Asia continues to attract capital for insurance and reinsurance business development amid an uncertain economic environment in Western countries that have comparatively lower interest rate conditions, according to Kurt Karl, chief economist of Swiss Re.Low growth and relatively low interest rates in the United States and Europe have led to a relocation of capital toward Asia, said Karl. Reinsurance business development is "bullish" in Asia, keeping with a fundamental rise in demand from primary insurance markets.
Economic growth in advanced markets "is expected to be tepid as Europe will only slowly emerge from recession," while interest rates remain low. Karl said the eurozone crisis is slowing growth in Asia but is not leading to significant problems. Relatively, fundamentals of Asian economies remain strong and economic growth is a driver for insurance business in the region.
Asia's nonlife insurance sector will benefit from a strong infrastructure growth pipeline and government efforts to support economic growth, said Karl. The region will see a modest recovery in export demand. Niche segments such as agriculture insurance for markets like India offer opportunities.
Increased natural catastrophe events and regulatory change have driven reinsurance needs for risk and capital management. Many Asian regions are prone to floods risks. For instance, the 2011 Thailand flooding brought record flood losses of more than US$16 billion for insurance industry. In the first half of 2013, Swiss Re said flooding was a main driver of natural catastrophe losses, causing estimated insurance claims of US$8 billion globally, against total catastrophe insured losses of US$17 billion.
In Asia, Karl said there is increasing pressure from the regulatory side, along with tightening of solvency regimes. For instance, China is reviewing the second generation of a solvency regulatory system for insurers. Overall, there is stepping up of consumer protection such as enhanced regulation on savings insurance products in Asia. At the same time, Karl noted liberalization and deregulation trends such as relaxing restrictions on foreign participation have happened in some markets.
Looking ahead, Karl said Asia continues to see further realignment of business strategies, along with merger and acquisition activities. Products distribution is evolving with more diversified development in bancassurance, direct and online platforms. Demand for life and health insurance will be rising for longevity protection amid an aging population.
China's demand for life savings products should rise because alternative savings products become less attractive due to a regulatory clampdown, said Swiss Re in its sigma report. Life premiums in India should recover as the economy and capital markets improve and insurers continue to adapt to the new regulations.
Globally, Swiss Re said the life insurance sector's profitability will remain low in the near future due to continued pressure on earnings from low interest rates, low demand and regulatory changes which lead to higher capital requirements.
Nonlife growth will be driven by a rising middle class, urbanization and growing economic wealth over the next decade. Emerging Asian markets "will substantially increase their share" in global nonlife business, according to Swiss Re. With written premiums of about US$480 billion, the reinsurer added "China is about to become the second-largest nonlife market behind the United States."
In general, Karl said the Asian insurance industry posts strong top-line growth but weak bottom line profitability. Global capitalization "is solid, but profitability remains subdued due to the protracted low interest rate environment," according to Swiss Re. Nonlife underwriting results improved moderately from selective price increases and continued reserve releases. However, overall profitability remains under pressure due to depressing investment returns.