Swiss Re Sees Asia as Attractive to New Insurance Capital

Asia is continuing to attract capital for insurance and reinsurance business development, helped by an uncertain economic environment in Western countries that have comparatively lower interest rate conditions, according to
Swiss Re’s chief economist, Dr Kurt Karl
.

Karl said that low growth and relatively low interest rates in the US and Europe have seen a relocation of capital toward Asia. Reinsurance business development is bullish in Asia, keeping with a fundamental rise in demand from primary insurance markets.

He expects economic growth in advanced markets to be tepid as Europe will only slowly emerge from recession, while interest rates remain low. Karl said the eurozone crisis is slowing growth in Asia but is not leading to significant problems, while the fundamentals of Asian economies remain strong and economic growth is a driver for insurance business in the region.

Asia’s non-life insurance sector will benefit from a strong infrastructure growth pipeline and government efforts to support economic growth, said Karl. The region will see a modest recovery in export demand, with niche segments such as agriculture insurance for markets like India offering opportunities.

In Asia, Karl said there is increasing pressure from the regulators along with a tightening of solvency regimes and China is reviewing the second generation of a solvency regulatory system for insurers. Across the region there is stepping up of consumer protection such as enhanced regulation on savings insurance products in Asia. At the same time, liberalisation and deregulation trends such as relaxing restrictions on foreign participation have occurred in some markets.

Growth in property and business insurance classes will be driven by a rising middle class, urbanisation and growing economic wealth over the next decade. Emerging Asian markets “will substantially increase their share” in global non-life insurance business, according to Swiss Re. With written premiums of about US$480bn, the reinsurer predicts that “China is about to become the second-largest nonlife market behind the United States.”

Karl said the Asian insurance industry posts strong top-line growth but weak bottom line profitability. Global capitalisation is solid, but “profitability remains subdued due to the protracted low interest rate environment,” according to Swiss Re. Nonlife underwriting results improved moderately from selective price increases and continued reserve releases. However, overall profitability remains under pressure due to depressing investment returns.

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