnings growth for most local insurance companies this year. According to the report, titled “Taiwan Life Insurers’ Low Earnings Growth Hinders Capital Restoration,” the performance of the country’s life insurance market has in fact been subdued over the past two years, with unstable operating conditions and binding product adjustments proving particularly detrimental to recent premium growth.
Heading into 2012, Taiwan Ratings fear that volatile global stock markets could curb earnings growth further and delay local insurers’ attempts to recapitalize and turn around their performance. “Low operating performance and mediocre capitalization will remain the life insurance sector’s key rating weaknesses in 2012,” wrote credit analyst Serene Hsieh, “Nonetheless, we believe insurers’ adequate liquidity, continuous new business flows, and generally adequate investment asset quality will help protect their credit profiles from modest volatility.” Indeed, with the Mainland China market now made much more accessible, Taiwan life insurers can perhaps afford to take more risks with their investment strategies in order to both improve their competitiveness and maximize shareholder returns.
Taiwan’s Financial Supervisory Commission (FSC) was established on July 1st 2004 to promote and manage the interests of the country’s financial services sector. The FSC now works to supervise Taiwan’s banking, securities and insurance sectors, and acts as a single regulator for all of these industries.
Taiwan Ratings Corp
Taiwan Ratings Corp (TRC) is a leading provider of financial market intelligence in Taiwan and through its association with Standard & Poor’s Ratings Services offers first-rate financial news coverage and analysis across the global market.