Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Asia-Pacific to be main driver of insurance premium growth by 2020


The world’s largest reinsurer Munich Re has published some interesting data and insight into just how much growth the insurance and reinsurance markets will see in the Asia-Pacific region in the future. This is a topic we have written about many times, that as regions of the world develop more rapidly the need for re/insurance and the penetration of re/insurance products will increase rapidly, resulting in a shift of focus on both premiums and likely losses to regions like Asia-Pacific.

The growth of Asian economies, combined with rapid growth of infrastructure, an increasingly wealthy population and an increasingly global view among Asian countries all lead to growth in insurance penetration within the region. With an increasing level of insurance penetration, the insurers operating in Asia-Pacific are increasingly in need of greater levels of reinsurance protection. This growth is set to continue over the years ahead and will result in Asia-Pacific becoming the dominant source of insurance and reinsurance premium income.

The fact that Asia-Pacific is also one of the most exposed regions of the world to natural disasters also means that as insurance penetration and exposures in the region increase, the size of the losses suffered by insurers, and as a result reinsurers, operating there will grow too.

The insight from Munich Re’s Economic Research Department suggests that premium income for the insurance industry in the Asia-Pacific region will double by 2020. In Asia property and casualty insurance premiums grow annually by as much as 11%, twice as high as the second placed region which is Eastern Europe. Michael Menhart, Chief Economist at Munich Re, commented; “China, India and Indonesia will be the top-three growth countries in P/C, with average growth of above 12% over the forecast period (2012-2020) in China and India, and almost 10% in Indonesia.”

Almost half of global primary insurance premium incomes will come from Asia-Pacific, with around $1 trillion of the worldwide $2.2 trillion of premium income coming from the region. Emerging economies such as China and India will contribute the bulk of these premiums, with as much as 70% of the trillion dollars coming from emerging players.

However, despite the huge growth in primary insurance premiums in the region, Asia-Pacific remains, and will continue to remain, severely uninsured particularly against natural disasters, according to Munich Re. While insurance penetration is expected to grow rapidly it is not expected to keep up with the rate of population growth, infrastructure modernisation and economic expansion in the region.  This will leave the region with a growing uninsured disaster toll.

Highlighting the need for this mismatch to be addressed, Ludger Arnoldussen, Munich Re Board member responsible for Asia-Pacific said; “Loss mitigation measures are cost-effective instruments for protecting communities on a sustainable basis. Analysing and reducing risk – and offering adequate insurance against it – helps to considerably reduce the human and financial impact of natural disasters.” He added: “Closing the existing gap of insurance coverage is a very powerful instrument in supporting long-term growth. At the same time, effective catastrophe-risk financing solutions need to be introduced by governments.”

The opportunity for reinsurers and also the collateralized and third-party capital backed non-traditional sources of reinsurance capacity in Asia-Pacific is clear. There will be an increasing demand for natural catastrophe cover by insurers over the coming years as their exposure in the region grows. There will also be an opportunity to assist government efforts to provide disaster risk insurance on countrywide levels, with reinsurance and risk transfer markets key to these efforts success.

As always, risk models are going to be key in facilitating the expansion of reinsurance and risk transfer in Asia-Pacific. As models improve and become more robust it will open up the possibility of using instruments such as catastrophe bonds and ILWs more frequently in Asia-Pacific. The opportunities for the third-party capital which backs these instruments and other collateralized reinsurance covers is clear, these are regions where typically premiums can be high and the return to reinsurance investors could be very attractive.

We’re likely to see a gradual shift in focus of the ILS and capital markets backed reinsurance space towards Asia-Pacific as it becomes more comfortable with deploying capacity to cover Asian perils at the same time as the opportunity becomes more attractive and grows. In years to come the market will likely have a much larger focus on Asia-Pacific as a location for deploying capital and this change will be one of the key drivers in both the non-traditional and traditional reinsurance markets growth. It’s certainly forseeable that ILS funds and reinsurance-linked funds will find the additional diversification that a growing Asia-Pacific reinsurance market will offer a very useful mechanism to stimulate further business growth.

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