Stars align for Marsh and JLT

Deal Focus:
Axa’s US$2.7bn IPO
IAG’s Asia retreat

AUTUMN 2018 | ISSUE 12 | INSURANCEASIANEWS.COM

PUTTING ASIA
IN PLAY
Reinsurers are seeking to expand their footprint
in the region, but strategy is key
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 FROM THE PUBLISHER

Putting Asia in play

Reinsurers are seeking to expand their footprint in the region,

but in this issue we ask whether seeing the region as merely a
portfolio diversification tool is enough.

Elsewhere in the magazine, we cover IAG’s Asia retreat,

Malaysia’s change of heart about foreign insurers’ divestment
requirements, the effect of the US-China trade war on the
insurance sector, the development of the region’s captive
sector and the under-performance of Asian insurance stocks.

We also take a look at technology, from the entry of big tech

and social media companies to Asian insurance markets, the
growth of exposures in the cryptocurrency sector and the use InsuranceAsia News
of technology in the healthcare sector. Room 2303, 23/F, Golden Centre
188 Des Voeux Road
In Screen Talk, we speak to Richard Jinks, global and Central
autonomy programme lead for XL Catlin, about insuring Hong Kong
autonomous technology. Tel: + 852 2350 6088
www.insuranceasianews.com
We hope you enjoy it.
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AUTUMN 2018 INSURANCEASIA NEWS 1

AUTUMN 2018 | ISSUE 12

TABLE OF CONTENTS

4
News
A round-up of the region’s most significant recent news stories.

8
Moves
The most significant recent hires and appointments around Asia.

14
Deal Focus
Axa’s US$2.7bn US IPO

20
COVER STORY
M&A
The surprise US$5.6bn deal consolidates Marsh & McLennan’s leading
26 market position among brokers.

Chasing Asia’s
elusive opportunity
Reinsurers are seeking to expand
their footprint in the region, but
strategy is key.
22
Disruptor
The world’s biggest social media and tech firms haven’t yet shown
much serious interest in disrupting insurance, but that could be
starting to change.

34
Captive opportunity
Strategic risk management practices are increasingly at the top of the
agenda for companies based in Asia.

37
IAG’s Asia retreat
The Australian insurer is exiting businesses in Thailand, Indonesia and
Vietnam, and looking for buyers for its investment in China.

40
Building bridges
Despite the escalating trade rhetoric this year, China has made several
positive steps in relaxing rules for foreign insurance players.

2 INSURANCEASIA NEWS AUTUMN 2018

 43
Back to the status quo?
After the election of Mahathir Mohamad, Malaysia’s new central bank
governor has said she will adopt a more flexible approach to divestment.

46
Virtual exposures
The insurance industry is slowly coming to terms with the growing
exposures in the cryptocurrency sector.
46 Crypto

49
Trump vs China
The US economy has proven remarkably resilient despite the escalating
trade war. That is bad news for China.

52
Get well soon
Technology, behavioural economics and wellness are all being prescribed
to fix Asia’s healthcare sector.

56
Asian insurers underperform
49 Macro outlook What has been a terrible year for Asian stocks in general has been even
worse for insurance stocks.

58
Data
Asia-Pacific insurance industry statistics and stock price performance.

60
Screen Talk
We speak to Richard Jinks, global and autonomy programme lead for XL
Catlin, about insuring autonomous technology.

52 Healthcare

AUTUMN 2018 INSURANCEASIA NEWS 3

 NEWS
FWD to buy HSBC stake
in Malaysian insurer
FWD will acquire HSBC’s 49% joint
venture stake in HSBC Amanah
Takaful in Malaysia.
The move is part of FWD’s
efforts to increase its footprint in
China Re buys Chaucer
for US$950m
China Re has bought specialty
Lloyd’s insurer Chaucer from US-
headquartered Hanover Insurance
for US$950 million, including
US$865 million of cash, seven
years after Hanover bought the firm
for US$474 million.
Chaucer underwrites specialist
lines including aviation, energy,
marine, property and political risks.
The firm made pre-tax profits of
US$7.1 million in 2017 (compared
4 INSURANCEASIA NEWS
Asia, according to sources familiar
with the matter.
It plans to eventually own a
majority stake by buying some
shares from the existing partners,
sources said.
Malaysia’s JAB Capital currently
owns 31% in the venture, while
Employees Provident Fund Board
of Malaysia controls 20%.
FWD’s acquisition will add to its
Asian market footprint that already
covers Hong Kong, Indonesia,
Japan, Singapore, the Philippines,
Thailand and Vietnam.
The purchase also
demonstrates that foreign
companies are keen on
establishing presence or
reinforcing it in Malaysia despite
the change in foreign ownership
rules for insurers and a new
recently elected government.
with profits of US$126.8 million in
2016) from net written premium of
US$849.1 million.
John Fowle, Chaucer’s CEO
and chief underwriting officer,
commented: “As ever, we remain
committed to delivering a first
class underwriting and claims
service, which the strength and
capabilities of China Re will
enhance.”
“From day one it will be very
much business as usual for us;
our senior management team
will continue to lead the business
under the Chaucer brand, through
our Lloyd’s Syndicates 1084 and
1176, our international network and
underwriting agencies, and CIC
DAC, our insurance company in
Dublin.”
Blue starts
operations
as digital life
insurer in HK
The first purely digital life
insurance company in Hong
Kong has started operations.
Blue is a joint venture
between Aviva and Hillhouse,
which each hold 40%, and
Tencent, which owns 20%.
The venture was approved
by the Hong Kong Insurance
Authority in February.
Through its website, Blue
is currently offering two
commission-free policies
covering term life and critical
illness, and is aiming to
shake up an industry that is
dominated by bancassurance
and agency sales.
Blue’s products offer
instant, paperless approval
based on a handful of
assessment questions. The
term life product provides up
to HK$8 million of coverage,
while the critical illness plan
covers cancer, heart attacks
and stroke up to HK$2.5
million.
Blue’s launch comes amid
the Hong Kong government’s
thrust to promote insurtech
in the city. Several measures
have been announced by the
regulator to allow insurance
firms to use technology to sell
products.
AUTUMN 2018
 NEWS

China gives preferential

treatment to HK reinsurers
The China Banking and Insurance
Regulatory Commission (CBIRC)
and the Insurance Authority of
Hong Kong have reached an
agreement to give preferential
treatment to reinsurers in the city.
As part of the agreement,
mainland insurance companies
that cede business to qualified
reinsurers in Hong Kong will benefit
from a generally lower reinsurance
credit risk charge under the China
Risk Oriented Solvency System
(C-ROSS) regime, according to a
new AM Best briefing.
Previously, Hong Kong
reinsurers were grouped with
other offshore reinsurers and
assigned baseline risk charge
factors for credit risk exposure
that were much higher than those
applicable to onshore reinsurers.
AM Best said the move is a first
step in the Equivalence Assessment
Framework Agreement on Solvency
Regulatory Regime between the
former Office of the Commissioner
of Insurance and the former China
Insurance Regulatory Commission
(CIRC) in May 2017.
Qatar Re closes
Singapore branch
Qatar Re closed its branch office in Singapore in
July and stopped writing new and renewal business
in the city.
The decision does not affect Qatar Re’s sister
company, Antares Asia, which continues to participate
on the Lloyd’s Asia Platform.
“Like many of our peers, we have been looking
very closely at our business with a view to enhancing
underwriting profitability and operational efficiency in
what continues to be a very challenging environment
for global reinsurers,” said Gunther Saacke, Qatar Re’s
chief executive.
“As a reinsurer committed to the long-term
sustainability of our business,” he continued, “it is
appropriate that we should continue to reflect on the
performance of our underwriting portfolio and the
effectiveness of our distribution network.”
The company said in a statement that it will
work closely with its Singapore-based staff, clients,
broking partners and regulators to ensure the orderly
administration of existing business written from the
branch.

Foreign reinsurers waiting on

changes to India’s rules
A recent board meeting by the Insurance Regulatory and Development
Authority of India has not led to any changes to the status quo for the
placement of Indian reinsurance premiums.
State-owned GIC Re still has the first priority for any Indian reinsurance
treaty before other Indian reinsurers and foreign entities.
Global reinsurers with offices in India are looking for the same rights
as Indian reinsurers and want clarification from the regulator as soon as
possible so investment decisions can be made.
Rule changes have traditionally been slow in India. The country only
increased the upper limit of foreign ownership rules of Indian firms from
26% to 49% in 2015 via the Insurance (Laws) Amendment Bill after years
of parliamentary uncertainty.
Foreign reinsurers in India include Axa Re, Gen Re, Hannover Re,
Munich Re, RGA Life Reinsurance, SCOR Re, Swiss Re and XL.

6 INSURANCEASIA NEWS AUTUMN 2018

CO-PUBLISHED CHAPTER

Insuring our changing world

As the insurance industry evolves, how do we integrate talent, technology and work together to build
societal resilience in our changing world? Victor Kuk, Swiss Re’s head of client markets for South-East
Asia, India, Korea, Hong Kong and Taiwan, explains.

Smart cities, The theme for the upcoming every major city. Skyscrapers services to consumers, customised
developed to be 15th Singapore International over 600 metres tall decorate the to their individual needs according
environmentally Reinsurance Conference, skylines in megacities of more than to data stored and secured through
sustainable, “Reinsurance Reloaded”, is 10 million people. Smart cities, technology.
are powered rather timely, as the world is developed to be environmentally By 2030, all these can be reality.
by renewable undergoing massive changes sustainable, are powered by The world is changing — and
energy and brought about by the Fourth renewable energy and protected changing at an accelerating rate
protected Industrial Revolution. It’s not against natural catastrophes that outpaces previous revolutions.
against natural just about making the world a through advanced predictive In particular, the pace of change
catastrophes better commercial place — it’s disaster prevention systems. New in Asia will leapfrog developed
through about making the world a better engineering techniques including economies. While technological
advanced place. advanced 3D printing enables change is bringing exciting
predictive building critical infrastructure of solutions to existing problems, we
disaster Our world in 2030? our homes in a matter of days, are also seeing a vast amount of
prevention The Fourth Industrial Revolution providing solutions for a swift uncertainties as it disrupts jobs
systems. has brought about immense recovery from damage. Cross- and social structures. For instance,
technological advancements. border infrastructure connectivity the Asean labour force is forecast
Imagine millions of autonomous facilitates open, seamless trade, to expand by 11,000 workers every
vehicles plying the roads in bringing new products and day for the next 15 years — a

8 INSURANCEASIA NEWS AUTUMN 2018

growing challenge as industrial
robots and artificial intelligence
compete with the human labour
force. In insurance, manual
underwriting in some segments
will become obsolete and will be
replaced by artificial intelligence,
according to McKinsey & Co.
Differing development stages of
the over 20 countries in Asia have
further complicated the challenges
as some markets grapple with
development gaps to catch up
with the wave of change. These
developments signal a need for
change in our industry, and that
change is inevitable in order for
reinsurers like Swiss Re to fulfil our
purpose: building resilience. This
is especially important for Asian
economies and for those of us
who live in these communities to
prosper and grow.
Moving together
Meanwhile, natural catastrophes
are expected to happen more
frequently and more forcefully
due to climate change. The
catastrophe losses in 2017 and
2018, soft underwriting conditions,
weak investment performance
and the high level of capital funds
have resulted in margins being
squeezed in the primary markets,
triggering a change in market
dynamics that challenges the long-
term sustainability of the insurance
business. Swiss Re’s latest sigma
report says insurers need to
improve underwriting margins
by 5-9% to ensure sustainable
returns. While improved economic
momentum will benefit future
profitability through higher interest
rates and investment returns, it will
not be enough to close the gaps.
As an industry, we need to move
together with creativity, energy,
collaboration and partnership. We
have a responsibility to protect
our changing world and it needs
strength in partnerships. Closing
the gap requires an integrated
effort among insurers, reinsurers,
and partners, including the
regulators, governments and
consumers.
We need to adopt a multi-
stakeholder approach to establish
a framework that enables us to
innovate into the future. For re/
insurance to make a difference,
AUTUMN 2018
the industry must seek to address
the key drivers that contribute
to the gap. By embracing
innovation, upskilling our talent,
encouraging behavioural change
in our communities, and tackling
our monumental problems
together through public-private
partnerships, we can close the gap
in Asia.
Harnessing the human factor
in technology
The industry is evolving with
advancements in technology,
bringing benefits across the whole
value chain including distribution
and sales, underwriting, claims,
solutions and services, and
operational processes. At the same
time, technology is changing the
nature of risk — both mitigating more bespoke solutions that take
and creating new categories of into account human concerns. A
risks. growing variety of digital channels
While we invest in technology, has also changed how we connect
it is even more important to invest with customers. Parametric
in human capital. According to insurance, with a quick claims
Cisco, three of the four top factors process, has been instrumental
behind successful internet-of- in filling spaces previously
things projects are related to uncovered by traditional products,
people. People create systems — it providing relief for the consumer.
is imperative to invest in human An example of this is our ability
talent, creativity and upskilling to offer a machine learning-based
so we can be ready to meet the pricing engine to accurately price
challenges of the new era. It goes flight delay risks. This enables
beyond academic achievements automated claims payments and
— a concerted effort to nurture real-time steering. It is a flexible
learning, agility and diversity of turn-key solution that can be
thought, so that talents across leveraged for other parametric
ages are better able to provide insurance offerings such as
creative and practical solutions earthquake or typhoon coverage to
based on more strategic judgment enable quick disaster recovery and
and better decisions in the value help people get back on their feet.
chain. At Swiss Re, we believe that
In agriculture, for example, great things happen together.
farmers can save time and money We need to work hand-in-hand,
through solutions that use satellite stay close and stay relevant to be
remote sensing and data analytics, successful in our changing Asia.
which together package raw
agricultural data into real time
actionable insights. The availability
of solutions that enable farmers
to monitor their crop growth and
soil moisture are helpful, but with
automated claims based on index
triggers that minimise hassle for Victor Kuk
Head of Client Markets
the consumer, it can better support South-East Asia, India,
farmers and help them meet Korea, Hong Kong and
growing demand for food. Taiwan
Similarly, smart solutions and
big data have fundamentally
reshaped how we build our models
and price our products enabling
INSURANCEASIA NEWS 9
 PEOPLE MOVES
XL Catlin
appoints Asia
client and
distribution
leader
XL Catlin has appointed
Zoe Xie as client and
distribution leader for Asia.
She will be responsible
for delivering client
and broker strategies
specifically for the
Singapore and Hong Kong
businesses, based in
Singapore.
Xie joins from Willis
Towers Watson, where
she most recently held
the position of divisional
director of broking for
Asia. Prior to this, she
held various positions,
specifically in the property
and casualty line of
business with Willis
Towers Watson in both
Singapore and London.
“Asia is a high growth
yet competitive and
diverse market,” said Craig
Langham, chief executive
of XL Catlin’s Asia Pacific
insurance business.
“Whilst clients are facing
increasingly complex risks,
there have never been
more opportunities for us
to make a difference to our
clients and brokers.”
“It’s therefore crucial
to have the right expertise
to not only help grow
our book of business
throughout the region
but also to serve as a
key liaison between our
brokers and our diverse
product portfolio.”
10 INSURANCEASIA NEWS
AIA hires Lisa Sun to Sun Life MetLife’s
chief digital lead AIG’s Philippines chief financial
officer business in CEO to retire officer steps
China in June down
In a move that further
highlights the intensity
of competition in Lisa Sun has been Riza Mantaring has John Hele, MetLife’s
insurtech, life insurer appointed as the retired as country head chief financial officer,
AIA has appointed of new chief executive and chief executive has stepped down
Daisuke Iwase as its officer for AIG’s China officer of Sun Life from his position
chief digital officer. business. Financial Philippines but is expected to
Iwase, who Sun joins the after a stint at the stay with the insurer
previously served as insurance group from company that spans until September as a
president of Lifenet Mercer, where she held almost three decades. senior adviser.
Insurance, a listed the position as CEO of She has spent a According to
direct life insurance Mercer’s Hong Kong total of 26 years with reports, executive
firm in Japan, started and South and East the firm. Mantaring has vice-president John
at AIA on July 1, Asia zone. been succeeded by McCallion, currently
according to a In her new role, Sun Benedict Sison, who MetLife’s treasurer,
company statement. is expected to report will take on the role of will succeed Hele as
He is based in to Chris Townsend, country head and CEO finance chief.
Hong Kong and also chief executive officer, of the Sun Life Financial The
serves as a member International General group of companies in announcement about
of the AIA executive Insurance. the Philippines. Hele’s retirement
committee. Her appointment to Sison joined Sun came just a day
Prior to co- the AIG family is still Life in 2010, and has before the company
founding Lifenet, subject to regulatory worked at both Sun Life reported first-quarter
Iwase started his approval, however, by Philippines and at Sun earnings.
career as a strategy the China Banking and Life’s Asia Regional MetLife’s chief
consultant with the Insurance Regulatory Office. executive praised
Boston Consulting Commission. She will The insurer’s Hele for bringing a
Group in Tokyo. be based in Shanghai. statement said Sison sharper focus on the
Subsequently, Townsend, has demonstrated his true economics of the
he established the commenting on the ability to successfully insurer’s business.
Japan office of a US- appointment, said fuel growth with He joined MetLife
based technology China remains an strategies and in 2012, and was
venture capital firm important growth creative solutions previously finance
and worked in an market for AIG. that have helped chief of insurer and
international private Sun, he added, Sun Life to prosper reinsurer Arch Capital
equity firm. will be an important in an increasingly Group.
Last March, AIA addition to the team, competitive market. His retirement
named Gunawan banking on her 20 Previously, also comes
Chiu Wu Pin as chief years of experience in Sison was the chief after the insurer
technology officer the industry. strategy and financial announced reduced
at AIA Singapore as Before Mercer, management officer for compensation tied
part of the company’s Sun previously held Sun Life Philippines. to weaknesses in
push to digitise its executive roles at internal financial
Asian business. Zurich and Liberty controls.
Mutual.
AUTUMN 2018
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 PEOPLE MOVES

India Ex-AIA exec Chubb HWI taps RKH Specialty

names new joins HSBC appoints Jeremy Austen targeting Asia
regulatory Insurance head of to launch Hong expansion
head bancassurance Kong unit
Alistair Chamberlain, RKH Specialty has
former chief financial for Asia appointed Stuart
A new chairman officer of AIA, has Pacific HWI International Beatty as its regional
for the Insurance joined HSBC Insurance has launched a new chief executive for
Regulatory and as its global head of managing general agent Asia Pacific, a new role
Development product and actuarial, Chubb has appointed (MGA) in Hong Kong, focused on building its
Authority of India according to an Jin Lee, its regional NuVu Underwriting, specialty capabilities in
(Irdai) has finally been announcement. deputy general headed by industry the region.
appointed. Chamberlain is counsel, as head of veteran Jeremy Austen. Beatty, who will be
Subhash Chandra tasked with leading the bancassurance for NuVu started based in Singapore,
Khuntia, the global chief actuary Asia Pacific. underwriting on July 1 has more than 30
appointee, served in teams and leading In her new role, and will initially focus years’ insurance and
various government the development and Jin Lee’s primary on property, marine, reinsurance experience
departments, as management of all responsibility will be specie, fine art, personal and has worked in the
secretary at the product solutions to oversee the DBS- accident and terrorism Lion City for 10 years at
Department of manufactured by Chubb partnership, within the Asian region. Aon Benfield and JLT
School Education HSBC. which spans Austen will take on managing placement
and Literacy, and He will also oversee Singapore, Hong Kong, the role of principal and servicing teams for
special secretary partner-sourced Taiwan, Indonesia and officer and chief its clients in the region.
and financial adviser insurance products and China. executive officer of the RKH Specialty’s
in the Ministry of services for the group, She will be based Hong Kong office and business in the region is
Petroleum and HSBC said. in Singapore and brings more than 30 currently focused around
Natural Gas. Chamberlain was will report to Paul years’ experience in the its property, power,
He has also also AIA’s regional McNamee, regional industry. energy, construction and
held positions in business development president for Chubb in “There has been financial risks’ expertise
Hindustan Petroleum director and group Asia Pacific. significant growth and in Singapore and FP
Corporation head of product Lee joined the success in the MGA Marine, its marine
and Indian Oil strategy. company in 2010 as space globally and specialist broker, based
Corporation, as well Before HSBC, he accident and health this is set to continue in Hong Kong.
as Karnataka chief worked as regional legal counsel for as more and more “Local and regional
secretary. head of products and Australia and New underwriters look to markets continue to
Based on a marketing at Aviva. Zealand. MGAs to control their mature across the
website release by HSBC said She has more than own destiny,” Austen globe and clients are
the Department Chamberlain’s 10 years of experience said. “Being in Hong increasingly choosing to
of Personnel and appointment is a clear practicing various Kong will broaden the buy in those markets,”
Training, Khuntia’s demonstration of the aspects of insurance scope and reach of said Barnaby Rugge-
appointment is bank’s commitment to law, including NuVu Underwriting’s Price, CEO, RKH
for three years, growing and deepening the structuring of distribution partnerships Specialty. “We intend
according to the its insurance business complex distribution as well as create to provide clients with
Appointments in the region and arrangements; advising diversity to our existing the widest and clearest
Committee of the globally. on regulatory and portfolio.” picture of global
Cabinet. Chamberlain will be compliance matters; Austen began his markets, helping them
He succeeds TS based in Singapore. dealing with regulators; career as a company to identify their best
Vijayan, whose term acquisitions and underwriter for FR underwriting partners,
ended on February mergers of insurance White, now Liberty wherever they may be.”
21 and rendered companies and claims Syndicate Management,
the position vacant adjudication. and moved to Asia in
for more than two 1995.
months.

12 INSURANCEASIA NEWS AUTUMN 2018

 DEAL FOCUS
Axa’s US$2.7bn US IPO
The French insurer sold a stake in its US business to raise cash for its acquisition of XL Catlin.
Axa’s spinoff of its US business through a New York
initial public offering in May fell far short of the company’s
expectations.
The IPO is part of the French insurer’s effort to raise
cash for its planned US$15.3 billion acquisition of XL,
but the sale of a 24.5% stake in Axa Equitable ended up
pricing well below its marketed range.
Bankers had pitched the deal at US$24 to US$27 a
share, which would have raised between US$3.3 billion
and US$3.7 billion, but closed the book at a substantially
reduced US$20 to raise just US$2.7 billion — a full US$1
billion below the top of the range.
After exercising an optional over-allotment stake of
3.7%, the company raised a further US$412 million,
plus US$112.5 million from the sale of mandatory
exchangeable bonds. Both were significantly lower than
expected based on the initial price range.
Axa has been putting a brave face on it. Chief executive
14 INSURANCEASIA NEWS
Thomas Buberl told the Financial Times he was “very
happy” with the deal and spokesman Emmanuel Touzeau
said on Twitter that “the transaction is perfectly in line with
the financing plan of the acquisition of the XL Group”.
In addition to the funds it raised through the offering,
Axa also received US$3.2 billion from the pre-IPO
reorganisation of its US business, including the repayment
of internal loans and the purchase of Alliance Bernstein.
However, analysts say the poor IPO has left Axa short
of cash and could force it to issue more debt to make up
the gap.
“With €3.4 billion euros still required to cover the XL
purchase, Axa will need to find an alternative source of
funding for €300-600 million on our calculations,” said
Jefferies in a note.
Despite the disappointment, it was the biggest
IPO in the US since the Snap IPO a year ago and the
biggest insurance IPO in the US since 2002. The share
AUTUMN 2018
 DEAL FOCUS

price edged up slightly to close its first day of trading at
US$20.34, up 1.7%.
Investors are rarely impressed by acquisitions and
Axa’s plan to buy XL is no different. The company’s stock
has fallen around 15% since the deal was announced in
early March and the IPO flop won’t help investors to feel
any better about Buberl’s strategy, which is to reposition
the company from predominantly life and savings products
to predominantly property-casualty. Axa claims the
acquisition will make it the biggest global P&C commercial
lines insurer based on gross written premiums.
Persistently low interest rates and tougher capital
standards have made life portfolios less attractive.
“The transaction offers significant long-term
value creation for our stakeholders with increased
risk diversification, higher cash remittance potential
and reinforced growth prospects,” said Buberl when
announcing the acquisition. “In the future, Axa will see its
profile significantly rebalanced towards insurance risks
and away from financial risks.”
The optics of this strategy can’t have been helped by
the high-profile property losses from hurricanes Harvey,
Irma and Maria in 2017. And those with longer memories
may recall the experience that primary insurers had as
owners of reinsurers in the 1990s, when poor exposure
management led to earnings volatility, underwriting losses
and capital strains.
“The assumption now is that access to diversified
sources of risk, allied with greater confidence that
historic technical issues are now better managed through
advanced risk quantification techniques, is sufficiently
enticing for large primary companies looking for growth,”
said James Kent, global chief executive of Willis Re, in a
recent report.
Certainly this is what Axa and other companies
pursuing similar strategies will be hoping. n

Deal Report US$3.1bn

Axa Equitable IPO Capital raised

ListCo Axa Equitable Holdings

Ticker NYSE:EQH

Offering
Deal size US$3.1bn
Stake size 24.5% (plus 3.7% greenshoe)
Market cap (Sep 3) US$12.9bn

Valuation
Initial price range US$24-27
Launch price US$20
Market price (Sep 3) US$22.95
Price-to-book 0.96x

Ownership
Axa 71.9%

Advisers
Underwriters Morgan Stanley, JP Morgan
Lawyers to Axa Equitable Debevoise & Plimpton
Lawyers to the banks Sullivan & Cromwell

16 INSURANCEASIA NEWS AUTUMN 2018

 Register
Now

29 October - 1 November 2018

Sands Expo and Convention Centre, Marina Bay Sands Singapore
REINSURANCE RELOADED
Guest of Honour

Mr Heng Swee Keat

Minister for Finance, Singapore

Industry Keynote

Mr Brian Duperreault
President and CEO, AIG

Programme Highlights
Monday, 29 October 2018 Wednesday, 31 October 2018
Welcome Address Keynote Address 2
Guest of Honour’s Official Keynote Address • Mr Olivier Mahul
Industry Keynote Address Global Lead and Programme Manager for Disaster Risk Financing
and Insurance Programme, World Bank
Q&A Panel
Welcome Cocktail Reception Panel Discussion 2
• ‘Reinsurance Reloaded – The Asian Reinsurer Response’
Tuesday, 30 October 2018 Bilateral Meetings
Keynote Address 1 Download the
• Mr Tom Van den Brulle Thursday 1 November 2018 SIRC Mobile App
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CO-PUBLISHED CHAPTER
Seizing the Asian opportunity
In just five years, Peak Re has built a billion-dollar reinsurance company at the
heart of the world’s most promising growth market.
In markets such After five years of rapid growth,
as Indonesia, Peak Re chief executive
the Philippines officer Franz Josef Hahn is
and Vietnam, taking stock of the company’s
the younger successes and planning for the
generations future.
are shaping the There have been many
future. milestones since the company
started underwriting in
December 2012. After
delivering a profit in its first
full year of operations, Peak
Re has opened a Zurich
branch, completed a strategic
investment in the Caribbean
through NAGICO, opened a
Labuan branch in Malaysia
and been authorised as a
life and general reinsurer in
18 INSURANCEASIA NEWS
Singapore. And in 2017 it became
a billion-dollar reinsurer in terms of
premiums written.
“We’ve been doing a bit of
navel-gazing,” says Hahn. “We
have been developing so fast as
we built our global presence, but
it is very important to us that we
remember our foundation story.
Geographical diversification is a
necessary aspect of our portfolio,
but Asia is our home and this is
where we see the opportunity, and
specifically in emerging Asia.”
Hahn acknowledges that a
modern reinsurer must be global to
achieve a balanced portfolio, but
the foundational reality for Peak
Re has always been that emerging
Asia is the part of the portfolio that
will deliver the growth.
“As a business, we understand
Asia Pacific very well and we know
how to trade profitably,” says
Hahn. “That’s who we are.”
There are four key change
factors that Hahn points to as
defining the opportunity in the
region:
1. Demographics
2. Regulation
3. Technology
4. Economics
Demographics
As a region, Asia is not adequately
insured in comparison to peers on
a comparative basis, particularly
AUTUMN 2018
on the property-and-casualty
side — and that in itself is a
huge business opportunity. The
emerging middle class is maturing
and increasingly they are looking
to spend money to protect their
property, their health and their
lives.
In markets such as Indonesia,
the Philippines and Vietnam, the
younger generations are shaping
the future. These highly educated
millennials are different to previous
generations and are just now
arriving in leadership positions
within their countries, bringing
completely different value systems
and attitudes to financial services
and insurance.
“As insurers and reinsurers,
we need to think about how those
people are buying insurance
and how they want to protect
themselves against asset shocks
or health shocks within their
community,” says Hahn.
The other part of the
demographic opportunity is Asia’s
ageing populations, which require
completely different products and
are a notable factor in markets
such as Japan, Singapore, Hong
Kong and China.
Regulation
The change of regulatory regimes
towards risk-based capital or
Solvency II represents a significant
opportunity for reinsurers. The
different treatment of insurance
players in each of the markets
will drive the need for solvency
substitution, with reinsurance
coming in and offering a cheaper
form of private equity.
“Insurance companies need
to increase capital due to these
changing regulatory regimes,” says
Hahn. “Traditionally, to increase
capital you go to a bank and do
a fund-raising, but that costs you
quite a lot of money. Quota share
participation, on the other hand,
doesn’t cost as much because
these are standard reinsurance
treaties that don’t entail huge legal
costs, but are effective at reducing
the amount of capital needed.”
While the shift to Solvency II in
Europe, for example, has caused
AUTUMN 2018
As a region, Asia
is not adequately
insured in
comparison
to peers on a
comparative basis,
particularly on
the property-and-
casualty side — and
that in itself is
a huge business
opportunity.
an immediate demand for more
capital, the demand in Asia will
increase at a more gradual rate
as many P&C books in the region
are dominated by motor business,
which requires less capital due to
its non-volatile profile. However,
as portfolios mature and shift to
lines that require more capital, the
opportunity for reinsurers to help
optimise capital will grow.
Technology
Efficiencies and innovations are
being unleashed as companies
in Asia upgrade their technology.
Big data analytics and artificial
intelligence are allowing companies
to see risk in new ways.
“Better data and a better
understanding of data allows you
to become much more precise with
your products,” says Hahn. “This
will create much more innovation
among companies that really
understand what’s going on, who
understand their clients and their
clients’ needs — and who can
also translate that into adequate
solutions.”
At the same time, reinsurers
that are at the forefront of this
technological revolution will be
well placed to capitalise. Early
adopters of the various emerging
technologies will have an efficiency
advantage, a knowledge advantage
and an advantage on innovation.
Economics
The key economic issue facing
emerging markets is uncertainty.
“We are going through a period of
political volatility,” says Hahn. “We
don’t know yet whether it is a blip
in the beam of history or whether
it’s a trend, but we are seeing a
counter-reaction to globalisation
and the financial crisis, and we
don’t know where it is leading.”
There is clearly a risk that the
strong economic growth of past
decades may be vulnerable in the
future, particularly in markets such
as Indonesia and the Philippines,
and that could threaten the growth
opportunity for reinsurance.
And, says Hahn, this is a good
demonstration of why reinsurers
need to protect themselves with
geographic diversification. “But
that doesn’t put a question mark
on whether we are an Asian player
— we are,” he says.” We are right
in the centre of Asia Pacific, where
others would like to be.”
Outlook
The company is focused on
organic growth, but is always open
to M&A opportunities that create
value and help further balance
the portfolio. Looking forward to
the next five years, the question
Hahn asks himself is whether Peak
Re can continue to grow as fast
as it has been. “Yes we can,” he
answers, “and the reason is that
we are in the right region, we have
the right business model and we
have the right culture. We have
a deep understanding of each
market where we are operating, we
have people who understand the
products, we are a fully transparent
organisation and we are committed
to international standards.”
Franz Josef Hahn
Chief Executive Officer
Peak Re
INSURANCEASIA NEWS 19
 M&A

Stars align for Marsh and JLT

The surprise US$5.6bn deal consolidates Marsh & McLennan’s leading market position among brokers.

20 INSURANCEASIA NEWS AUTUMN 2018

 Marsh & McLennan is paying
US$5.6 billion for JLT in a deal
that will significantly expand its
footprint in Asia Pacific.
Already the world’s biggest
insurance broker even before the
acquisition, Marsh is aiming to
capitalise on JLT’s organic growth
to help solidify its market position.
And it is paying a pretty penny for it
— £19.15 a share, which is a 33.7%
premium to the closing price on the
eve of the deal.
That values the company at 25
times its forward earnings, which
led JLT’s board and its biggest
shareholder, 40%-owner Jardine
Matheson, to quickly recommend
the deal. Marsh & McLennan
chief executive Dan Glaser and
his counterpart at JLT, Dominic
Burke, reportedly thrashed out the
agreement in just 11 days after first
meeting on September 7.
“The stars and moon have to
align for both companies,” Glaser
said about the negotiations. “Both
sides needed to think the timing
was right.”
The transaction, which is the
biggest in the sector since the
US$18bn merger of Willis and
Towers Watson in 2015, will be
funded by a combination of cash
on hand and proceeds from debt
financing.
“The acquisition of JLT
accelerates [Marsh & McLennan’s]
strategy to be the preeminent
global firm in the areas of risk,
strategy and people,” said
the company in a statement
announcing the deal. “JLT’s
track record of strong organic
growth and attractive geographic
diversification enhance [Marsh &
McLennan’s] ability to accelerate
growth and margin expansion
across products and geographies.”
Both businesses are dominated
by their insurance broking arms,
though they also have employee
benefits and other units. JLT’s
risk and insurance businesses
contribute more than three-
quarters of its revenues, while
Marsh generates around 46% of its
parent’s revenues and reinsurance
broker Guy Carpenter adds
another 9%.
SOURCE: ESO/Y BELETSKY
JLT reported underlying profit
growth of 11% during 2017,
driven by specialities that include
construction, aerospace, sporting
events, real estate and energy. It
AUTUMN 2018
Marsh & McLennan will consolidate its position as the world’s biggest broker
earns a quarter of its revenues in
the UK and 29% in Asia Pacific
— and this is where most of the
benefit is, given that Marsh &
McLennan earns just 10% of its
revenue in Asia Pacific.
JLT’s fast-growing businesses
in Latin America and US speciality
risks are additional attractions,
while the deal will also give Marsh
& McLennan a bigger footprint
in reinsurance broking through
JLT Re, which comprises the
old Towers Watson reinsurance
business acquired in 2013.
However, Marsh & McLennan
is no slouch when it comes
to growth. Despite a difficult
environment for the insurance
industry during the past few years,
it has delivered consistent revenue
growth in the 3% to 5% range for
the past eight years.
When the two companies come
together, subject to shareholder
approval and regulatory clearance,
there are significant overlaps that
will result in layoffs of around 2%
to 5% of staff. Marsh & McLennan
forecasts annual cost synergies of
around US$250 million that will be
Dan Glaser
Marsh & McLennan
The realised over the next three years,
transaction, with one-time integration costs of
which is the US$375 million.
biggest in the Rivals are also expecting to
sector since pick up some talent as disgruntled
employees flee the prospect of
the US$18bn
working within a very different
merger of
organisation. JLT, with its roots in
Willis and the UK, is a much smaller business
Towers than Marsh & McLennan, with
Watson in revenues of US$1.8 billion in 2017
2015, will be compared to more than US$14
funded by a billion at the American behemoth.
combination In terms of headcount, JLT
of cash on employs slightly more than 10,000
hand and people, while Marsh & McLenan
has more than 55,000.
proceeds from
Some market participants
debt financing
were surprised by the deal given
the very different cultures of the
two organisations. “JLT has been
fiercely independent in the past
and so we are surprised to see a
recommended bid from Marsh &
McLennan (MMC) and uncertain
about JLT’s motivations behind the
headlines,” said analysts at Keefe,
Bruyette and Woods analysts in a
note. “But our knee-jerk response
is that this is a good deal for JLT
shareholders.”
Asked about the risk of buying
a British business amid the
confusion surrounding Brexit,
Glaser was nonplussed. “We’re
happy to bet on Britain,” he said.
Goldman Sachs acted as
financial adviser and Slaughter and
May and Wachtell, Lipton, Rosen
& Katz acted as external legal
counsel to Marsh & McLennan. JP
Morgan Chase served as financial
adviser and Clifford Chance as
external legal counsel to JLT. n
INSURANCEASIA NEWS 21
 DISRUPTOR
Here comes Big Tech
The world’s biggest social media and technology firms haven’t yet shown much serious interest in disrupting the
insurance sector, especially in Asia, but that could be starting to change.
Amazon has entered the Asian insurance sector
Amazon made its first foray into
the Asian insurance sector in May,
leading a US$12 million funding
round in an online Indian insurer.
Acko General Insurance is a
digital-first insurance provider
that has already attracted backing
from two Infosys co-founders, Kris
Gopalakrishnan and Narayana
Murthy. The Amazon investment is
the second it has made in Indian
Varun Dua, Acko
22 INSURANCEASIA NEWS
financial services startups this “We are than the access to Amazon’s user
year, after it put US$22 million into excited base.
digital lender Capital Float. to back “We will be beefing up the
“Acko is a young and nimble companies technology. It’s heavily intensive,
start-up bringing technology that are both operationally and technology-
and data-led innovation to the focused wise, to set up claims across the
insurance sector to deliver a on using country,” said Varun Dua, chief
better insurance experience for executive of Acko, also in The
technology
customers,” said Amit Agarwal, Economic Times. “The other thing
country manager for Amazon in for enhanced will be to scale up our marketing
India, to The Economic Times. “We customer efforts and the business overall.”
are excited to back companies that experience
are focused on using technology and are led
for enhanced customer experience by missionary
and are led by missionary founders founders and
and management teams.” management
The Acko website already teams”
features several Amazon offers,
including discounts for its users. Amit Agarwal,
But for now, the funding and India country
technology support provided by manager,
Amazon, which is the global leader Amazon
in cloud services through its AWS
platform, is even more important Amit Agarwal, Amazon
AUTUMN 2018
 Acko has drawn comparisons
to Lemonade, a US insurance
startup backed by Google, XL
and Allianz among others, which
uses a chatbot called AI Jim to
review and pay claims, leveraging
machine learning and behavioural
economics to improve the
customer experience and limit
fraud. AI Jim set a world record in
2016 when it reviewed, approved
and paid a claim for a stolen coat
in three seconds.
Amazon would clearly like to
get in on this action. The Seattle-
based e-commerce company
signalled its disruptive ambitions in
the insurance sector last November
when it started posting job ads in
Europe for its product insurance
division that described “launching
a new business”.
It already offers extensions
on warranties for goods bought
on its website through Amazon
Protect, providing up to five years
of protection against breakdown,
as well as accidental damage and
theft policies.
“Along with internal and external
Acko aims to simplify motor insurance in India
AUTUMN 2018
partners, we are re-defining the
warranties and product insurance
experience, disrupting the way
traditional product insurance
services are acquired and
delivered and creating a new
palette of services,” it said in a job
ad posted to LinkedIn.
Given what Amazon has done
to once-dominant retailers such
as Toys R Us, its plan to enter the
insurance industry should have
insurers quaking in their boots.
Market research backs this
up. Almost 30% of customers
say they would consider buying
insurance products from big tech
firms such as Google, Amazon and
Facebook, according to the World
Insurance Report 2018, published
by Capgemini and Efma.
The survey found that
incumbent insurers have fallen
behind their banking peers in
meeting customer demands,
making them vulnerable to non-
traditional entrants. The greatest
disaffection was among customers
aged 18 to 34. While more than
32% of these Gen Y customers
“The use
of data and
being able
to offer a
truly digital
customer
experience
are both
critical for
the insurer of
the future”
Anirban Bose, Capgemini
Anirban Bose,
global head
of financial
services, said they had a positive experience
Capgemini with their bank, less than 26%
reported a positive experience with
their insurer.
The report also found that
customers across all segments
now accept digital communications
at the same level as conventional
channels, with more than half of
customers placing a high value on
company websites for conducting
insurance transactions, and more
than 40% considering a mobile
app as an important channel.
“The use of data and being able
to offer a truly digital customer
experience are both critical for the
insurer of the future, something big
tech firms like Amazon and Google
excel at,” said Anirban Bose, global
head of financial services and
member of the group executive
board at Capgemini. “The threat
from such entrants is more real
than the insurance industry
might want to admit. Insurers,
risk assessors by nature, must
urgently turn their gaze inwards
and consider the competitive risks
within their own industry in order to
evolve and survive.”
Many insurers are acutely
aware of these risks. The far bigger
challenge is how to respond to
them. In a tech arms race, the
Googles and Amazons of the world
have a huge advantage just in
terms of being able to attract the
talent needed to build disruptive
new insurance models. They also
have the money. The only real
question is whether they have
the motivation — and we are now
starting to see that they do.
It is difficult to see how
insurance companies win this
arms race, but partnering with
tech companies perhaps offers the
possibility of a draw. Or at least an
honourable defeat. n
INSURANCEASIA NEWS 23
CO-PUBLISHED CHAPTER

Non-life protection gaps in ASEAN

The second issue of ASEAN Insurance Pulse will focus on how a lack of awareness, education and financial literacy
must be overcome to close the region’s protection gaps. By Zainudin Ishak of Malaysian Re.

Uninsured disaster Non-life protection gaps will
losses in particular come under the spotlight in
can reach Malaysian Re’s second issue
proportions that of ASEAN Insurance Pulse, a
adversely affect survey based on interviews
the fiscal position with senior executives
of a number of from insurance companies,
countries, while intermediaries and trade
it is common for organisations operating across
exposure levels ASEAN.
to be growing Such protection gaps are
faster than a serious threat to economic
the underlying growth and societal progress.
economy as Uninsured disaster losses
a result of in particular can reach
urbanisation and proportions that adversely
associated asset affect the fiscal position of a
concentration. number of countries, while it
is common for exposure levels
to be growing faster than the
underlying economy as a result
of urbanisation and associated
asset concentration.
The vast majority of executives
in ASEAN are in favour of a
more active role for the public
sector in tackling protection
gaps. The spectrum of concrete
recommendations ranges
from subsidised schemes (for
example, in agriculture) to tax
incentives, compulsory insurance
requirements, awareness and
education campaigns, a more
appropriate regulatory policy mix
between customer protection
and market development, and the
insurance of public assets to pool
solutions for natural perils.
Unfortunately, polling shows
broad agreement that the
insurance industry has not done
enough to narrow protection gaps.
The most frequently mentioned
shortcomings refer to a neglect
of awareness building (both in
terms of exposures and available
risk solutions) as well as a lack of
sufficiently innovative and flexible
products.
The most acute and relevant
protection gap is in the healthcare
sector, according to the latest
ASEAN Insurance Pulse survey.
With rising costs and exacerbated
by medical inflation, existing public
schemes reach their limits and
often no longer meet the needs of
the population. Natural disasters
rank second as 80% and more of
economic losses generally remain
uninsured in the ASEAN region due
to lack of exposure awareness,

24 INSURANCEASIA NEWS AUTUMN 2018

with disastrous consequences for
public budgets, private savings
and business continuity. Property,
especially residential cover,
features third, as risk awareness of
homeowners remains low.
The survey finds Indonesia as
vulnerable to protection gaps,
given the country’s wide spectrum
of natural perils, followed closely
by the Philippines, with a large
typhoon and flood exposure.
Among the smaller countries,
Cambodia is vulnerable, not only
to flood risk but also due to the
absence of pre-funded (public or
private) healthcare schemes.
The root causes of the region’s
non-life protection gaps are a
lack of awareness, education and
financial literacy. Many, if not most,
people neither understand their
real exposures nor the potential
role of insurance in risk mitigation.
Culture and mind-set rank second.
In many countries, a fatalistic
attitude prevails and people tend to
rely on governments as a lender of
last resort.
Lack of affordability is also
cited as a common obstacle to the
wider use of insurance. However,
even though poverty remains a
widespread phenomenon in some
ASEAN countries and insurance
prices can be inflated due to high
distribution costs, many executives
argue that people would be willing
AUTUMN 2018
Lack of affordability is
also cited as a common
obstacle to the wider use of
insurance.
to buy insurance if they properly
understood the products and their
benefits.
New digital technologies are
viewed as the most promising
approach to narrowing non-
life protection gaps in the
ASEAN region. Generally, young
populations are highly tech savvy
and open to exploring new ways
of buying and using insurance
products. More relevant insurance
products were the second most
frequently mentioned remedy. In
many countries, insurers do not
offer appropriate need-based
solutions (in terms of both price
and cover) to the low-income
segments of the population. Finally,
a significant number of executives
look at governments to improve
the availability and affordability of
retail and wholesale insurance by
introducing compulsory schemes
which create sufficiently large risk
communities and risk pools.
To read more on this topic,
make sure to download a copy of
the ASEAN Insurance Pulse from
Malaysian Re’s website when it is
launched in November 2018. n
On the pulse
The ASEAN Insurance Pulse is based on in-
depth interviews with 35 senior executives from
regional and international insurance companies,
intermediaries and trade organisations operating
across the Association of South-East Asian Nations
(ASEAN) region and provides an authoritative
overview of the current state and future prospects
of the region’s US$23 billion non-life insurance
markets. In addition, it takes executives’ pulse on
the Asian Economic Community (AEC) project and
its implications for the region’s insurance markets.
Formally launched on December 31 2015, the
AEC aims to create a single market by 2025 to
facilitate the free movement of goods and services,
including insurance, among the 10 South-East
Asian ASEAN countries.
As the national reinsurer, Malaysian Re believes
that the ASEAN Insurance Pulse will serve as a
reliable guide to understanding what insurers,
reinsurers and intermediaries expect of this
integration as well as to identifying impediments
facing the ASEAN insurance marketplace.
The second ASEAN Insurance Pulse will be
launched in November 2018.
About
Zainudin Ishak
President & Chief Executive Officer
Malaysian Reinsurance Berhad
Zainudin Ishak is the President & Chief Executive Officer
of Malaysian Reinsurance Berhad, a position he has held
since Apr 2015. He holds an Associateship of Malaysian
Insurance Institute (AMII). He has accumulated over
30 years of experience in insurance industry covering a
range of business and functional roles earned in various
capacities in the domestic and multinational corporations
in Kuala Lumpur, Hong Kong and Kingdom of Saudi
Arabia, inclusive 12 years stint as CEO. He has also
served as the Chairman of Malaysian Takaful Association
from 2012 to 2015.
In addition to his current role, he also sits on board of
Financial Park Labuan and Management Committee of
PIAM (General Insurance Association of Malaysia).
Malaysian Re
Malaysian Reinsurance Berhad (Malaysian Re) is a wholly
owned subsidiary of MNRB Holdings Berhad. As the
national reinsurer, Malaysian Re continues to enhance
the competitiveness and efficiency of local insurance
companies in an increasingly globalised marketplace
through its active involvement in leading and underwriting
their reinsurance needs. Leveraging on its breadth and
depth of experience and expertise, strong fundamentals
and proven record of accomplishment, Malaysian Re
has grown in stature as an international player having
established a strong market presence in Asia and the
Middle East.
Malaysian Re is the largest national reinsurer by assets
in the South-East Asia region.
INSURANCEASIA NEWS 25
 COVER STORY

Chasing Asia’s
elusive opportunity
Reinsurers are seeking to expand their footprint in the region, but strategy is key.

With reinsurance industry volatility and will likely remain well In most of and potential new business models
consolidation showing no signs capitalised even after adoption of emerging Asia, such as those enabled by the
of slowing, Asia is becoming an risk-based accounting standards. property-and- blockchain, but these are all very
increasingly important source It is only as direct insurers shift casualty books much long-term developments.
of diversification and growth for their portfolios to other risks, such are still heavily
reinsurers’ portfolios. as catastrophe, that reinsurers will
dominated by
Infrastructure
There is certainly plenty of be needed to help manage capital On the other hand, the Belt and
short-tail risks
growth to be found in the region. — and that is likely to happen Road initiative is already five years
The implementation of more slowly, over decades. such as motor old at this point — and China
sophisticated, risk-based and Likewise, while technology is has been building infrastructure
Solvency II-style accounting rules changing at a rapid pace, we are in emerging markets around the
is likely to be a significant driver years away from autonomous world for more than a decade. So
of demand over the next few cars, for example, ferrying people far, these efforts have not led to
years. So too is the continuing around the streets of Beijing or a massive growth in demand for
build-out of infrastructure through Bangkok. Autonomy may introduce sophisticated risk management
China’s Belt and Road initiative, new risks in sectors such as tools as investors plough billions
as well as other Asian countries’ logistics, but this is a smaller and of dollars into projects around the
own development plans. Finally, still relatively distant opportunity. world. Is this about to change?
technological advances are Technology trends are definitely Perhaps. There are certainly
introducing significant new risks creating new risks, such as cyber, plenty of people who hope so. Tim
that may grow the reinsurance pie.
Put it all together and there is
plenty of cause for optimism about
the future of reinsurance profits
in the region, according to Fitch.
However, analysts at Fitch and
elsewhere have been saying more
or less the same thing for the past
five or six years. While few doubt
the potential, the reality is that
many of these commonly cited
growth drivers are slow burners.
New capital standards, for
example, are not going to cause
an overnight change. In most of
emerging Asia, property-and-
casualty books are still heavily
dominated by short-tail risks
such as motor, which are low The Belt and Road initiative is driving infrastructure opportunities

26 INSURANCEASIA NEWS AUTUMN 2018

AUTUMN 2018 INSURANCEASIA NEWS 27
 COVER STORY
Warren, head of credit lines for
Asia-Pacific at Zurich Insurance,
said at a Belt and Road summit
in Hong Kong in June that the
industry is keen to support Belt
and Road projects. “There is
insurance cover for currency risks
if investors are unable to remit local
currency back home,” he said.
“There is also credit insurance
to cover suppliers from non-
payment.”
Hong Kong is keen to win a
slice of this action and recently
announced that it will offer tax
incentives for the insurance
industry as part of the city’s plan to
take advantage of US$1.7 trillion of
infrastructure projects conceived
as part of the initiative, according
to Paul Chan, the city’s financial
secretary.
“We know very well that legal,
regulatory and political risks
can undermine the feasibility
28 INSURANCEASIA NEWS
of a project, and that risks in
construction and cost overruns
will negatively impact a project’s
profitability,” Chan said in a
speech at the Belt and Road
summit. “Hong Kong’s deep
pool of multicultural talent in law,
accounting and finance can help
manage these risks, by conducting
legal due diligence, structuring the
best deal through a combination
of financial engineering as well as
insurance and reinsurance.”
Tim Warren
Zurich Insurance
Meanwhile, China is trying to
acquire the expertise to underwrite
some of these risks itself, as
demonstrated in September when
China Re announced that it was
buying speciality insurer Chaucer
Group from Hanover Insurance for
US$950 million.
China’s Belt and Road initiative
is a key driver of the state-owned
reinsurer’s bid to increase its
presence internationally. The
government’s vast scheme of
infrastructure building around the
world is projected to cost more
than US$1.5 trillion during the
next decade or so, but as HSBC
chairman Mark Tucker noted at
the Belt and Road summit, the
risk appetite in some countries is
lacking, particularly in areas such
as political risk and trade credit.
These are both areas that
Chaucer specialises in. Just last
year, it joined forces with fellow
AUTUMN 2018
 Recent global M&A deals
Close date Buyer Target Deal size (US$m) Price/Book Price/Rev
Oct 2017 Axis Capital Novae Group $595 1.43 0.68
Jul 2018 AIG Validus $5,403 1.55 1.93
Dec 2018 AXA XL Group $15,201 1.54 1.34
Dec 2018 Apollo Funds Aspen Insurance $2,550 1.10 1.06
Dec 2018 Enstar MaidenRe $308 n/a n/a
Dec 2018 Markel Nephila n/a n/a n/a

under the Chaucer brand through accretive acquisitions, particularly

Yuan Linjiang
China Re
“With Chaucer’s established
market-leading position
in speciality insurance, we
are convinced that with this
acquisition our group’s core
competitiveness will be greatly
strengthened”
Lloyd’s syndicates Beazley and
Talbot to form a political risk
consortium in Asia. It also has
experience writing speciality risk,
including political risks, energy
and infrastructure, for the African
market thanks to a partnership with
Axa.
“The directors believe that the
acquisitions would enable the
group to extend its global reach
to the international reinsurance
market by leveraging on the
existing network and customer
base of Chaucer,” China Re said in
a stock exchange announcement.
SOURCE: BLOOMBERG, FITCH RATINGS
Lloyd’s syndicates 1084 and 1176, when assessing the reserve
its international network and adequacy of a target company
underwriting agencies, and its and the potential complications in
insurance unit in Dublin. execution and efficient integration”.
“With Chaucer’s established This year has seen some very
market-leading position in large deals that have drawn a
speciality insurance, we are mixed reception from markets.
convinced that with this acquisition Axa’s US$15.2 billion acquisition
our group’s core competitiveness of XL Group will see the reinsurer
will be greatly strengthened,” said become part of a very strong,
Yuan Linjiang, chairman of China larger multi-line organisation.
Re. “Together, we will secure Investors have thrown shade on the
greater and more diversified deal and the Axa’s stock price has
business and a higher status in fallen since the announcement.
international markets.” The XL deal came after AIG’s
purchase in July of Bermuda-
Consolidation based Validus for US$5.4 billion
Worldwide, reinsurers have in a deal that provided AIG with a
struggled thanks to intense market profitable reinsurance and Lloyd’s
competition and strained capital market platform.
levels. This pressure will continue Both deals, while difficult to
to drive industry consolidation, justify on a cost-saving basis,
while smaller players lacking highlight the trend of gaining
scale and diversification see
further pressure on growth and
profitability, Fitch Ratings says.
“Marginalised companies are
increasingly incentivised to explore
M&A, as they face the challenges
of operating in a difficult market
environment,” the agency said in
a recent report. These factors,
coupled with the impact of the US
tax reforms and the record 2017
catastrophe losses, should support
M&A activity for the sector into
2019.”
Reinsurers are hoping that M&A
will solve all their problems —

“There will also be a significant revenue diversification, economies

potential for collaboration
between the group and Chaucer
to share intellectual property and
expertise.”
Once complete, Chaucer’s
senior management team will
continue to lead the business
of scale, better return on capital,
a stronger competitive position
and expanding penetration in
developing markets. However,
Fitch warns that buyers in a
competitive bid situation run
the risk of “dilutive rather than Reinsurers are hoping that M&A will solve all their problems

AUTUMN 2018 INSURANCEASIA NEWS 29

 COVER STORY
Asia has accounted for almost half of the world’s economic losses from natural disasters
scale and diversification in order
to stay relevant in a competitive
marketplace.
Another driver of consolidation
has of course been the influx
of alternative capital to the
reinsurance sector. Aon Securities
estimates that alternative capital
deployment has increased by 10%
from the end of 2017 to US$98
billion at the end of June 2018 —
which is nearly double the US$50
billion amount at the end of the full
year in 2013.
Reinsurers have been keen
to add more of this capability
to their portfolios. Markel’s
acquisition of Nephila, for example,
allows it to further expand into
fee-based insurance-linked
securities, strengthening its
position as the leading manager
of ILS funds and following
on from its December 2015
purchase of CatCo, a retrocession
30 INSURANCEASIA NEWS
and reinsurance investment
specialist, demonstrating the
further convergence of traditional
reinsurance and alternative capital
market reinsurance.
Diversification
For many reinsurers, Asia is an
increasingly important part of a
globally diversified portfolio —
not least because competitive
pressures are driving down
pricing even as exposures are
growing. By building their footprint
in Asia, reinsurers are gaining a
diversification benefit that has
helped them to stay competitive in
peak regions.
But reinsurers that want to
be taken seriously in Asia need
to see the region as more than
a diversification play — and that
means contributing meaningfully to
increasing insurance penetration
and growing the size of the
AUTUMN 2018
reinsurance pie.
Across the region, since
1980 around 8% of all natural
catastrophe losses have been
covered by insurance. According
to Munich Re’s natural catastrophe
databank, this is equivalent to
US$135 billion, compared to a total
loss amount of US$1.65 trillion. In
emerging Asia, this gap is getting
even bigger as exposure in the
region is rapidly increasing as
populations and economic assets
accumulate in megacities, many
of which are at risk from tropical
storms, flooding or earthquakes.
According to Lloyd’s City
Risk Index, of the top 10 cities
with most economic exposure to
natural catastrophe and climate
risks, eight are in Asia: Taipei,
Manila, Tokyo, Osaka, Hangzhou,
Ningbo, Shanghai and Seoul. In
total, their exposure is more than
US$50 billion. For a city such as
Manila to have a bigger economic
exposure than Tokyo or New York
is alarming — but much more so
when the level of under-insurance
is considered.
Indeed, property insurance
penetration is just 1.1% in emerging
Asia, which is comparable to
figures for sub-Saharan Africa.
In India, the Philippines and
Indonesia, insurance penetration
is even lower. Such low levels of
insurance are problematic, as the
positive economic effect of risk
transfer is particularly strong in
emerging economies.
“The region’s changing
climate reality has made
insurance essential to protect
local businesses and strengthen
industries so they become resilient
to climate change,” according to
Azam Khan, IFC’s country manager
for Indonesia and Malaysia.
Some efforts have been
made to develop innovative risk-
transfer solutions, with various
parametric schemes being trialled
in the Philippines and China, as
well as index-based products in
Indonesia, but more can always
be done. Insurers, reinsurers,
non-governmental organisations
and multi-lateral agencies need
to work together to reduce the
protection gap, and reinsurers
in particular need to take a more
active leadership role in addressing
this growing risk and helping to
mitigate it. n
AUTUMN 2018
Korea targets reinsurance
liberalisation
South Korea’s efforts to achieve peace with its neighbour to the north,
assisted by Donald Trump’s unique contributions, have gained new
impetus under the current administration. But diplomacy is not the
only thing on the agenda for the new government.
Liberalisation is also coming to the insurance industry. As part
of an effort to promote price competition in the non-life sector, the
Financial Services Commission (FSC) said in June that it would lower
barriers to entry for international reinsurance companies in a move
seen as challenging the dominance of Korean Re, which has a 60%
market share.
“We will prepare an amendment to the law on the insurance
business in the first half of this year and push for its enactment in the
second half of the year,” the FSC said in a statement translated by
BusinessKorea.
In addition to the rules on overseas reinsurers, the FSC is
revising supervisory and enforcement regulations for reinsurers,
The region upgrading internal control criteria to meet international standards and
continues to introducing compulsory qualifications for reinsurers and reinsurance
be heavily brokers.
under-insured One of the observations made in the FSC announcement is that
relative to Korea’s non-life insurers all tend to use the same methodology
other parts of to set premiums — determined either by reinsurers or the Korea
the world Insurance Development Institute. With more reinsurance capacity and
a greater diversity of providers, the domestic industry should have
the opportunity to write more complex risks and access differential
pricing.
“Insurers that have accumulated statistics and experience in risk
assessment and contract acquisition will be given an incentive to
lower their premiums,” an FSC official told BusinessKorea.
The failure to offer more competitive premiums is also a result
of the lack of actuarial experience, which the FSC is also aiming
to address as part of a wide-ranging insurance innovation and
development plan that includes initiatives to promote cyber insurance,
strengthen risk assessment capabilities and overhaul the regulatory
framework for the whole industry. More actuaries are also expected to
be needed as part of the adoption of IFRS17.
The regulator has said that it will draft the amendments to the
Insurance Business Law with a view to finalising and implementing
them in the second half of the year.
It remains to be seen if foreign reinsurers will have the appetite
to expand capacity in their businesses in Korea. Most of the major
international reinsurers already have a presence in the country, but
the dominance of Korean Re has persisted.
Meanwhile, the threat of increased competition has encouraged
Korean Re to expand its own business beyond the domestic market.
During the past few years it has increased its foreign premium
volumes to around 20%. It has already established an office in
London and in January this year announced plans to open a new
office in Zurich in 2019. It has also applied to open a branch in
Shanghai, though it has been waiting for approval since 2014.
“The Swiss entity will play a huge role in boosting our premium
volume in Europe from the current US$200 million to more than
US$300 million by 2025,” said a Korean Re official.
While it is not yet clear what the FSC’s liberalisations will entail,
the move to encourage greater foreign reinsurance participation in
its domestic market is a welcome one, particularly in light of recent
protectionist moves in markets such as China and Indonesia.
INSURANCEASIA NEWS 31
CO-PUBLISHED CHAPTER
Asia Reinsurance
Diversification and Growth
In 2017, Asia Pacific
experienced a relatively benign
loss year as total insured losses
amounted to less than 5% of
global insured losses. This is
in stark contrast to 2011 when
Rising asset
the Christchurch and Tohuku
values and
earthquakes and Thai floods
increased
ballooned the region’s losses.
urbanization,
Total global insured losses
including the
from natural catastrophes and
mega-cities
man-made disasters, however,
in coastal
increased to a record level
regions as well
(US$144 billion) and economic
as the impact
losses (insured plus uninsured)
of climate
were the second highest on
change, suggest
record after 2011. 2017 not only
that a major
served as a sharp reminder
catastrophe is a
of the devastation that can
very real threat
be caused by severe weather
events, but also provided the
reinsurance industry with its
first real test of resilience since
2011.
The sector has, however,
also undergone significant
change since then, with the
continued inflow of new capital
from third-party investors. The
low-interest rate environment
and the attractions of un-
correlated risk of reinsurance
have been persuasive
arguments for investors who
have flocked to an already over-
32 INSURANCEASIA NEWS
capitalized marketplace.
At the same time, many capital
providers have been seeking to
expand their footprint in Asia as a
way of optimizing their portfolios
through increasing exposure to
non-peak regions and perils.
Consequently, most reinsurers
have been employing some form
of diversification benefit in their
pricing models – the lower the
correlation a catastrophe contract
can bring is reflected in a lower
capital requirement and, as a
result, a lower price.
This decrease in pricing has
occurred in spite of increasing
exposures over the same period.
After the global losses of 2017, it
is logical to argue that the price
of Asia’s diversification benefit
should be a contribution to the
‘diversification cost’.
This should not merely be a
question of obtaining payback
after losses but also a return to
a more risk-commensurate level
of pricing. Reinsurance remains
one of the most effective ways
for insurers to manage capital
and protect themselves against
earnings volatility. Pricing must,
nevertheless, be technically
adequate for this to remain
sustainable.
Exposure and
Economic Growth
More importantly, the reinsurance
industry has a significant role to
play in helping expand growth in
Asia. Reinsurers can help address
the acute problem of under-
insurance by collaborating with
primary insurance companies,
not just from a capital standpoint,
but also by offering customized
solutions to provide disaster relief.
Such action should help
increase penetration in the region
and close the yawning protection
gap. As shown in Chart 1, insured
losses relative to the total loss has
remained low and in 2017, just 16
percent of the region’s economic
losses were insured – significantly
below the global total and more
developed markets such as North
America.
Exposure in the region is
still rapidly increasing and, as
highlighted at the 2017 Institute
Catastrophe Risk Symposium, Asia
has a ‘serious problem’. Over the
last 20 years, Asia has accounted
for almost half of the world’s
economic losses from natural
disasters. The United Nations
Economic and Social Commission
for Asia and the Pacific (ESCAP)
confirmed this trend over a longer
timescale. Since 1970, Asia Pacific
has become increasingly exposed
to natural catastrophes, both in
terms of frequency of events and
severity of damage, compared with
the rest of the world and the gap
has been widening.
The region’s rapid population
growth coupled with socio-
economic development and
urbanization has increased the
exposure of people and assets
to natural perils. Cities have
expanded with the migration of
people from rural areas, resulting
in a growing concentration of GDP
in coastal areas which carry higher
exposures to tropical storms and
flooding. Chart 2 shows that 14 of
the world’s top 20 cities, as ranked
by GDP and which are considered
at risk from the threat of natural
hazards, are situated in Asia. This
includes those ranked one to seven
AUTUMN 2018
 CHART 1: INSURANCE PENETRATION

Support and expertise in

100% terms of this big data initiative
INSURED LOSS AS % ECONOMIC LOSS

is needed from all within the

industry including (re)insurers,
80% brokers and catastrophe
modelling firms. Through greater
cooperation from all interested
60% parties, natural catastrophe
data, including economic loss
and exposure, together with
40% drone and satellite data, can The region’s
be aggregated and analyzed to diversification
create a comprehensive regional and growth
20% database of Asia Pacific natural potential calls
catastrophe risk. for responsible
Rising asset values and pricing and
0 increased urbanization, including continued
2009 2010 2011 2012 2013 2014 2015 2016 2017
the mega-cities in coastal regions improvements in
as well as the impact of climate understanding
ASIA GLOBAL NORTH AMERICA change, suggest that a major the region’s
catastrophe is a very real threat. catastrophe
Initiatives such as the South East risk. Provision
– with a combined US$785 billion Increasing Resilience Asia Disaster Risk Insurance of capital will
GDP – considered at risk in the 10- The 32nd ASEAN Summit of April Facility have been formed to continue to be a
year period until 2025. 2018 was hosted by Singapore provide disaster risk financing key function of
The impact of climate change under the themes of “Resilience and insurance solutions. Micro- the industry but,
on these coastal areas is a real and Innovation” and included insurance and public-private increasingly,
concern. Over the past century, discussion about the region’s partnerships are also looking to reinsurers
Asia-Pacific has experienced disaster resilience capabilities. close the protection gap and the should seek
warming trends and greater Singapore’s Natural Catastrophe reinsurance industry has a part to provide
temperature extremes. Climate Data and Analytics Exchange, led to play. customized
change could explain the notable by the Institute of Catastrophe solutions for risk
rise in the frequency of periodic Risk Management at Nanyang Initiatives and Innovation management
weather events such as heatwaves, Technological University in The emergence and future use which will rely
floods, cyclones and droughts. conjunction with the Monetary of insurtech should accelerate on enhanced
Similarly, the increasing value of Authority of Singapore, is one such insurance penetration and a collaboration
earthquake damage is evidence initiative that has already been number of regulators across in areas such as
of increased risk concentration launched (April 2016), with the aim the region, including Singapore, data collation
as people with more valuable to share and improve the region’s have been setting up regulatory and analysis
properties are residing in catastrophe risk data, especially ‘sandboxes’ to encourage Fintech and product
earthquake-prone areas. economic exposure data. innovation. This should offer development
potential for (re)insurers to not
only introduce technological
CHART 2: CITIES AT RISK FROM NATURAL THREATS enhancements to the traditional
value chain, but also to act
as distribution ‘conduits’ for
Taipei insurtech companies. The region’s
Tokyo
Manila
emphasis on digital connectivity
Seoul and innovation, as well as the
Shanghai China Belt and Road initiative, will
Osaka undoubtedly bring new growth Philip Hough
Hong Kong
opportunities in specialty lines Managing Director
istanbul
Mexico City such as cyber, construction, Asia Pacific
Lima surety, liability and cargo. Aspen Re
Los Angeles The reinsurance industry’s call
Tehran to arms is based on improved
Hangzhou
Tianjin knowledge and understanding
Dongguan of risk with the help of more
Guangzhou accurate data, enhanced modelling
New York techniques and continued
Shenzhen
Beijing development of partnerships
Jakarta with insurance clients, as well as
0 20 40 60 80 100 120 140 regional governments, in order to
ensure that (re)insurance growth
GDP in USD Billions
keeps pace with economic
development.

AUTUMN 2018 INSURANCEASIA NEWS 33

 CAPTIVES

Captive opportunity
Strategic risk management practices are
increasingly at the top of the agenda for
companies based in Asia.

34 INSURANCEASIA NEWS AUTUMN 2018

Demand for captive insurance
programmes in Asia is claimed
to be growing strongly, driven by
parents based in Japan, China,
Hong Kong and Singapore.
While the global trend has been
flat to slightly down for the past
few years, Asia Pacific has shown
consistent year-over-year growth,
according to Marsh, which says
that it saw a 24% increase last
used to help companies reduce
their cost of risk and mitigate
cash flow volatility, but strategic
risk management practices are
increasingly at the top of the
agenda for companies based in
Asia. With a variety of structures
available — including single-
parent entities, group captives
and special-purpose vehicles —
captives are being touted as a way
to risk transfer capacity outside of
traditional commercial markets,
according to Marsh. This can
include access to reinsurance,
which may provide broader
coverage at lower cost or capacity
that doesn’t exist in commercial
insurers; insurance-linked
securities, which provide access to
alternative capital for catastrophic- Shiwei Jin
type risks; and government XL Catlin

year in the number of captives it
manages in the region, driven by
parents based in Japan, China,
Hong Kong and Singapore.
Even so, the opportunity for
growth in Asia is still considered
to be significant. Studies suggest
that only about 3% of the world’s
captives are owned by parent
companies headquartered in Asia.
The potential is particularly high in
China. Of the non-Chinese Fortune
500, 85% own captive insurance
companies. But the 100 or so
Chinese companies in the Fortune
500 own just a handful of captives
between them.
Overall, companies based
in Asia own 6% of the world’s
captives, which is equivalent to
US$584.5 billion of premiums,
according to the Marsh data.
Captives have long been
to provide flexibility in accessing
capital, accelerate business
objectives, support business units
and protect human capital.
“Clients are showing greater
interest in using captives as part
of a risk management strategy to
fund and insure corporate retained
risk or to obtain commercial
reinsurance on a direct basis,” said
Shiwei Jin, global programme and
captive regional director for Asia at
XL Catlin, in a recent client briefing.
“We are having more and more
discussions with clients about
global insurance programmes
and captives, which go beyond
focusing on traditional property-
casualty risk to include cyber risk,
terrorism, crime and other non-
traditional exposures.”
Captives are uniquely able to
provide organisations with access
terrorism backstops, which exist in
many countries.
Other strategic uses of captives
include the opportunity to provide
support to business units, such
as creating a profit centre within
risk management — while also
providing better control over
product, pricing and customer
service. They can also provide
access to programmes such as
extended warranties and the
balancing of varying risk appetites
of corporate and business units
through deductible buy-downs,
reducing cash flow volatility.
A captive can also support
cost-effective funding of
employee benefits, finance
safety programmes and
provide incentives for meeting
organisational goals.
The top reason for maintaining

Other strategic uses of captives include the opportunity to

provide support to business units, such as creating a profit
centre within risk management — while also providing
better control over product, pricing and customer service

AUTUMN 2018 INSURANCEASIA NEWS 35

 CAPTIVES
Labuan
a captive cited by Marsh-
managed captives was to act
as a formal funding vehicle to
insure self-assumed risk. Other
popular reasons included: access
reinsurance markets; design and
manuscript own policy form;
realise tax benefits; centralise
global insurance programme; allow
subsidiaries to buy down corporate
retentions; provide evidence of
insurance to meet contractual or
statutory requirements; and write
third-party business.
Traditional domiciles for
captives include Bermuda, the
Cayman Islands and Vermont,
but there has long been talk of
Asian parents re-domiciling in
their home region. Within Asia,
the main captive domiciles are
Singapore, Labuan, Micronesia
and Hong Kong. Each caters to
a different market. Singapore
is home to a large number of
Australian captives, Labuan is
mostly Malaysian, Micronesia is
Japanese and Hong Kong is a
niche jurisdiction for just a handful
of Chinese companies.
As Chinese businesses expand
overseas they are becoming more
interested in benchmarking against
their international peers, which has
created a desire to improve internal
operations and develop long-term
36 INSURANCEASIA NEWS
risk management tools that reflect
international best practices. And
that often means consolidating
insurance buying through a captive
programme.
Similarly, overseas acquisitions
often result in Asian buyers
inheriting captive programmes,
which can spur them to consider
the opportunities provided by such
structures.
This can include using a captive
to coordinate risk management
at the global level, using a master
policy to provide clarity over the
risks and coverage in place, while
local policies give access to local
expertise and service.
In Asia, for construction
risks, said XL Catlin’s Jin, local
contractors often require local
evidence of insurance, so using a
global programme structure can
help risk professionals to meet
local requirements while also
maintaining central coordination of
their insurance coverages.
“We recently worked with a
leading Asia-based company
that has a captive for its global
property, casualty and financial
lines coverage,” she said.
“The captive’s global fronting
programme provides the risk
manager with transparency on
costs, full disclosure on cash
Labuan and Micronesia
have both introduced
legislation that gives smaller
companies more affordable
access to captive-style
programmes through cell
structures
flow, fast movement of money
and consolidated loss data. The
captive is then able to tap the
reinsurance market for risk transfer.
The success of this strategy has
prompted the company to explore
other ways to use its captive
as part of a risk management
programme.”
While the opportunity for
captives in Asia appears to be
bright, it is difficult to quantify
any actual growth during the past
couple of years. Marsh’s quoted
24% expansion is presumably an
increase in market share rather
than a reflection of underlying
growth — as the numbers reported
by the main domiciles in the region
do not suggest a significant rise.
However, domiciles are clearly
making an effort to attract more
captives. Labuan and Micronesia
have both introduced legislation
that gives smaller companies more
affordable access to captive-
style programmes through cell
structures. Hong Kong passed a
law that allowed captive insurance
companies to pay just 8.25%, or
half the normal rate, on profits from
insuring offshore risks.
Other domiciles are aligning
themselves more closely with
mature captive markets. The
Monetary Authority of Singapore,
for example, has committed to
introducing the OECD’s minimum
base erosion and profit shifting
standards.
As Asian companies increase
their insurance buy, continue
to expand internationally and
pay more attention to risk
management, these efforts to build
a regional captive market may bear
fruit. n
AUTUMN 2018

IAG’s Asia retreat
The Australian insurer is exiting businesses in Thailand, Indonesia and Vietnam,
and looking for buyers for its investment in China.
IAG is selling all of its subsidiaries
in Asia after a strategic review of its
business in the region concluded
that opportunities for growth are
limited.
Tokio Marine & Nichido Fire
Insurance will buy its operations in
Thailand, Indonesia and Vietnam.
The Japanese property-casualty
insurer is paying A$525 million
(US$390 million) for IAG’s 98.6%
interest in Safety Insurance in
Thailand and its 80% holding in
Asuransi Parolamas in Indonesia,
both of which are yet to reach
formal close at the time of going to
press. In a separate transaction,
Tokio Marine bought IAG’s 73.07%
interest in AAA Assurance for an
AUTUMN 2018
IAG
undisclosed sum. “We are
“We are pleased to accept the retaining our
offer for our businesses in Thailand interest in
and Indonesia from Tokio Marine,” Malaysia and
said chief executive Peter Harmer. India, and are
“We believe Tokio Marine is an continuing
ideal owner given its experience to assess our
in the region, and that this is a position”
good outcome for the associated Peter Harmer
employees, customers and other IAG CEO
stakeholders.”
Overall, Harmer said the sales
will produce “a net profit north of
A$200 million” that will be booked
in the 2019 financial year.
The exit follows a decision
taken last year to shelve its growth
strategy for the region as a result
of what it described as declining
INSURANCEASIA NEWS 37
 IAG

Peter Harmer, IAG
The exit commercial and regulatory
follows a conditions. Instead, the company
decision said it would shift its focus back
taken last to its Australian and New Zealand
year to shelve markets.
its growth The Aussie insurer has partly
strategy for blamed its retreat on the short-
the region as a sighted strategies of some of its
result of what competitors, who have engaged
it described in what IAG has described as
as declining “uneconomic pricing” in a bid to
commercial escape lacklustre growth at home
and regulatory and buy market share in the Asian
conditions growth story.
Prudential’s group chief
executive Mike Wells made
a similar criticism earlier this
year, when he complained in
an interview that new entrants
“tend to be fairly irrational in their
pricing”.
“If you’re in a boardroom in
the US or Europe, and you don’t
have growth, you need a pin on
the map of Asia, and say to your
board members: ‘We’re there too.’,”
he said. “I’m always leery when
someone says pricing is strategic.
That basically means it’s not
profitable.”
But the company has also
implied that its investments in Asia
had created too much volatility on
its balance sheet.
“Increasingly, we’re trying
to ensure that we have less
unexpected outcomes than
potentially in the past,” said Nick
Hawkins, the chief financial officer,
on an earnings call. “And we’re
pretty confident that we will deliver
in that range.”
While it is true that a company’s
share price will almost certainly
move downwards in response to
unexpected losses, it is far less
clear that long-term investors
are so worried about the ups and
downs that come with investing
in future sources of growth. But
it is certainly true that executives
are incentivised to produce stable
growth, so it is not at all surprising
that this is what they strive to
achieve.
Whether or not that is sensible
for IAG is now moot, as the Asian
businesses are mostly gone. Prior
to the sale to Tokio Marine, roughly
half of IAG’s premiums in Asia
came from Thailand, while India
and Malaysia each contributed
about a quarter of its regional
premiums, plus a very small
amount of business from the units
in Vietnam and Indonesia. Overall,
Asia contributed 3% of its gross
written premiums.
“At this stage, we are retaining
our interest in Malaysia and India
and are continuing to assess our
position, and do not expect to see
any further material investment in
the region,” said Harmer.
IAG has minority interests
in AmGeneral in Malaysia and
SBI General in India. It owns a
49% stake in the Malaysian joint
venture and 26% in the Indian
business. And while it does also
own a 16.9% interest in Bohai
Property Insurance in China, this
is no longer treated as part of the
business in its accounts and is
instead included in its investment
portfolio — and Harmer said
in August that the company
continues to pursue exit options for
this stake.
Harmer has said that he sees
the Indian market as a strong
growth opportunity for insurers,
but he has also lamented the
government’s “emphasis on

Mike Wells, Prudential

IAG will retain its minority interest in AmGeneral in Malaysia

38 INSURANCEASIA NEWS AUTUMN 2018

Roughly half of IAG’s premiums in Asia came from Thailand
majority Indian ownership and
control”. Despite regulations
allowing foreign shareholders to
own up to 49% in Indian insurers,
IAG has not increased its stake
from the previous limit.
In an earnings announcement,
the company said that its Asia
strategy had focused on growth
through market consolidation and
increased ownership, and that its
“current assessment is that such
opportunities are limited”, despite
a 5.2% increase in gross written
premiums in Asia.
The region produced profits
of A$15 million in the first half
of IAG’s financial year, up from
A$2 million in the same period
last year, thanks to better results
across the three main markets.
Premium growth was driven by the
India business, while there were
softer conditions in Malaysia after
the country’s tariff liberalisation on
motor and fire policies.
IAG said that the expected
A$200 million after-tax profit from
the combined transactions should
add at least 13 basis points to
its common equity Tier 1 ratio. It
also forecasts that the sale will
improve its insurance margin by
AUTUMN 2018
50 basis points.
Ditching the Asia businesses
may not be the end of IAG’s
troubles. CFO Hawkins said on
a call with analysts at the end of
August that the company had
incurred additional costs of roughly
A$10 million responding to a
request for information from the
Royal Commission on banking,
which has been conducting a
wide-ranging investigation into the
financial industry and set aside a
week in mid-September to look at
the insurance industry.
“Earlier this month, we had
a request for information which
was of a fairly broad nature,” said
Harmer. “We’ve now responded
to this and our understanding is
that other industry participants
received very similar requests.”
The outcome of that will be
determined later in the year.
Hawkins and Harmer were
talking to analysts about IAG’s full-
year results, which were another
cause for concern. Indeed, the
company’s share price suffered
its biggest fall in a year on their
announcement, dropping 8.5%
despite a promise to pay US$427
million to investors in the form of
“Increasingly,
we’re trying
to ensure that
we have less
unexpected
outcomes than
potentially in
the past”
Nicholas Hawkins
IAG
Nicholas Hawkins, IAG
a dividend — which is mostly a
windfall from the sale of the Thai
business.
Indeed, investors have not
responded positively since the
announcement of the exit from
Asia. Since mid-June, when
Harmer first revealed the result of
IAG’s strategic review, the stock
has fallen over 13%, more than
erasing the gains it had made
during the first half of the year.
However, he remains confident
that the company will benefit from
the strategic withdrawal from Asia
during the next financial year. That
remains to be seen. n
INSURANCEASIA NEWS 39
 CHINA

Building
bridges
Despite the escalating trade rhetoric this year, China has made several positive
steps in relaxing rules for foreign insurance players.

Hong Kong-Macau-
Zhuhai Bridge

40 INSURANCEASIA NEWS AUTUMN 2018

 Foreign insurers and brokers leapt
at the opportunity to extend their
presence in China after Xi Jinping’s
announcement in May of a series
of financial liberalisation initiatives
aimed at opening the Chinese
market to foreign operators.
In response to Xi’s remarks,
Shanghai officials followed up
by saying that the city would
implement reforms aimed at
foreign insurers, securities firms
and asset managers as part of
its bid to become an international
financial centre.
Willis, FWD, Axa and Allianz
have all taken steps to solidify
their Chinese operations. One of
the fast-tracked reforms allows
foreign-funded insurance brokers
to compete on a level playing field
with their Chinese counterparts
and in May China’s Banking and
Insurance Regulatory Commission
(CBIRC) approved Willis Insurance
Brokers as the first fully licensed
foreign broker to transact all
insurance business in China. The
company claims to have been
one of the first foreign insurance
brokers to enter the Chinese
market, with a presence dating
back to 1994.
“Combined with our global
knowledge and experience, the
extended licence to operate in
China enables us to further grow
our business with existing and
new clients and opens up many
new potential opportunities over
time,” said Wise Xu, head of Willis
Insurance Brokers China.
Richard Li
Pacific Century
Group
Shanghai is implementing reforms as part of its bid to become
an international financial centre
AUTUMN 2018
Another of the reforms allows
foreign businesses to own up to
51% of the shares in life insurance
joint ventures, with a plan for the
cap to be phased out over three
years — and the Shanghai Financial
Service Office said on its website
that FWD has applied to form such
a joint venture in the city. Wise Xu
The Hong Kong-based Willis Insurance
Brokers China
company, which is a unit of
Richard Li’s Pacific Century Group,
will own the maximum permissible “Combined
stake in the JV alongside un- with our
named Chinese partners. FWD global
has not made a statement on the knowledge
application but was quoted as and
saying that it sees “a significant experience,
opportunity in China to meet the the extended
financial and insurance needs licence to
of mainland customers”. It first operate in
opened a representative office in China enables
Shanghai in 2014. us to further
Meanwhile, Allianz is reportedly grow our
setting up a holding company in business with
Shanghai to oversee its operations existing and
in the country, according to the new clients
financial service office. Allianz and opens
reportedly said on Monday that up many new
it is “in talks with the Chinese potential
authorities to advance its growth opportunities
agenda in China”. over time”
CBIRC has also been
unwinding some of the tough
measures introduced as part of
its predecessor’s crackdown on
insurance investments, with ICBC
and Axa’s life insurance joint
venture becoming the first to win
approval from the new regulator
to set up an asset management
subsidiary, after CIRC suspended
INSURANCEASIA NEWS 41
 CHINA
such approvals last year. The unit
will be based in Shanghai with
registered capital of Rmb100
million (US$15.7 million). Axa has
been partnering with ICBC in China
since 2012.
Banks are also angling for
a bigger presence in China
in response to the apparent
relaxation of controls on foreign
institutions, with Switzerland’s UBS
applying to take a controlling 51%
stake in its Beijing-based securities
joint venture, raising its ownership
from 24%.
Hong Kong
Meanwhile, insurers in Hong
Kong are keen to gain preferential
access to the mainland. Insurance
regulators in the city said in June
that they are working with their
mainland counterparts to create an
“Insurance Connect” similar to the
arrangement that exists for stock
trading.
Insurance Authority chairman
Moses Cheng revealed in an
interview with the SCMP that he
had received “better than expected
positive feedback” when he
proposed the idea to the CBIRC.
Unsurprisingly, the idea comes
from local Hong Kong insurance
companies, which have seen sales
Moses Cheng
Insurance Authority
to mainland customers plummet as
Chinese regulators seek to restrict
capital outflows.
A full-scale During the first quarter of 2018,
Insurance sales to mainlanders fell by 37% —
Connect to HK$11.8 billion (US$1.5 billion),
scheme down from HK$18.8 billion during
would allow the same period in 2017 and less
mainlanders than half the high point of HK$23.7
to buy billion booked in the last quarter of
policies from 2016. Sales fell again in the second
Hong Kong quarter, to just HK$10.5 billion.
companies, Hong Kong’s peg to the US
and vice versa dollar certainly helped to increase
Chinese capital outflows to the
city during 2016 as the renminbi
weakened, but insurers in the
city argue that the main driver
of Chinese insurance purchases
in Hong Kong is greater product
choice, more flexibility and,
perhaps most important, higher
investment returns.
Under the Insurance Connect
proposal, mainland customers
would initially be able to renew
policies and file claims through
service centres in the Greater Bay
Area.
“If the experience is good,
42 INSURANCEASIA NEWS
Hong Kong insurance companies have seen sales to mainland customers plummet
it could then be expanded into
a full-scale Insurance Connect
scheme to allow mainlanders
to buy policies from Hong Kong
companies in the mainland
while Hongkongers can also buy
products from mainland insurers,”
Cheng told the SCMP.
Such an arrangement would
presumably be subject to some
kind of capital-control mechanism
that prevents Hong Kong policies
being used as a vehicle to funnel
cash out of the mainland, similar
to the closed-loop model used
by Stock Connect — though
negotiating an insurance version
may not be straightforward.
“Since the payment streams
for life insurance may last for 10 or
20 years, while the compensation
may be made many years later, the
fund flow controls would thus be
more complicated than the Stock
Connect,” said Cheng. “We would
need to study many details.”
However, the IA chairman
says that his counterparts on
the mainland support the idea in
principle as Hong Kong products
are seen as well-regulated.
At their peak, sales to
mainlanders represented more
than a third of new business for
insurers in Hong Kong, compared
to less than a quarter so far this
year. It remains to be seen if an
Insurance Connect could boost
sales back to 2016 levels, but in
the long run greater convergence
between Hong Kong and the
mainland is clearly on the agenda.
It remains to be seen if the
liberalisation of rules for other
foreign insurance entities will
continue. China has played down
the extent to which its new,
friendlier approach is a response
to the aggressive trade rhetoric
from Donald Trump, but the tough
stance of the US has clearly ruffled
feathers. Even if China only opens
the door slightly wider, there are
plenty of foreign players keen to
invest in operations there.
However, it is one thing to
change rules. It is quite another
to create a genuinely level playing
field. While China’s options in a
trade war may appear limited in
terms of tariffs — the US imports
far more Chinese goods than are
sent in the other direction — it
certainly has the power to frustrate
US companies operating in the
country. Licences can be held up
or denied, accounts can be found
to be in breach of obscure tax
requirements, and companies can
fall foul of the politically correct
position on Taiwan, Tibet or any
number of issues.
Even so, China wants
better financial services. After
the numerous scandals in its
domestic industry, it recognises
that international players offer
something of value. n
AUTUMN 2018

Back to the status quo?
After the election of Mahathir Mohamad, Malaysia’s new central bank governor has said
she will adopt a more flexible approach to divestment.
Malaysia’s new prime minister, Mahathir Mohamad
Foreign insurers in Malaysia
won some breathing space after
the country’s new central bank
governor said she will adopt
a more flexible approach to
divestment.
Under the administration of
Najib Razak, foreign insurers had
been told to reduce ownership in
their Malaysian units to 70% by
the end of June. However, voters
dealt a surprise defeat in May
to the ruling Barisan Nasional
coalition, ousting it from power for
the first time since independence
in 1957 and returning former
strongman Mahathir Mohamad to
the national stage.
The surprise victory of
Mahathir’s political party, Pakatan
Harapan, was followed by the
resignation of the previous
central bank governor and
the appointment of a more
conciliatory figure, Nor Shamsiah
Mohd Yunus.
“The divestment commitment
was something that they made
with the central bank,” she said
AUTUMN 2018
MALAYSIA
at a press conference last week. altering the Asean insurance M&A The
“We’re still in discussion. The landscape, at least in the short requirement to
objective of that divestment is still term, and BNM’s announcement lower foreign
relevant.” is an example of a regulatory ownership
In other words, the requirement intervention that will impact levels will
to lower foreign ownership levels regional M&A strategy,” he said. remain, but
will remain, but the central bank Indeed, Stewart forecasts that the central
has acknowledged that rushing the increased capital obligations bank has
process is contrary to the broader imposed on insurers across the acknowledged
goal of improving insurance region may, in the short term, that rushing
penetration in the country. force some companies to either the process is
Instead, the deadline for restructure or bring on board contrary to the
compliance will now be determined additional investors. broader goal
through bilateral arrangements of improving
agreed between Bank Negara insurance
and each relevant party, with the penetration
timeline to implement various
strategies to be evaluated on a
case-by-case basis.
Positive
The announcement is a positive
outcome for sellers looking to
achieve the best possible deals,
according to Ian Stewart, a Clyde
& Co partner.
“A number of recent regulatory
and policy developments are Ian Stewart, Clyde & Co
INSURANCEASIA NEWS 43
 MALAYSIA
Despite optimism, a dramatic change of apprach under Bank Negara’s new leadership may be unlikely
The victory “But in the longer term, such
of Mahathir changes should lead to a more
gives power to robust local market that inspires
a coalition of greater consumer confidence,
left-leaning, which is critical to the growth of the
nationalist industry going forward,” he said.
and Islamist “We anticipate that the current
political uptick in deal flow throughout the
parties that region will continue.”
agree on few
things Uncertainty
What will happen in the longer
term is far from clear. The victory
of Mahathir gives power to a
coalition of left-leaning, nationalist
and Islamist political parties that
agree on few things besides their
opposition to the former ruling
coalition. Resistance to foreign
influence is one of those few
things they agree on.
The party’s manifesto promises
to slash the number of foreign
workers in the country from 6
million to 4 million in its first term,
initiate a comprehensive review of
all megaprojects that have been
awarded to “foreign countries”
and complains that the former
government’s policies have
“focused too much in attracting
foreign investors interested only in
manufacturing and services”.
Most of this bile is directed at
Bangladeshi workers, who are
44 INSURANCEASIA NEWS
seen as too cheap, and Chinese
investors, who are seen as too
rich. Despite the nationalistic
rhetoric, the coalition has tried to
avoid spooking foreign investors
in its formal policy statements.
“We will maintain Malaysia as a
country that is economically open,
able to attract foreign investments
and strong enough such that our
companies can invest abroad,” the
party said in its manifesto. “The
Pakatan Harapan government will
encourage continued investment
from China and other Asian
countries.”
It continued: “Our goal is to
ensure that investments from
China are high-quality investments
that will benefit Malaysians as
a whole, especially Bumiputera
and other SME contractors of all
backgrounds, not just monopolised
by those with vested interest.”
Adding to the uncertainty is
the return of Anwar Ibrahim, the
former leader of the opposition
who was jailed under Razak and
was released from prison after the
election. Mahathir, who himself
jailed Ibrahim in 1999 on a bogus
sodomy charge, has promised to
hand power to his former enemy
within “one or two years”.
With Ibrahim as prime
minister, Malaysia’s direction
may be even harder to judge. The
original source of the rift with
Mahathir was fuelled by Ibrahim’s
willingness to follow the IMF’s
post-Asian financial crisis policies
of austerity, no bailouts and
liberalisation. Although the IMF
has now abandoned austerity as
a policy tool, Ibrahim was hailed
at the time as a free-market hero.
He was also strongly opposed
to cronyism under Mahathir.
Yet he has a reputation among
non-Muslims in Malaysia as a
religious conservative with an
agenda to increase the country’s
drift towards theocracy. How he
will govern when he takes over is
anyone’s guess.
Divestment
It also remains to be seen what
Malaysia’s new approach to foreign
insurers will achieve. The fact
remains that they would likely need
to raise more than US$5 billion
from local buyers to meet the 70%
ownership cap — and there are
few entities they can sell to.
Indeed, some of the country’s
biggest financial groups are
instead selling their own insurance
operations, adding to the flood
of insurance assets entering the
AUTUMN 2018

Sulaiman Mohd Tahir
AmBank
market.
Maybank, for example, has
been rumoured to be planning
a spinoff of Etiqa. In normal
circumstances Etiqa’s joint
venture partner Ageas, the
Brussels-based international
insurer, might have been a
potential buyer, but under the
current environment the company
is reportedly considering a public
share sale instead.
AmBank has also been reported
to be interested in selling its
general insurance business as part
of a strategic move to shed non-
core businesses, though AmBank
group chief executive officer
Sulaiman Mohd Tahir said during
the summerthat “nothing is on the
table”.
Alone, these two businesses are
worth roughly US$1.5 billion — and
that’s in addition to all the foreign
Outgoing governor of Bank Negara, Muhammad Ibrahim
AUTUMN 2018
stakes that theoretically must be
sold during the next two months.
The government, in one form or
another, is the most likely buyer.
Before the statement from
the central bank, Great Eastern
had been rumoured to be in
exclusive talks with Malaysia’s
largest pension fund, Employees
Provident Fund (EPF), to sell a
30% stake in Great Eastern Life
Assurance, the oldest insurer in
the country, for as much as US$1
billion.
Prudential has reportedly
been in talks with state-owned
Kumpulan Wang Persaraan, the
country’s second-biggest pension
fund, to meet its local ownership
requirement.
AIA reports an embedded
value of US$2.4 billion for its
Malaysia unit, which values a 30%
stake at US$730 million, with an
acquisition likely priced at some
multiple of that — perhaps US$1.5
billion or even more.
Options
With more time, other divestment
options such as public offerings
may now be on the table, though
some of the most resistant foreign
insurers may be hoping that the
issue is quietly forgotten about and
a return to the previous status quo
is adopted.
Under its new leadership, the
Under its new
leadership, the
central bank
has not said
much about
its overall
approach to
the insurance
industry, but
a dramatic
change in
direction is
unlikely
Jessica Cheng Lian Chew
Bank Negara
central bank has not said much
about its overall approach to the
insurance industry, but a dramatic
change in direction is unlikely.
In a speech earlier this month,
Jessica Cheng Lian Chew, deputy
governor, said that Bank Negara
is reviewing existing industry
arrangements to further develop
domestic underwriting capacity
for large and specialised risks.
Review
Cheng also said that the bank is
“progressing a review of capital
requirements to further strengthen
the resilience of insurers and
takaful operators to support more
complex and diverse risks” and
that it will “continue to facilitate
access to the domestic insurance
market by strong global insurers
that can bring new and innovative
risk solutions to meet the needs of
Malaysian businesses and reduce
insurance outflows”.
These goals may remain largely
the same as under the previous
leadership, but foreign insurers
will be happy if the new governor
pursues a more collaborative
approach to achieving them. n
INSURANCEASIA NEWS 45
46 INSURANCEASIA NEWS AUTUMN 2018

Virtual exposures
The insurance industry is slowly coming to terms with the growing exposures in the cryptocurrency sector.
Cryptocurrencies such as
bitcoin and ethereum have
been threatening mainstream
acceptance for several years now,
but in practice they remain on the
fringes — where underwriters have
found it challenging to operate.
Most governments and
regulators are wary of giving
cryptocurrencies legitimacy,
which has left them in a kind of
halfway house where they are
neither heavily regulated nor
officially outlawed. The result can
be chaotic. Prices are extremely
volatile and even large swings
can be difficult to understand,
and crime is widespread, both in
terms of coin thefts and their use
as an underworld currency, not
to mention tax evasion, money
laundering and avoidance of
sanctions.
Add to this the lack of reliable
historical data, the immaturity of
the sector and the continuous
evolution of the technologies
involved, and the result is that
insurers and even specialty
underwriters have been reluctant
to cover cryptocurrency risks.
“In view of their novel nature
and the absence of clear regulatory
frameworks and precedents
for cryptocurrencies and other
crypto assets, Lloyd’s considers
that managing agents should
proceed with a level of caution that
recognises the risks associated
with this class of asset,” said
Lloyd’s in a market bulletin in
July, in which it outlined some of
its concerns surrounding such
risks and provided guidance for
syndicates that are writing policies
in this area, whether they are
bespoke policies or traditional
lines of business amended for
cryptocurrencies and other crypto
assets.
“In addition to underwriting
considerations, when providing
coverage in this class, managing
agents also need to have particular
regard to the increased risk of
AUTUMN 2018
financial crime, particularly anti-
money laundering and sanctions
risks,” it continued in the bulletin.
“Although not exhaustive, specie,
BBB/crime, cyber, PI, D&O and
casualty treaty are considered
among the most exposed lines of
business to financial crime risk.”
And because the industry
remains on the fringes of
acceptance, businesses involved
in the crypto world are not always
reliable counterparties.
Youbit
When hackers stole 17% of
customer funds from Korean
crypto exchange Youbit last
December, the company expected
that its insurance policy would pay
out. Its insurer disagreed.
Despite paying a US$244,000
premium to DB Insurance for a
policy that provided maximum
damages of US$2.8 million, Youbit
said in a press release in March
that the insurer denied the claim
due to the crypto exchange’s
failure to disclose relevant
information.
In such a complex area, there
are plenty of omissions that could
trigger such a denial. For example,
the company had been hacked
just eight months before the policy
came into effect on December 1.
On that occasion, more than a third
of its total assets were stolen. It
did not say if this was disclosed or
whether it was the reason for the
rejection of the claim.
To be sure, underwriting this
type of risk is a challenge. The
potential sums involved are
huge and the wild fluctuations in
valuation add to the complication.
Indeed, the typical hacker scenario
is almost turned on its head in this
industry — the institutions are run
by teenagers in their bedrooms
and the hackers are nation-state
actors such as North Korea (which
was the suspected culprit in both
Youbit hacks).
Unsurprisingly, only a handful
CRYPTO
Hackers stole 17% of customer funds from
Korean crypto exchange Youbit
Most of major insurers currently offer
governments such policies, including XL Catlin,
and regulators Chubb and Mitsui Sumitomo.
are wary of Of course, the players involved
in the cryptocurrency industry
giving cryp-
are increasingly large and
tocurrencies
sophisticated organisations, but
legitimacy, the risks show no sign of abating.
which has left Japan’s Coincheck lost US$534
them in a kind million of NEM coins to hackers
of halfway in January in one of the biggest
house crypto heists of all time, prompting
the country’s financial regulator
to step in and demanded the
company and other exchanges
do more to protect against such
losses.
Uncovered
The limits available to cover crypto
hacks are nowhere near this level.
XL offers up to US$25 million per
incident, for example, while Mitsui
Sumitomo will pay out a maximum
of US$9 million, covering losses
from internal and external
threats, including employee theft,
mistakes, cyberattacks and other
unauthorised access.
While such policies would be
appropriate for smaller exchanges,
INSURANCEASIA NEWS 47
 CRYPTO
Virtual coin sales raised US$5 billion in 2017
In some there is clearly a huge amount of
markets, risk being left uncovered, though
insurance some of the biggest exchanges do
regulators claim to have insurance, including
have explicitly Coinbase, Xapo, Circle and
Gemini.
blocked
Coinbase says that its insurance
insurers
policy covers “any losses resulting
from getting from a breach of Coinbase’s
involved in the physical security, cyber security or
crypto sector by employee theft”.
at all
Anti-currency
Needless to say, crypto-currencies
are not subject to the kind of
deposit insurance that most central
banks provide for bank deposits
because bitcoin and the like are
not recognised as official currency
in most countries. And that
seems appropriate given the anti-
government, anti-fiat sentiment
that fuels much of the enthusiasm
for cryptocurrencies. In the Wild
West, you take your chances.
But just as banks do not rely
solely on deposit insurance to
protect themselves against heists,
so the exchanges need to take
much better precautions. Some
are doing so. The large exchanges
limit their risk through robust
security measures, including
storing most of their customers’
digital coins in offline drives that
are out of reach of hackers — so-
48 INSURANCEASIA NEWS
called cold storage. Coinbase
stores just 2% of its customer
funds online, ensuring that it has
enough liquidity for day-to-day
transactions while limiting its
exposure.
However, many exchanges
do not take these sensible
precautions. In the case of both
Youbit and Coincheck, such
a simple measure would have
significantly reduced their losses
as both heists involved the theft of
online coins — and represented a
significant proportion of their total
assets.
Although regulators have been
slow to take strong positions on
cryptocurrencies, the legislation
is slowly evolving in the US and
EU, particularly in terms of efforts
to curb money laundering and
terrorism financing.
In the EU, a new money
laundering directive that entered
into force in July will apply to
certain cryptocurrency exchanges
and wallet providers. Member
states must implement its
provisions into national law by
January 2020.
In the US, the Treasury’s Office
of Foreign Assets Control updated
its FAQ section in March to say
that it may add digital currency
addresses associated with
individuals and entities identified
to the List of Specially Designated
Nationals and Blocked Persons,
which would impose a greater
compliance risk for companies
already prohibited from dealing
with individuals on the list.
In some markets, insurance
regulators have explicitly blocked
insurers from getting involved in
the crypto sector at all. Thailand’s
Office of Insurance Commission,
for example, has forbidden
cryptocurrency products, warning
that the wild fluctuations in value
expose insurers to excessive risk.
Mitigation
This provides all the more incentive
for exchanges to mitigate risk on
their own. Unfortunately, some
customers prefer convenience
over security and are drawn to the
exchanges that make trading (and
theft) easiest.
But as insurers look for new
risk pools to underwrite, there is
clearly a market here that stands to
benefit from protection. Virtual coin
sales raised US$5 billion in 2017.
By enforcing much better security
standards and underwriting online
storage, insurers could help the
exchanges to lose their Wild West
reputations and gain a foothold in a
new and growing pool of risk. n
AUTUMN 2018

Trump vs China
The US economy has proven remarkably resilient despite the escalating trade war. That is bad news for China.
He might lack finesse and respect
for the norms of international
diplomacy, but Donald Trump is
a virtuoso bully — and that might
be just what is needed in dealing
with China, according to Allianz’s
chief economic adviser, Mohamed
El-Erian.
The US certainly has plenty of
legitimate grievances with how
China conducts trade, including
intellectual property theft,
asymmetrical technology transfers
and non-tariff barriers, such
as the requirement that foreign
companies enter joint-venture
agreements with domestic firms to
access the Chinese market.
Trump’s escalating trade war
AUTUMN 2018
MACRO
has seen the US publish a list of “A trade
Chinese imports that could face war would
tariffs, with a total value of US$200 damage
billion. Tariffs on US$34 billion of all, but the
Chinese goods came into effect on US would
July 6, and China responded by do better
imposing retaliatory tariffs on US than most
goods of a similar value. others in a
The aggressive rhetoric has contracting
been widely criticised both by world
economists and political analysts, economy”
who worry that the risks are far
too high. If China doesn’t cave
under the pressure, the effect of
tariffs on Chinese imports would
almost certainly be a slowdown in
economic growth and higher prices
— a catastrophic outcome.
But El-Erian is confident that the Mohamed El-Erian, Allainz
INSURANCEASIA NEWS 49
 MACRO
The US president has succeeded in getting China’s attention
US has a stronger hand than many
seem to accept.
“A trade war would damage all
economies,” he conceded in an
op-ed article shared on Project
Syndicate. “But the US — which
is relatively less dependent on
foreign markets, possesses deeper
domestic markets and is generally
more economically resilient than
other countries — would do better
than most others in a contracting
world economy. Already, Chinese
financial markets have suffered,
while those in the US have held
their own.”
To be sure, the US economy
has shown remarkable resilience
to the relentless drama that has
surrounded the Trump presidency
so far. The US Federal Reserve
raised its policy rate a quarter
point in June in a widely expected
move, despite the growing trade
frictions. The Fed’s move raised its
policy rate to a range of 1.75% to
2% and the Federal Open Market
Committee signalled that there
would be two more rate hikes in
2018.
Continued normalisation of
interest rates should be welcomed
by insurance companies, which
stand to benefit on both the
balance sheet and the income
statement, but the environment
50 INSURANCEASIA NEWS
for Asian insurers is complicated
by the divergent path of monetary
policy in the region, where rates
are forecast to remain low and
insurance portfolios are hunting for
yield.
While central bankers in
Tokyo and Beijing continue to be
concerned about growth, the Fed
is confident that the US economy
is on a steady path.
“In an increasingly uncertain
world, US monetary policy remains
reassuringly boring,” said Stefan
Kreuzkamp, chief investment
officer at DWS, who broadly agrees
with the Fed’s generally upbeat
outlook.
The strength of the US economy
has given Trump plenty of room to
pursue his aggressive trade policy
towards China.
“China could be a little bit upset
about trade because we’re very
strongly clamping down,” Trump
said in an interview with Fox News
aboard Air Force One.
El-Erian, the former co-chief
investment officer and chief
executive of Pimco, compares
Trump’s approach to that of Ronald
Reagan’s arms race with the Soviet
Union — a costly escalation of
military spending that only the US
could ever win.
However, El-Erian does not
draw a line from that victory to the
current state of relations between
Russia and the west. The US might
be able to win a trade war against
China, but at what cost in the long
run?
Certainly China has shown signs
of conceding ground, including in
the insurance sector. Speaking on
a panel at the Boao Forum for Asia
in April, Yi Gang, China’s central
bank governor, said that foreign
ownership limits in life insurance
companies would be raised to
51% by the end of June as part
of a wider package of policies
aimed at further opening the
country’s financial sector to foreign
investors. The central bank also
said on its website that it would
remove the foreign ownership cap
completely within three years.
“The greater detail on the
timing of implementation may
indicate China’s desire to avoid an
escalation in trade restrictions and
to boost market confidence that
the announced measures to open
up the market will be adopted in
practice,” said Moody’s in a note
on Wednesday.
Given its slowing economy,
falling stock market and weakening
currency, China has a lot to lose
and on Thursday showed further
signs of a shifting tone when it
Stefan Kreuzkamp, DWS
“In an
increasingly
uncertain
world, US
monetary
policy
remains
reassuringly
boring”
AUTUMN 2018
responded to Trump’s US$200
billion tariff threat with less
aggressive rhetoric than in the
past, promising “necessary” steps
rather than a previous promise to
match US tariffs.
“Game theory suggests that
rational actors, recognising how
damaging a trade war would be
for them, would see the merit of
abandoning a retaliatory strategy,
and instead accede to many US
demands,” says El-Erian. “All of
this could leave the US more able
and willing to halt the multi-year
erosion of its global economic
influence and standing.”
So far so good. The Fed
forecasts that US economic
growth will persist above trend
at least through next year, while
unemployment looks set to fall
further below its long-run natural
rate.
It is not just the uncertainty
caused by a maverick US president
that is making the Fed’s job
difficult. It has now hiked rates
seven times since 2015 and is
getting close to a neutral rate
environment, which raises the
stakes for each subsequent hike.
The US might be able to win a trade war with China, but at what cost?
AUTUMN 2018
“The flattening Treasury yield “The
curve could indicate that monetary flattening
policy is close to becoming Treasury
restrictive, which could choke off yield curve
growth more than the Fed intends,” could
Tiffany Wilding, an economist at indicate that
bond fund Pimco, wrote to clients. monetary
Wilding says that the Fed’s policy is
projections suggest that it is more close to
focused on managing the risk of becoming
overtightening than worrying about restrictive,
overheating risks. which could
Tiffany Wilding, Pimco
While conventional wisdom choke off
holds that rising rates are bad growth more
for bond investors — because than the Fed
bond prices fall when rates rise intends” two calendar years — 1994 and
— Pimco, which is a subsidiary of 2013.”
Allianz, asserts that higher rates However, this may be cold
ultimately more than offset the comfort for Asian portfolios.
initial temporary mark-to-market China’s central bank, like most
drawdown for long-term investors in the region, chose not to react
such as life insurers. to the Fed hike and Asian stock
“It is also worth noting that markets fell. Weak Chinese retail
over the past 30 years, global sales and urban investment data
bond market declines have been added to the negative sentiment.
small and short-lived compared So while an improving US
with stock market declines,” the economy and normalising of Fed
bond fund pointed out in a recent rates is generally good news
research paper. “A fact that might for portfolios, the decoupling of
surprise investors is that since economies suggests that a rising
1990, global bonds have only tide may not lift all boats. The hunt
experienced negative returns in for yield is likely to continue. n
INSURANCEASIA NEWS 51
 HEALTHCARE

52 INSURANCEASIA NEWS AUTUMN 2018

 Get well soon
Technology, behavioural economics and wellness are all being prescribed
to fix Asia’s healthcare sector.
Healthcare costs in Asia are
rapidly becoming unsustainable
as affordability is threatened
by a “perfect storm” of ageing
populations, sedentary lifestyles
and incentive structures that do
little to curb rising premiums.
Regional medical inflation
for 2018 is forecast at 10.7%,
according to an Aon report
released in June on healthcare
trends in Asia, which identifies
Vietnam, Malaysia and Pakistan
as the markets with the most
significant price rises. All three are
characterised by a large reliance
on private insurers.
In Vietnam, for example,
medical inflation is forecast at
19% for 2018 as private insurers
struggle to contain costs in a
market with rapidly growing
demand, an over-stretched public
system and a lack of experienced
insurance players (private medical
insurance was not recognised by
the finance ministry until 2011).
Even before the election of
its new government, Malaysia
announced a new policy to control
medical costs that focused on
better public-private cooperation.
With a populist prime minister now
in charge, healthcare is likely to be
In Pakistan, rising drug costs have been blamed for pushing medical inflation to more than 16%
AUTUMN 2018
near the top of the policy agenda.
In Pakistan, rising drug costs
have been blamed for pushing
medical inflation to more than 16%.
In 2016, the prices of hundreds of
essential and life-saving medicines
were increased greatly in Pakistan
with the 218 percent increase in the
cost of the frequently prescribed
antispasmodic drotaverine cited as
an example.
At the other end of the As populations
spectrum, Korea has the lowest become
medical inflation at just 6.7%, wealthier, the
thanks in large part to the country’s burden on
healthcare
national health insurance scheme,
systems
which provides universal coverage shifts from
and uses its purchasing power communicable
to negotiate prices down. Broad diseases
public health systems are also to chronic
responsible for the low medical illnesses that
inflation rates in China and Taiwan. are expensive
In its report, Aon analyses to diagnose
medical inflation across 11 and treat
markets in the region and assigns
an Aon Medical Inflation Index
(AMII) score, which compares the
average medical inflation rate in
each location for 2017 and 2018
with a projected inflation rate for
the next three years (see chart).
While approaches to managing
costs differ and each market
has its own characteristics, the
INSURANCEASIA NEWS 53
 HEALTHCARE
HbA1c tests are required for policyholders in Thailand
underlying driver of rising costs is
largely the same. As populations
become wealthier, the burden on
healthcare systems shifts from
communicable diseases to chronic
illnesses such as cardiovascular
disease, cancers and type 2
diabetes, which are expensive to
diagnose and treat.
“Consistent with robust
economic growth has been the
inexorable rise of middle-class
consumers living in major towns
and cities,” said Tim Dwyer, head
of health and benefits for Asia
Pacific at Aon. “As populations
have transitioned from rural to
urban centres, there has been
a significant change in lifestyle
behaviours characterised by
adaptation of western diets,
increased alcohol and tobacco
consumption and lack of exercise.”
Diabetes
Across Asia, the growing
prevalence of diabetes, in
particular, is alarming. In 1980, the
percentage of Chinese adults with
diabetes was less than 1%. Today,
it’s more than 11.5%. In some
South Indian cities, nearly 20% of
the population has the disease. By
2030, on current trajectories, both
China and India combined will have
almost half a billion diabetics.
54 INSURANCEASIA NEWS
Some insurers in the region are
trying to respond to the challenges
this trend presents. While Type
2 diabetes is a chronic condition
that can be costly to treat, it is also
very responsive to behavioural
changes, such as a healthier diet
and more active lifestyle — and
there is a growing body of research
that shows people respond much
better to financial incentives than
to government advisories or even
the recommendations of their
doctors.
“Behavioural economics
suggest you need to risk losing
something of value to make a
change,” says Sohila Kwan, head
of health medical solutions for Asia
with Swiss Re’s life and health
business.
Of course, insurance has
always reflected this. Even with
traditional medical underwriting,
policyholders will often pay
more at renewals as their health
deteriorates, but there is an
opportunity with certain chronic
conditions to use this more
explicitly as a motivator — because
patients can significantly improve
their health by making some fairly
simple changes.
And a new product launched
in Thailand recently is seeking
to take advantage of this by
Tim Dwyer, Aon
integrating dynamic pricing and
disease management. Conceived
in Muang Thai Life’s innovation
centre and offered in collaboration
with Swiss Re’s life and health unit,
the product qualifies for inclusion
in the Thai Office of Insurance
Commission’s regulatory sandbox,
which allows insurers to push the
envelope in pursuit of new ideas.
The dynamic pricing component
would not normally be allowed in
Thailand. Policyholders who buy
this product submit their glycated
haemoglobin (HbA1c) levels every
six months and the premium
adjusts accordingly. Outside of the
sandbox, premiums would not be
allowed to adjust this frequently in
Thailand, but this shorter cycle is
considered to be more effective at
producing better health outcomes.
It also offers more than just
dynamic pricing. The product is
distributed exclusively online and
comes with an app (of course), but
also a glucose monitoring kit and
a specific disease management
programme that policyholders can
join to lower or at least maintain
their HbA1c levels.
“What this product does is
to provide as much support as
possible through technology
and the health ecosystem to
help policyholders improve their
AUTUMN 2018
health,” says Kwan, who claims
the product is a first for Asia but
has obvious potential elsewhere in
the region, particularly in countries
with high rates of diabetes and
mature insurance markets, such as
Hong Kong, Singapore, Korea and
Japan.
Indeed, at more than 12%,
Singapore has the highest
prevalence of the disease in Asia,
according to the International
Diabetes Federation.
Such approaches also have
application for other chronic
conditions. “The risk factors
for type 2 diabetes are also risk
factors for cardiovascular disease,”
Kwan points out.
In both cases, there is evidence
that diet and exercise can reverse
Leena Johns, Metlife
Checking blood sugar levels using a smartphone
AUTUMN 2018
diagnoses. And as more people
track their health through apps and
wearable devices, we are creating
a vast resource of data about the
connections between lifestyle
and disease management. That
knowledge should help to inform
much better decisions, particularly
when reinforced by insurance
products that can put an accurate
cost-saving on such choices.
Because the risk factors are so
modifiable, Kwan says that Swiss
Re sees the chronic condition
risk pool as an opportunity.
The company is focused on
developing protection solutions
that are participatory, predictive,
preventative and personalised.
For insurers looking to develop
the next generation of products,
the focus is on doing more than
just paying claims.
Behaviour
Some other factors driving medical
inflation are influenced by cultural
norms. In China and several other
markets in Asia, people tend to
hold the view that they can only
get adequate care at hospitals
rather than local outpatient clinics.
This reluctance to use outpatient
facilities also means that patients
with chronic diseases are not
screened early enough, leading
In China and
several other
markets in
Asia, people
tend to hold
the view that
they can only
get adequate
care at
hospitals
rather
than local
outpatient Sohila Kwan, Swiss Re
clinics
to more expensive treatment and
worse outcomes.
Rising costs are obviously
only one of the consequences
of this rise in chronic illnesses.
Employers across the region are
increasingly recognising that an
unhealthy workforce will inevitably
underperform a healthier one —
in everything from productivity
to innovation. At the same time,
companies that take employee
health and wellness seriously are
finding that such an approach can
help to attract and retain talent.
However, employers need to do
more than simply paying lip service
to employee health, according to
Leena Johns, medical director of
global healthcare at MetLife and
head of health and wellness at
Maxis Global Benefits Network.
“Most employee wellness
programmes do not present a
sustained, consistent 365-day
approach to wellness,” said
Johns. “It’s spotty and sporadic,
particularly when annual health
screenings and health promotion
campaigns through paper
materials are the only components.
Such a spotty approach cannot
work for an NCD where the
success lies in creating good
consistent habits that includes a
behavioural change component
as well as adopting a regimen
that includes recording of values
(blood sugars, blood pressure etc.)
which are critical for condition
maintenance.”
There is some movement in the
right direction. As awareness of
chronic illnesses rises, insurers are
starting to focus on this risk pool
and are creating products that
may produce better outcomes and
lower claims. Such approaches
will be essential if the cost of
healthcare is to be put on a
sustainable path. n
INSURANCEASIA NEWS 55
 STOCKS
Asian insurers underperform
What has been a terrible year for Asian stocks in general has been even worse for insurance stocks.
Asian insurance stocks have
significantly underperformed
the overall market so far this
year, reflecting the challenging
environment — particularly in
China.
The SNL Asia-Pacific Insurance
Index is down by roughly 10%
since the start of the year, with
all lines in negative territory,
compared to Asian stocks overall
that are down by about 6% and the
MSCI World Index that is up almost
3%.
There is a wide variation
between the best- and worst-
performing regions, but all are
in negative territory. Insurance
56 INSURANCEASIA NEWS
stocks are down by double digits The biggest
in North Asia and South Asia, Chinese insurers
and by almost 18% in China, the
in the index are all
worst-performing market. The
best-performer is South-East Asia, down significantly
where insurers are only slightly in — despite
negative territory and have actually increasing sales
been positive for most of the year.
The biggest Chinese insurers in
the index are all down significantly
— despite increasing sales. New
China Life is down by 40% since
the start of the year, while China
Life is down 26% and Ping An and
PICC P&C are both down by more
than 10%.
The poor performance in China
reflects the challenges posed by
AUTUMN 2018
a continued regulatory crackdown
on life insurance in particular, but
also the weak performance of
Chinese stocks in general. The
overall market is down around 16%
in 2018, helped down by growing
friction with the US under Donald
Trump’s erratic but aggressive
trade policy.
Business line
By line of business, reinsurance
is the laggard, declining almost
20% so far this year. However, the
universe of listed Asian reinsurers
is not necessarily representative.
They are mostly national
reinsurers such as China Re and
Korea Re. India’s GIC makes up
almost 70% of the index weighting
and its performance since listing
last August has been poor — the
stock is down more than 20%
since the offering and around 7%
in 2018.
Life and health insurers have
seen their shares fall by slightly
more than 11% in 2018, while
property and casualty players did
best, with their share down just
5%. However, there were some
notably bad P&C performers,
especially Korean companies
Hyundai Marine & Fire (-21%),
Hanwha General (-15%) and Meritz
Fire & Marine (-21%).
While Asian insurers have
performed worse than other
Asian insurance stocks vs broader market
Asia Indices
MSCI World
SNL AP Insurance
-10 -8 -6 -4 -2
AUTUMN 2018
regions, there has been relative
underperformance worldwide. The
best-performing stocks are deal-
driven or restructuring companies
like XL Group, AmTrust or Validus,
or those rebounding from terrible
2017 performance, such as cat
exposed Florida property insurer
HCI Group or Mexican auto insurer
Qualitas Controladora.
During the first half of the year,
according to the International
Insurance Society, several industry
sector best-performing lists were
dominated by American companies
as the US stock market climbed to
new highs and insurance stocks
participated, if not fully then at
least enough to be the best in China Life is down 40% since the start of the year
the world. US insurance stocks
rose 3% in the aggregate, while
other developed market insurers
slipped 4.2% and emerging market display the ability to innovate and
insurers plunged 11.4%. those that don’t.
Overall, the disappointing “[This] is a fleeting period in
performance of insurers in Asia the life of these companies,”
highlights the challenges faced by according to Mike Morrissey
the industry, notwithstanding the of the International Insurance
long-term potential offered by the Society. “In this particular period,
region’s high-growth, emerging their share price may well have
economies. been favourably or unfavourably
Generally speaking, insurers influenced by events that have
and other financial stocks are little bearing on their long-term
proxies for economic growth, prospects. Over the long term,
but disruption from outside the however, superior management,
industry threatens to undermine a commitment to innovation and
that correlation. Going forward, an attractive industry niche will
markets will increasingly generate the best returns for
differentiate between insurers that insurance investors.” n
Asian insurance stocks by region
-17.81% China
-6.22%
-13.04% North Asia
2.82% -6.38% Japan
-12.27% South Asia
-9.46%
YTD -0.81% SE Asia
0 2 4 -20 -15 -10 -5 0
INSURANCEASIA NEWS 57
Data Data provided by

SNL Asia-Pacific Insurance

Q3 17 Q4 17 Q1 18 Q2 18
Period ended 30/9/17 31/12/17 31/3/18 30/6/18
Number of Companies 55 70 66 72
ROAA (%) 0.87 0.84 1.12 1.12
ROAE (%) 9.78 9.26 12.39 12.66
Net Combined Ratio (%) 102.22 106.03 104.53 103.08
Yield on Total Average Investments (%) 3.07 3.06 2.11 2.88
Total Return on Average Investments (%) 3.60 3.90 2.14 3.09
P&C Net Combined Ratio Including Profit Sharing (%) 102.22 106.03 104.53 103.08
Reserves/ Equity (x) 8.02 6.48 7.38 6.96
Total Equity/ Total Assets (%) 8.95 10.76 9.71 10.10
Equity Growth (%) 17.55 23.23 11.67 (19.35)

SNL Asia Pac Insurance : Insurance underwriters or brokers headquartered in Asia

Note: The Aggregates are size weighted, calculated by consolidating all companies into a single entity.

SNL Asia-Pacific Reinsurance Index SNL Asia-Pacific P&C Index

Year-to-date stock price performance Year-to-date stock price performance

5 25
0 20
-5
Price Change (%)

Price Change (%)

15
-10
10
-15
-20 5
-25 0
-30 -5
Nov 17 Jan 18 Mar 18 May 18 Jul 18 Sep 18 Nov 17 Jan 18 Mar 18 May 18 Jul 18 Sep 18

SNL Asia-Pacific Multiline Index SNL Asia-Pacific Life & Health Index
Year-to-date stock price performance Year-to-date stock price performance

40 20

30 15
Price Change (%)

Price Change (%)

10
20
5
10
0
0 -5
-10 -10
Nov 17 Jan 18 Mar 18 May 18 Jul 18 Sep 18 Nov 17 Jan 18 Mar 18 May 18 Jul 18 Sep 18

58 INSURANCEASIA NEWS AUTUMN 2018

 SCREEN TALK
Richard Jinks
Global and autonomy programme lead for XL Catlin
What are the challenges posed by autonomous
technology for the insurance industry?
The challenge for us is that we don’t have years of data
and loss data to be able to price and model the risk
going forward, so how we get that learning and that
understanding around the risk has to be different. But in
the future, the amount of data that will be available will
enable us to model and price far more dynamically.
What sectors will be most affected by autonomy?
Anything that moves on the ground with wheels could be
autonomous, so it could impact everywhere and this is
the thing we have to get our heads around — it’s going
to happen and it’s going to affect everything. Airports,
ports, logistics, warehouses, mining, agriculture, as
well as moving people in cars, of course. There’s lots
of research written about future transportation systems
where we will share and borrow transportation as
individuals rather than own it, but if you think about the
timescales around that, it’s more likely you will see the
adoption in safer, confined spaces first, where there’s
not a huge interaction with members of the public.
Private cars that take us from A to B will probably be the
last domain.
What kind of insurance solutions will be needed
to manage the risk associated with these types
of technologies?
If you look at where we are today in the curve of
adoption, we’re still in testing and pilot mode and so we
are seeing lots of insurers, particularly motor insurers,
engaged with governments and regulators. We have
recently launched a product for XL Catlin that ensures
that if you’re doing any trial involving an autonomous
vehicle, anywhere in the world, in any domain, we want
to ensure it. We’re providing a coverage that includes
general and professional liability, because the key here
is whether it is a design fault or whether it is a product
60 INSURANCEASIA NEWS
Generally speaking
people talk about the
risks associated with
autonomy, but we should
turn that around and ask
what the benefits of this
technology are
liability risk, so we are saying we will ensure both of
those things plus other covers to go alongside that, and
we’re taking the data from that and learning more and
more about these machines.
How much capacity do you think there will be
for this type of risk?
This technology is still being developed, but that will
change very quickly, particularly in those domains that
I’ve talked about — ports and airports. At the moment,
we are seeing a number of insurers doing various things
and I think we will find that there will be capacity for
these risks in the future. I think everybody recognises
that the world is going to change and this technology is
going to change the world. We’re taking a role through
our partnership with Oxbotica to enable the adoption of
the technology by our customers and clients in many
different domains and I think it’s incumbent upon us as
an industry to be able to do that.
How do you see the adoption of this
technology changing over time and what are
the implications for insurers?
Generally speaking people talk about the risks
associated with autonomy, but we should turn that
around and ask what the benefits of this technology
are. If you look at the amount of accidents caused by
humans or to humans who are working in dangerous
places, a lot of those won’t happen in the future and that
has got to be a good thing. We’re very quick to talk about
the risks, but actually our view is that this is a good thing.
We want to learn about how these machines behave and
under what circumstances do they go wrong, and the
way we can do that is by insuring these trials and pilots
and finding out as we go so that we will be able to offer
solutions to our clients that will enable them to adopt the
technology for the benefit of their businesses. n
AUTUMN 2018
 BRINGING
ASIA’S
INSURANCE
COMMUNITY
CLOSER
TOGETHER

www.insuranceasianews.com
InsuranceAsia News
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