Swiss Re: Capitalization Is Top Concern for Asia-Based Insurers in 2012

Low investment yields from a continuing low interest rate environment, along with tightening solvency regulations and business expansion needs, will push regional players to seek more capital in the coming year, according to Swiss Re.

"Insurers want to increase their capital base for cushioning themselves against potential financial risks amid low interest rate conditions. They will also need additional capital to support their own business growth and accomplish stronger solvency requirements in 2012," said Clarence Wong, Swiss Re's chief economist in Asia.

Sustained growth in the primary insurance markets will continue to support reinsurance growth in the region next year. "Capacity is believed to be sufficient at the right price while competition will remain keen," noted Wong, who added the outlook for 2013 is "more optimistic" as the global economy is expected to recover.

The Asian insurance market will see sustained growth in 2012, with emerging markets continuing to outpace developed markets, although the global insurance industry faces "low government yields, the euro debt crisis, and slowing growth with elevated inflation in the emerging markets," the three main challenges for insurers right now, said Wong.

Nonlife insurance premiums in Asia are forecast to grow at a slower rate of 6% in real terms, compared with 8.1% in 2011, together with moderately slower economic growth, according to Swiss Re. Life premiums are expected to grow by 4.4% in real terms, compared with 0.6% in 2011, mainly driven by market rebounds in China and India following domestic regulatory changes, in addition to increasing demand for traditional protection-type products.

The series of natural catastrophes in Australia, New Zealand and Japan over the past year may have helped to "raise risk awareness and prompt corporations to seek sufficient insurance covers, but profitability would be affected by higher loss ratios," said Wong. The reconstruction of those catastrophe-prone countries, however, "will support economic growth and firming nonlife pricing."

The planned liberalization of motor pricing and the proposed opening of compulsory third-party motor liability insurance to foreign players in China will also "bring in more enthusiastic competition," said Wong, who added the motor insurance sector accounts for about 70% of the total nonlife market in the country.

China represents nearly 4% of the world's total aggregate insurance premiums at 1.45 trillion yuan (US$228 billion), compared with a 1% share a decade ago. Aggregate reinsurance premiums ceded by Chinese property/casualty insurers in 2010 were 44 billion yuan, up 67% since 2005. "The Chinese insurance regulator is targeting a 15% compound annual growth rate over the next five years," said global reinsurance intermediary Aon Benfield in a report.

"Across the Asia-Pacific region, strong growth is expected in commercial, motor, health and personal accident insurance, as well as some specialty lines such as engineering, agriculture and surety, next year," Wong said.

In emerging Asia, nonlife insurance premium growth in 2011 remained strong in line with stable economic growth and sustained investment in infrastructure in most markets, including China, Indonesia and India, each of which reported an estimated growth of 15%, 10.3% and 8.6%, respectively. Swiss Re said key growth drivers in those countries included a further increase in car ownership and increasing demand for health and personal accident products.

Life insurance premiums are forecast to see moderate growth in Asia next year. Insurers in China and India have been "adjusting vigorously" to new regulations governing bancassurance and unit-linked insurance products, said Wong.

"Growth in life insurance premiums is expected to rebound in India and China in 2012 at real rates of 7.5% and 11%, respectively, according to Swiss Re. Annuities and health products are likely to continue robust growth, alongside demand for protection-type products under a rising economic and investment risk environment," said Amit Kalra, Swiss Re India's head of economic research and consulting team.

"China's insurance market will see sustained growth, continuing to take a lead among emerging markets globally," said Beijing-based Li Xing, Swiss Re'sChina economist. Life insurance premiums in China are expected to recover from having contracted by 6% in 2011 when the introduction of new accounting standards and tighter regulations on bancassurance slowed market growth.

India's insurance market in 2012 is expected to sustain growth of 7.5% and 7.9% for life and nonlife premiums, respectively, Kalra noted.

(By Rebecca Ng, Hong Kong news editor: [email protected])