Non-Life Insurance

Valuation Issues in Asia

Sam Gutterman, FCAS, FSA

Topics Covered

Some statistics
General Asian valuation issues
Asian non-life market
Japan
Other countries

Population (billions)

South and East Asia

Africa
0.77 12.4%
Central/East Europe
Latin America
0.50
Western Europe 0.45
North America
Middle East
0.26
Japan
0.13
2.0%
Oceania
0.03
0.5%

3.14

50.5%

0.65 10.5%
8.0%
7.2%
0.30
4.8%
4.1%

1998

GDP ($trillion)

North America
9.1
Western Europe 9.0
Japan
3.9
13.2%
South/East Asia 2.8
Latin America
2.0
Central/Eastern Europe
Middle East
0.7
Africa
0.6
2.0%
Oceania
0.4
1.5%

31.2%
31.0%
9.6%
6.7%
0.7
2.4%
2.2%

1998

Non-Life Premium ($billions)

North America
411
Western Europe 286
Japan
92
South/East Asia
Latin America
Oceania
15
Central/Eastern Europe
Middle East
Africa
7

46.2%
32.1%
10.3%
33
3.7%
27
3.1%
1.7%
11
1.2%
7
0.8%
0.8%

1998

Percent of Asian Non-Life

Market

Japan 74%
South Korea 10%
Taiwan 4%
China
4%
India
2%
Hong Kong
2%
Singapore
1%
Other SE Asia 4%
6

Non-Life Premium per Capita

($US)

U.S.
Japan
Hong Kong
South Korea
Singapore
Taiwan
Malaysia

1,431
726
275
265
236
228
70

Thailand
Philippines
China
Indonesia
India
Vietnam

20
7
5
3
2
2

1997

Asian Valuation Issues

Each country different

Language
Culture
Data
Products
Regulatory constraints
8

Each Country Different

Economy
Demography
Market
Regulatory regime
Politics
Approach to business
9

The Asian Non-life Market

Products
Biggest by far -- auto
High savings in some

Government protection changing

Companies consolidating
New entrants in some countries
10

Economy
Asian financial crisis -- severe impact

South East Asian slump

China, Taiwan, South Asia unaffected
Few new autos
Infrastructure projects cancelled

Recent recovery
Different penetration of insurance
11

Culture
Family-based
Lack of trust of others
Reluctance to let others in
Joint ventures -- dont underestimate Asians

Changing
Growing middle-class
Islamic law -- takaful (Allah & misfortunes)
Desire for local champions, financial center
12

Structural Shifts
Deregulation
Rates
Companies
Privatization in places
Joint ventures, alliances

Marketing
Direct selling -- phone, mail, internet
Bancassurance -- Hong Kong, Vietnam
13

Data

Not used to casualty actuaries

Generally not in Western form
Validate anything they arent used to
Be clear in questions

14

Japan -- Companies
Concentrated -- 31 companies & merging
Mitsui and Sumitomo --$54 billion of assets
Chiyoda and Dai-Tokyo
Koa and Nippon?

Importance of keiretsu system

Varied financial condition
New competitors
Inside Japan -- life insurers, non-insurers
Foreign insurers

15

Japan -- Products
General p&c products
Combination savings products
Guaranteed return with no claims

Pricing more competitive

Required earthquake reserve
Mandatory 3 year auto liability product
Mortgage guaranty in multi-line company
16

Japan -- Regulation
Big-bang
Loosening of rate regulation
Risk classes in auto introduced in 1997

New financial guaranty system

Holding companies
New regulator
17

Japan -- Other
Growth -- sluggish or none
Marketing
New brokerage system
Direct selling
Banks

Formula IBNR
4 lines

Asset problems
18

Vietnam
GDP per capita -- $320
One privatized insurer
Owned by banks

Several recent joint ventures

Very slow getting started

No insurance law
19

Australia
Approach western
Four large purchases in last two years
Recent appraisals

Discounted cash flows

Depended heavily on cost reductions
Bids dependent on competition
Assessment of value of new business very
different
20