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EAIC Today Day Three 2016

News FRIDAY 14.10.16 Growth and profitability critical in change Digitisation, new technologies and big data are changing the risk landscape and creating new challenges and opportunities for insurers and reinsurers, Dr Tobias Farny, Munich Re’s chief executive Asia-Pacific, responsible for reinsurance non-life in Greater China, Korea and South East Asia, told EAIC Today. “Customers’ needs and expectations are changing and the industry is also changing to meet those needs,” he said. “But despite this shift in the environment, the main topic remains growth and profitability and how to achieve them.” In the coming years Farny expects to see substantial profitable growth since most markets in Asia-Pacific still have low insurance penetration.  “Munich Re believes that the emerging markets of Asia in particular will continue to be key drivers of insurance sector growth in the medium term. This year and next, premium volume in life primary insurance in this region is likely to see double-digit growth, with property-casualty insurance only slightly behind. “Within the context of comparable low investment returns in combination with remarkable fire and nat cat losses in the recent past, we expect a return to more risk commensurate prices in the next year,” he added. Asia-Pacific is important for Munich Re, says Farny; most markets still have low insurance penetration, including China, South East Asia and India, as well as some areas in mature markets including Japan and earthquake cover. To Farny, the market is still dominated by three ‘traditional’ areas: first, auto business remains a very important part, with new technologies such as driverless cars or telematics. “Munich Re is shaping the future jointly with our clients,” he said. Second, he sees opportunities in nat cat, which is one of Munich Re’s core competencies and where the insurance density is still extremely low in Asia. “For example, in 2015 Asia accounted for 39 percent of all loss events recorded worldwide, 80 percent of global fatalities and 44 percent of overall losses, but only 12 percent of insured losses. Three out of the five biggest nat cat events in 2015 happened in Asia.” Regulatory changes in several areas including China, South East Asia and India will increase the need for some insurers to restructure investment portfolios in order to de-risk, added Farny.  “This would be positive for P&C insurance, as it would raise the awareness for property protection to prepare for catastrophes, which eventually shall support insurance penetration and premium growth.” On the other hand, he notes that extensive digitisation and new technologies are changing the risk landscape and channels, services, processes and demands in the industry rapidly.  “The cyber insurance market, for example, has tremendous potential for growth. Today roughly 1 percent of cyber risks are insured; we estimate this market will grow from $3 billion in 2015 to $8 to $10 billion in 2020.” n Dr Tobias Farny Asia-Pacific prospects remain a lure for reinsurers Growth prospects in Asia-Pacific are still appealing to many reinsurers even with the prevailing soft markets, according to an AM Best report. The rating agency said that many global reinsurers see Asia-Pacific as an opportunity to diversify, particularly in big emerging markets such as China and India. Amid these growing markets, regulators within these countries are devising reinsurance strategies, and AM Best believes there will be a trade-off between nourishing local players with favourable policies and promoting open markets. However, AM Best holds the view that reinsurance in the region supports overall financial strength and helps reduce volatility against big losses for primary insurers. Asia-Pacific accounted for 14.9 percent “Economic growth is a driver for changing re/insurance regulations and regulators do understand the need for a functioning market in the long run.” of global non-life reinsurance gross written premiums, according to AM Best’s Global Reinsurance Review. China Re, Korean Re, and GIC Re of India are positioned within the top 20 global reinsurers, and the retention ratios of countries in Asia-Pacific remain in the range of about 50 percent to 90 percent. Business retention capability of direct players varies across the region and AM Best believes that reinsurance is still in an early stage of development in many Asian markets, which are marked by the domination of national reinsurers. While many countries are on the track of open access, AM Best suggested that regulatory trends have been mixed across the region, and some countries would rather restrict external reinsurers. Emerging countries usually do not have a sizable reinsurance market locally and their national reinsurers ultimately rely on international markets for retroceding their risks, said AM Best. “Economic growth is a driver for changing re/insurance regulations and regulators do understand the need for a functioning market in the long run,” said AM Best. “Most markets appeared to be moving toward deregulation in reinsurance, but recent regulatory changes in some countries moved the emphasis back to localisation.” n 8 | EAIC TODAY | DAY 3: Friday October 14 2016 www.intelligentinsurer.com | www.bermudareinsurancemagazine.com


EAIC Today Day Three 2016
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