Munich Re Japan’s New Life Branch Tapping Into Opportunity From Stronger Capital Management

Munich Re is tapping into new business growth in Japan's life and health reinsurance sector driven by need for stronger capital management and sophisticated solutions.

A changing regulatory regime that is imposing stricter requirements for capital and risk management is feeding demand for reinsurance products and services in Japan, as well as other Asian markets, said Daniel Cossette, chief executive of life reinsurance in Asia at Munich Re.

Japan's Financial Services Agency plans to impose tighter risk and solvency rules in 2012. Tougher standards will be set for measuring insurance companies' health and risk management capabilities, according to the FSA. This will include a requirement that insurers double their estimates for potential losses on securitized financial products. The new rules will also limit the inclusion of reserves in calculating capital (BestWire, June 18, 2010).

Japan also enacted an insurance law in April to enhance protection for policyholders and to reinforce insurers' focus on claims management and customer service. The new law unified insurance contract regulation with stricter requirements for product explanation. Insurers have undertaken initiatives to revise their insurance policies and documentation, and structure systems for claims payment (BestWire, July 27, 2010).

The opening of a new branch in Japan forms "an important part" of Munich Re's strategy to expand life and health reinsurance, which has expanded as a share of Munich Re's overall reinsurance premiums to 39% in 2009 from 24% in 1999 globally, the German reinsurer said.

The fast-growing Asia region has clearly contributed to an overall increase of life reinsurance business, Cossette said. The demands have been shaped by the conditions of development in different markets, with most seeking additional capacity, some for capital needs and others for sophisticated services and solutions.

Life reinsurance is under-utilized in Japan, accounting for about 1% of total written business, compared to between 30% and 40% of the share in western markets such as the United Kingdom and Canada. The Japan market has substantial potential for life reinsurance, supported by the need for a higher degree of services and expertise for greater capital optimization, according to Cossette.

In the wake of the global financial crisis in 2008, many life insurance companies in Japan increased capital to stabilize their financial position and management infrastructure through capital infusion from parent companies, third-party allocation of shares and share subscriptions.

Munich Re's newly established life and health reinsurance branch in Japan offers services in capital and profit management, risk assessment, product development and professional underwriting, along with traditional reinsurance business. The reinsurer provides consultative services in solving critical business issues and growing profitability.

Among other new plans, Cossette said, the Japan unit is looking into product development for the growing sector of insurance in medical lines. Japan's changing demographic has fueled further development of health care solutions.

The reinsurer will also build localized resources and increase account servicing in Japan. Now, clients can gain access to Munich Re's global network and services adapted to the Japanese environment, Cossette said.

In new business development, Munich Re's Allfinanz has recently introduced automated underwriting software for AIG Edison Life, a life subsidiary of American International Group Inc. Cossette said the reinsurer aims for more new client partnerships to meet the need for increasing cost-effective business processing in Japan.

Japan's life reinsurance market has established a high degree of expertise, and the trend is for more optimization of reinsurance solutions in capital management, according to Cossette. For emerging markets such as India and China, there is more need for coverage of services.

In Asia, life reinsurance is becoming an important part of capital resources for many insurers. Regulatory changes, robust life premium growth, aging populations and strong capital management have contributed to growing financial reinsurance needs.

Life reinsurance had not been extensively employed in Asia. However, Cossette said: "We expect considerable growth in Japan and Asia over the coming years as reinsurance is increasingly being accepted as a capital management tool."

In recent years, Munich Re has decentralized its Asian life and health reinsurance business from its Munich headquarters and has nine branch and representative offices in the region. Munich Re started business in Japan in 1912 and opened a representative office in Tokyo in 1967. It has a service company for its nonlife business.

(By Iris Lai, Hong Kong bureau manager: [email protected])