Emerging Asian Markets Offer Best Prospects For Insurers
By Thomas | Published January 17, 2011
Economists at Swiss Reinsurance predict that 2011 will be a year of mergers and acquisition (M&A) within the insurance industry. The Asia-Pacific region is reliably forecast to be the focus of activity outpacing the global economy, which is expected to expand at a rate of 3.5 percent during the year.
Swiss Re’s predictions for 2011 highlight the continued strength of emerging markets in Asia, with growth significantly exceeding levels in mature markets. This follows the pattern of insurance business activity in 2010 when the premiums from life and non-life insurance in emerging Asian economies grew by 16.8 percent and 17.3 percent respectively, with the most significant contribution being generated by China.
It is estimated that there will be an 8 percent growth in real GDP in the emerging Asian economies of China, India, Indonesia, Malaysia, Thailand, Vietnam and the Philippines in 2011; with China and India maintaining their dominant position, and expecting to record annual growth rates of 8.7 and 8.6 percent respectively.
Speaking on these findings, Clarence Wong, Swiss Re Chief Economist Asia, said “The Asia economic outlook remains positive, driven by robust domestic consumption and investment demand, sustained capital inflows into Asia, rising intra-regional trade and investment, and supportive government fiscal and monetary policies.”
The renowned consultancy firm Pricewaterhouse Cooper (PwC) recently forecast that China and India will become the second and fifth largest economies, respectively, in the world by 2020. As growth in the Asian economy accelerates in the wake of the 2007-2008 global financial crisis, a recent PwC report predicts that the economies in Asia such as China, India and Indonesia will overshadowed those of the traditional western hemisphere economic strongholds representing a global shift in world markets.
The strong data supporting economic growth in Asia is likely to influence the drive by international insurers to bolster their presence in the region, in order to capitalize on the growing prosperity of the massive populations in this part of the world, which have rising demands for insurance products.
While the insurance industry has largely been able to recover from the worldwide financial crisis in 2007-2008, insurers are searching for opportunities to grow business and written premiums. The demands for life and non-life insurance in Asia is forecast to drive this growth reflecting rising incomes and general improvements in wealth creating demand for individual, family and business insurance protection. Demographic changes in Asia, including an increase in aging and ailing populations, will help to drive up the demand for products such as retirement and health insurance.
The life insurance sector in the emerging Asian markets saw premiums increase in real terms from 10.7 percent in 2009 to 16.8 percent in 2010 – this is expected to grow by 10.3 percent in 2011. In China, life insurance premiums grew by an enormous 24.4 percent in 2010. Indonesia, Thailand, Malaysia and Vietnam also recorded robust growth, with life insurance premiums realizing growth in excess of 10 percent.
The multinational insurers Zurich and Aviva both entered the Indonesian life insurance sector in 2010 with Zurich buying a major stake in PT Mayapada Life and Aviva taking a majority share in PT Asuransi Winterthur Life Indonesia (WLI) – this enabled both companies to gain access to one of Asia faster growing life markets.
As more of the Asian population has an increased level of disposable income and has become more aware of the benefits from a better quality of healthcare available from privately run medical sources, they have invested in private medical insurance (PMI) to safeguard long-term health. Additionally, low interest rates and improved knowledge of investment products are driving up the demand for investment-linked insurance products, providing insurers in emerging Asian markets with significant scope for new written premiums.
The Asian non-life insurance market saw an increased in premiums of 17.3 percent in real terms in 2010 and is forecasting growth of 12.5 percent in 2011. In particular, China experienced growth in this sector amounting to 21.5 percent in 2010 which is forecast to grow by 14.1 percent in 2011. While in Vietnam, business increased by 13 percent in 2010 and it is expected to grow by 14.2 percent in 2011.
Vietnam and Thailand have both emerged as two rapidly expanding South-East Asian economies and two countries which have strong developing insurance markets. The insurance sectors in both Thailand and Vietnam were highlighted as regions for international insurer expansion in 2010 as both countries have evolving economies and growing middle class populations.
The non-life insurance market in Asia is benefiting from an increase in demand for property insurance and has seen a significant growth in car ownership driving up the need for motor insurance. Also, as Asian governments support local infrastructure projects there will be a need for more commercial insurance.
Although emerging Asian markets are set to continue their strong momentum throughout 2011, some risks from such robust growth have been identified. Clarence Wong has warned about this by saying: “However, the rosy prospect is clouded by emerging risks, such as rising inflation, brewing asset bubbles, potentially abrupt reversal of capital flows, and increasing risks of currency wars and trade protectionism.”
China and India are leading the charge in global economic recovery closely followed by Thailand, Indonesia and Malaysia with consequential benefits for global insurers. However, insurers will be faced with some obstacles in complying with restrictions imposed by regulatory authorities when entering into new ventures.
While insurers are presented with opportunities for new premiums from emerging Asian markets, it is essential to ensure premiums provide satisfactory rates of return compared to the risk exposure.
The significance of the Asia region become clear in 2010, when British insurer Prudential placed a US$35.5 billion bid for the American International Group (AIG) Asian insurance arm American International Assurance (AIA) – although this eventually collapsed. Such an audacious bid highlighted the importance of the Asian region to insurers looking to refocus business activity from stagnant western markets to more prosperous Asian markets; it is expected that 2011 will see more M&A activity in the Asian insurance industry.
Other international insurers such as Generali, Aviva, Allianz, Aegon and Sun Life Financial, in addition to Prudential, have all highlighted the prospects for growth in Asia especially China and India. As austerity measures begin to bite in Europe and North America, limiting scope for the writing of new insurance premiums in the coming years, there will undoubtedly be a dash by insurers to position themselves to achieve maximum penetration of the growth in the Asian insurance markets.
Insurance Companies Mentioned:
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.
Prudential has been in the insurance and financial services business since 1848. Today they operate throughout the UK, US and Asia offering international health insurance and retirement planning services, supported by 27,000 employees worldwide.
Europe’s fourth largest insurance company, with more than 300 years of experience in the global insurance industry, Aviva is committed to the safety and satisfaction of its customers. They sell a broad range of insurance products including motor and property insurance, protection and health insurance, business insurance, life insurance and pensions.
Headquartered in Zurich, Switzerland, Zurich Financial Services Group is an insurance-based financial services provider with a network of subsidiaries andoffices 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.
Allianz Group is one of the leading global services providers in insurance and asset management. With approximately 153,000 employees worldwide, the Allianz Group serves approximately 75 million customers in about 70 countries. On the insurance side, Allianz is the market leader in the German market and has a strong international presence.
Sun Life Financial
Assicurazioni Generali SpA
The Generali Group is one of the most significant participants in the global insurance and financial products market. The Group is a leader in Italy and Assicurazioni Generali, founded in 1831 in Trieste, is the Group’s Parent and principal operating Company. Generali is one of the leading global players in the assistance sector thanks to the Europ Assistance Group, active in more than 200 countries with services in the motor, travel, healthcare, home and family sectors. In recent years, the Group has made a significant return to 14 central-eastern European markets and has set up offices in the principal markets of the Far East, including China and India.