What AM Best Says
Lands of Opportunities
The diverse, expansive Southeast Asia region offers unique challenges and new prospects for the insurance industry.
- Meg Green
- February 2020
The Japanese want growth and they can’t get it in Japan, so they’re therefore seeking to grow outside by aggressively entering many, many markets.
AM Best Asia
Asia Pacific is an enormous region with more than 20 countries. Opportunities for insurers and reinsurers range from the needs of China's vast economy to the nascent, emerging markets of Cambodia and Myanmar.
Scott Ryrie, Co-CEO for AM Best Asia discussed the region's insurance and reinsurance market outlooks for 2020 with AMBestTV.
Following is an edited version of the interview.
What are you seeing in the North Asia region?
There's a lot of activity across the whole region. Starting with North Asia, we've got the Chinese market, obviously, which is enormous. The economy is growing, and we're seeing an increasing number of insurance and reinsurance companies across both the life and P/C sectors starting up. The market over the next years to come will certainly grow very, very strongly.
Japan, obviously quite a dormant economy, and has had challenges. They've had several recent large typhoons, Jebi and Hagibis, big numbers for the insurance and reinsurance markets, and that's caused fluctuations in renewal rates, etc., across that part of the renewal, which is presenting challenges for the market, because losses have been very large.
If we move down to other activities in North Asia, we're now seeing what I'm calling an inversion in the global market where instead of European and U.S. markets buying into Asia, some of the Asian markets, particularly the Japanese, Chinese, and the Koreans, are buying businesses in other parts of the world and expanding quite aggressively.
It's a very different situation, a very interesting situation at the moment.
What is driving that change?
Different countries have different reasons. The Japanese want growth and they can't get it in Japan, so they're therefore seeking to grow outside by aggressively entering many, many markets, having sometimes joint ventures or starting subsidiaries in other markets.
Has it been a difficult process for companies to buy into different countries?
It can be difficult, because it can be competitive. Obviously, buying a company or starting a company you need to plan and there's always a price involved, and just depends on the price point as to what the success rate is. Yes, plenty of challenges in North Asia.
If we move down to ASEAN (Association of Southeast Asian Nations), very different types of markets, we're seeing more developing markets and what I would call growth markets, because they're underdeveloped, and it depends on which country as to how developed or otherwise they are.
We're also seeing a development of the risk-based capital models for regulatory purposes in many of the countries, which is good because it's causing consolidation, and should cause the companies in those markets to be really more fit and proper in terms of the scale they're playing going forward.
We're also seeing very interesting things happening in two very emerging markets, being Cambodia and Myanmar. We're seeing international life companies invest in both countries and the Japanese go in as well.
There's not much insurance there. There's a pretty poor population, but those companies obviously see a massive growth opportunity, I would say not in the short term, but in the medium-to-long-term. The names of those companies, they're famous names across the world, and not to be ignored.
If we move heading south down to Australia, my home country, there's a couple of things happening there. Firstly, obviously, a terrible drought. One of the worst on record. Lots of debates, is it climate change or otherwise? I don't know, but it's certainly a massive drought causing enormous problems.
As a result of that drought, [as of the date of the interview Dec. 8, 2019] we're seeing huge bush fires. At one stage across New South Wales and Queensland, we had a 1,000-kilometer bush fire front almost joined up. The efforts to fight those fires have been incredible. So far limited loss of life, there has been loss of property, but the challenge is not over.
The other thing happening in Australia has been the Royal Commission. That's caused the market in the life and P/C sectors to really readjust, also the banking sector, and those changes are ongoing.
The third point for Australia is we're getting some risks, particularly far North Queensland, for cyclone being virtually uninsurable because of premium rates. There's talk in the local market now about creating some sort of a pool with the big insurers, with the government. It is going to be necessary, because people need to be able to buy insurance.
We're seeing other types of pools occur, for instance in the U.S. and we need that sort of model in Australia, because people can't go without coverage.
Last but not least, New Zealand. A beautiful country, relatively small population but with a big earthquake problem. There's also insurability problems with earthquake, particularly for Wellington. Rates have gone up, insurers are not that keen to take on that risk, and again the government is involved, the insurers are involved, and some sort of solution is going to be necessary.