Life reinsurance market growth in Asia could exceed the forecasted 10-15% primary insurance market increase in what’s forecasted to be a period of boom for the emerging life segment in Asia, Berenberg analysts said in their latest report on emerging Asian markets.
This surge is expected to be driven by rising reinsurance cession rates and primary market growth.
“All of the reinsurers in our coverage see significant growth potential in the region, which is not surprising given that the primary life insurance market is expected to grow at around 10%-15% per annum into the medium term,” analysts said.
But the extent to which reinsurer’s benefit from a cession rate hike remains up for negotiation as tough competition between both international and local entities could hamper new business gains.
Berenberg called competition in the region “very challenging” explaining that; “a number of local participants play a key role. Hence, we expect competitive dynamics in Asia to be somewhat different to elsewhere.”
“There are a number of local players operating in the region, some of which are government-backed (China Re and GIC of India). These have an obvious advantage against international players through strong political and regulatory connections and it is not always clear that profitability is their main motive.”
With the largest relative exposure, Hannover Re appears best placed to take advantage of the region’s growing life reinsurance market, Berenberg said.
However, for international players, it’s often a case of being left to pick up the crumbs of less profitable business, with local reinsurer’s being offered the first piece of the pie: “In India reinsurance business needs to be shown to three local players which have first right of refusal.
“Only if the business is not taken up by the local names can it be shown to international reinsurers. Hence, there is clearly a significant element of anti-selection against the international names, which can only realistically expect to access the lowest quality business,” said Berenberg.
However on a broader scale, across India, the regulatory environment has moved gradually towards greater open market competition.
This is why although China represents the largest Asian life insurance market, Berenberg analysts cite India as the more attractive growth opportunity.
Asian life insurance industry cession rates are at some of the lowest levels globally; at 10% – rates are five times lower than in Europe and 9 times lower than in the UK; “this is primarily a function of mortality business hardly ever being reinsured due to the sum assureds generally being small (reinsurance is only really bought for morbidity business) and that some insurers are reluctant to cede business given the high margins in Asia,” Berenberg explained.
The Asian life re/insurance market has begun to slowly emerge out of fledgling stages of development, with conditions inevitably changing as the Asian insurance market grows alongside the economy, and governments, in turn, raise regulatory requirements for primary insurer’s capitalisation.
Berenberg added that while margins are still high in most emerging Asian life protection insurance markets, “over time, we expect margins to moderate to more normal levels in Asia, which may increase the incentive for buying reinsurance.”