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In This List

Asia-Pacific's Reinsurers: Evolve Or Dissolve?


Insurance Industry And Country Risk Assessment: Korea Life


Insurance Industry And Country Risk Assessment: Korea Property/Casualty


Industry Report Card: Japan Insurers: After 2019 Weakness Comes Uncertainty


COVID-19 And Lower Oil Prices Could Accelerate Consolidation Among Saudi Arabian Insurers

Asia-Pacific's Reinsurers: Evolve Or Dissolve?

Asia-Pacific's reinsurance markets remain the world's fastest growing. That is undisputed. Less clear is whether the region's major players will maintain their dominance over this landscape. S&P Global Ratings thinks that more complex pricing challenges, the hard-to-predict impact of urbanization and chaotic weather, and the need for risk diversification could erode home-court advantages.

A financial review of regional reinsurers shows winnowing returns and declining market share over the past three years. Part of this is cyclical: investment market volatility, higher compliance costs as regulations internationalize, and some major natural catastrophes. But we see structural challenges as well: mounting competition from all sides, technological disruption to business models, and the globalization of regional players, as reflected for example in the acquisition of Chaucer Holdings by China Reinsurance (Group) Corp. in late 2018, or Samsung Fire & Marine Insurance's plans to take a strategic stake in Canopius AG (see table 3).

Changes are afoot. In our view, Asia Pacific's large and domestically focused national reinsurers need to evolve their existing business models. We expect more sophisticated pricing models, new distribution channels and products, and global diversification to set the tone for the next five years.

Firmer Pricing Could Improve Profitability After A Rough Ride

In line with global trends, we expect underwriting pricing power for Asia-Pacific reinsurers to strengthen. This underpins our stable outlook on the sector over the next year or two, despite challenges. A soft pricing cycle, further market inroads by alternative capital, and a run of natural disasters has eroded profits for the region's reinsurers.

Our analysis of 18 Asia-Pacific providers of reinsurance shows many suffered underwriting losses over the past few years. Their average net combined ratio rose above 102% (a ratio above 100% represents underwriting losses) in 2017 and 2018, compared with 96.8% in 2016 (see chart 1). Furthermore, in 2018 the 18 reinsurers did not earn their cost of capital, with an average return on equity of 2.0% in 2018 (see chart 2).

Table 1

The 18 Reinsurers In This Study, Ranked By Net Premiums
Ranking* Companies Headquarters NPW (mil.US$) Net income (mil. US$) NCOR (%) ROE (%)
2018 2017 2016 2018 2017 2016 2018 2017 2016 2018 2017 2016
1 China Reinsurance (Group) Corp. China 10,677.8 9,970.3 7,513.8 566.8 775.8 760.8 100.9 102.0 99.8 4.9 7.2 7.3
2 General Insurance Corp. of India India 5,678.2 5,796.3 4,674.7 318.8 463.5 448.3 106.2 103.7 101.7 4.2 6.4 7.1
3 MS&AD Insurance Group Holdings Inc. Japan 5,080.1 5,427.0 5,180.9 1,772.1 1,402.9 1,930.0 86.8 89.4 80.2 6.8 5.5 7.8
4 Korean Reinsurance Co. Korea 4,769.1 4,687.0 3,874.5 92.4 119.3 146.3 101.0 96.6 99.3 4.7 6.2 7.9
5 Sompo Holdings, Inc. Japan 3,900.3 3,893.0 2,873.9 1,297.9 1,245.7 1,519.9 97.1 97.7 92.9 8.0 7.6 9.7
6 Tokio Marine & Nichido Fire Insurance Co. Ltd. Japan 2,692.6 2,728.8 2,684.9 3,516.6 3,077.4 3,527.8 96.6 97.9 98.3 7.4 7.7 7.8
7 Toa Reinsurance Co. Japan 2,239.8 2,238.5 2,008.6 15.4 45.5 100.9 103.0 96.4 90.2 1.3 3.9 9.3
8 Taiping Reinsurance Co. Ltd. Hong Kong 1,257.2 1,501.3 1,259.4 68.9 97.1 55.4 99.5 97.6 94.0 6.6 10.1 6.6
9 Peak Reinsurance Co. Ltd.** Hong Kong 1,056.5 928.8 620.5 19.5 30.5 6.9 103.9 108.3 98.2 2.1 3.5 0.9
10 QBE Insurance Group Ltd. Australia 920.0 837.0 -- 555.0 (1,216.0) 844.0 95.2 103.7 93.2 6.6 (12.7) 8.1
11 PICC Reinsurance Co. Ltd. China 634.2 482.5 -- (12.1) (26.6) -- 107.4 114.9 -- (3.0) (6.3) --
12 Central Reinsurance Corp. Taiwan 468.8 460.3 405.6 34.4 45.5 25.1 95.9 91.5 95.6 9.4 13.4 8.1
13 Asia Capital Reinsurance Group Pte. Ltd. Singapore 478.9 446.0 295.9 (18.3) 71.7 (4.1) 112.8 107.0 116.6 (2.3) 9.9 (0.6)
14 Malaysia Reinsurance Bhd. Malaysia -- 287.6 258.6 -- 20.9 22.4 -- 99.9 103.0 -- 6.3 7.3
15 Qianhai Reinsurance Co. Ltd. China 536.6 147.7 -- (12.3) (9.0) -- 105.8 138.2 -- (3.0) (2.1) --
16 Thai Reinsurance Public Co Thailand 107.0 93.3 95.1 (31.1) (2.9) 9.3 113.1 105.5 92.5 (23.9) (2.2) 5.2
17 National Reinsurance Corp. of the Philippines Philippines 49.0 47.3 34.0 2.8 1.6 0.5 -- 89.0 90.2 -- 1.6 0.6
18 Singapore Reinsurance Corp. Ltd. Singapore 37.4 38.1 35.1 6.5 9.4 6.6 109.4 97.4 104.0 1.7 2.6 1.9
*Ranking is based on 2017's NPW, given incomplete data set for 2018. As of Oct. 15, 2019. All reported numbers are converted to USD as of Dec. 31 of data's year. NPW--Net premiums written. NCOR--Net combined ratio. ROE--Return on equity. **For Peak Reinsurance: Only gross premium written is available.

Chart 1


*The average is based on our study of 18 reinsurers, including these 10 rated ones. See Appendix for full names of the dedicated reinsures. For the others in this chart: MS&AD--MS&AD Insurance Group Holdings Inc. Sompo--Sompo Holdings Inc. TM&NF--Tokio Marine & Nichido Fire Insurance Co. Ltd. QBE--QBE Insurance Group Ltd. NCOR—Net combined ratio.

Chart 2


*The average is based on our study of 18 reinsurers, including these 10 rated ones. See Appendix for full names of the dedicated reinsures. For the others in this chart: MS&AD--MS&AD Insurance Group Holdings Inc. Sompo--Sompo Holdings Inc. TM&NF--Tokio Marine & Nichido Fire Insurance Co. Ltd. QBE--QBE Insurance Group Ltd. ROE—Return on equity.

While the firmer pricing stance witnessed in the global reinsurance market will help the region's re-insurance groups to regain some foothold, the need to evolve comes more pressing. In our view, this means stronger pricing models, better technology, and geographical diversification.

Rapid Urbanization Raises Non-Modelled Risks And Opportunities

Asia-Pacific's rapid urbanization exposes reinsurers to risks that have yet to be explicitly modeled. As cities becoming denser, so do the exposures to greater financial losses amid catastrophes. While this translates into unpriced risks, it also means new opportunities for reinsurers to provide calibrated covers.

Meanwhile, Asia's economic growth outpaces most other regions, and middle classes continue to expand. Historical data and strong knowledge of domestic risk landscapes puts them in better positions to underwrite covers within the country. Established access to local markets (customers and brokers) also lent to their dominance on home turfs.

However, in our view, this superiority is weakening amid changing risk landscapes and increasing competition from off-shore reinsurers. Furthermore, the need to incorporate updated coastlines and urban planning maps calls for enhanced catastrophe models--leveling the playing field among international and regional players.

Table 2

A Busy Time For Natural Disasters And Other Events
Selected catastrophics events in Asia-Pacific (2015 - 2019)
Event Date
Typhoon Hagibis October, 2019
Typhoon Faxai September, 2019
Typhoon Lekima August, 2019
Typhoon Mangkhut September, 2018
Typhoon Jebi August, 2018
Typhoon Hato August, 2017
New Zealand major earthquake November, 2016
Typhoon Meranti September, 2016
Typhoon Nepartak July, 2016
Kumamoto earthquake April, 2016
Southern India flooding November, 2015
Tianjin warehouse explosiosn August, 2015
*Extracted from Lloyds' Catastrophe Codes.

Consider, notably, the conditions in China. No other economy of this size has maintained such an prolonged high growth over the past two decades. However, the domestic benefits have been uneven. Economic power and vitality is concentrated along China's coastal zone, which represents only 15% of the land, but hosts more than 40% of the population and 60% of GDP as of end-2018. One good example is Typhoon Fitow in 2013 where direct economic losses stood at US$8 billion while insured loss represents only US$700 million. In other words, low insurance penetration means opportunities to strengthen risk awareness.

Japan has one of the world's highest urbanization rates, with several megalopolises that are vulnerable to catastrophic human and financial losses. Typhoon Jebi's 2018 landfall in Keihanshin (encompassing cities of Kyoto, Osaka and Kobe) led to loss creep of US$15 billion, up from initial estimates of US$6 billion, according to reports. In October 2019, Typhoon Hagibis struck the populous Greater Tokyo Area and comparable in force to Japan's largest typhoon on record, Kanogawa, which caused over 1,200 casualties when it hit in 1958.

Going Global

While reinsurers have advantages in Asia-Pacific, their concentrated risk exposures expose them to earnings volatility. This is why many are seeking geographic diversity--though with varying success to date.

Asia-Pacific reinsurers are accessing the global stage through internal expansion as well as mergers and acquisitions (M&A). China's Belt and Road Initiative, with partnered infrastructure projects stretching throughout Asia and beyond, has provided opportunities for reinsurers to enhance international knowledge, improve cooperation, and stay relevant. We are increasingly seeing representative offices in new markets, or closer working relationships with international brokers to gain access to global business practices and insights. For example, Korea Reinsurance established a subsidiary in Switzerland in 2019, while Tao Re's existing Switzerland subsidiary started underwriting European reinsurance business from January 2019.

From a credit perspective, diversification through M&A tends to be negative at the outset, mostly because integration of management culture, risk appetite, and back-office infrastructure can take time. If executed successfully, M&A can create growth opportunities through combined platforms. It can also strengthen competitive positions in chosen products and regions, boost underwriting expertise, increase diversification, and lower expenses that could improve earnings and strengthen the financial profile.

Table 3

M&A Deals Involving Asia-Pacific Reinsurers Since 2016
Date Acquirer Target Target location Details Expected or complted deal size (mil. US$) Status
October, 2016 SOMPO Holdings, Inc. Endurance Specialty Holdings Ltd Global Japan-based Sompo acquired 100% of Bermuda-based, globally focused Endurance Specialty Holdings Ltd. 6,300 Completed
February, 2017 Asia Capital Reinsurance Group Asia Capital Reinsurance Malaysia Sdn. Bhd. and ACR ReTakaful Holdings Limited Malaysia Singapore's Asia Capital Re acquired Asia Capital Reinsurance Malaysia Sdn. Bhd. and ACR ReTakaful Holdings Ltd. from ACR Capital Holdings. 30 Completed
August, 2017 MS&AD Insurance Group Holdings First Capital Insurance Singapore Mitsui Sumitomo Insurance Co. (a member of Japan's MS&AD) changed the target's name to MS First Capital Insurance Ltd. after the deal. 1,600 Completed
October, 2017 MS&AD Insurance Group Holdings ReAssure Jersey One Ltd. United Kingdom MS&AD acquired a 5% stake in ReAssure for £175 million, and committed to make further investments into the equity of ReAssure, for up to a three-year period, totaling £800 million, to give it a maximum shareholding of 15%. 1,318 Completed
January, 2018 SOMPO Holdings, Inc. Lexon Surety Group United States Endurance U.S. Holdings Corp, a subsidiary of Sompo, acquired Lexon, the top-10 independent surety insurer in U.S. 200 Completed
February, 2018 SOMPO Holdings, Inc. A&A, S.r.l. Italian A&A is a leading Italian agriculture insurance specialty company. Not available Completed
May, 2018 MS&AD Insurance Group Holdings BoCommLife Insurance Co. Ltd. China Mitsui Sumitomo Insurance Co. Ltd., a member of MS&AD, announced plans to acquire 37.5% of the shares in BoCommLife Insurance Co. Ltd. 611 Announced
June, 2018 Tokio Marine Holdings Inc. Insurance Australia Group's Thai & Indonesian operations Thailand and Indonesia TMNF acquired the outstanding shares of Safety Insurance Public Co. Ltd. and PT Asuransi Parolamas held by IAG in cash. 389 Completed
December, 2018 China Reinsurance (Group) Chaucer Holdings United Kingdom China Re Group bought Lloyd's focus reinsurer Chaucer from Hanover Insurance 940 Completed
May, 2019 Samsung Fire & Marine Insurance Co. Ltd. Canopius United Kingdom Samsung Fire & Marine took a strategic stake in Canopius, one of the Top 10 Lloyd's syndicates. 150 Announced
July, 2019 MS&AD Insurance Group Holdings PT Asuransi Jiwa Sinarmas MSIG Tbk Indonesia Mitsui Sumitomo Insurance Co., Ltd., a member of MS&AD, acquired an additional 30% stake of the common stock in PT Asuransi Jiwa Sinarmas MSIG Tbk (AJSM), one of the major life insurance companies in Indonesia, for approximately Indonesian rupiah 3.8 trillion (approx. 29 billion yen). 270 Completed
August, 2019 MS&AD Insurance Group Holdings IKBZ Insurance Co., Ltd. Myanmar Mitsui Sumitomo Insurance Co., Ltd., a member of MS&AD, has agreed with IKBZ Insurance Co., Ltd. , a major private non-life insurance company in Myanmar, submitted the application for investment/ establishment of a joint venture to the local authorities and passed the regulatory review on July 31, 2019. Not available Announced
October, 2019 Tokio Marine Holdings Inc. Pure Group United States Japan's Tokio Marine agreed to buy U.S. insurance group Pure Group for $3.1 billion, the latest move in its multiyear push into the world’s largest insurance market. 3,100 Announced
Source: Company announcement or media reports.

Technology Initiatives Are A Must

The region's reinsurers will not maintain their home advantages if they continue to fall behind on technology. We believe Asia-Pacific reinsurers need to embrace stronger tech throughout their operations. This ranges from reaching new customers through e-channels, offering new products to capture the evolving landscape, or managing risks more effectively. For example, by employing drone technology and satellites to better determine crop coverage and valuations to provide appropriate protection levels to farmers. Advance weather -tracking mechanism can limit losses by farmer clients to protect their herds. Such modernizations can help both insurers and reinsurers to grow new markets even as structural growth levels slow for some key economies in the Asia-Pacific.

Such investments won't come cheap. We expect Asia-Pacific reinsurers' investment toward technology will increase substantially over the next few years, as they enhance their IT infrastructure or employ greater use of data analytics in their day-to-day operations. Alternatively, some reinsurers may onboard non-traditional shareholders to facilitate technology-related knowledge transfer and fresh thinking. One good example is China Re's direct P&C insurer--China Continent Property & Casualty Insurance Co. Ltd (CCIC). In 2018, CCIC expanded its shareholder base with eight strategic investors (valued at Chinese renminbi 4.7 billion), increasing its technology background shareholders to two.

However, better technology should pay off. Good technology can help optimize operations and control expenses. On a related note, "cost optimization" and "synergies" are the current buzz words for the wider reinsurance industry. The volatile investment market, changing accounting and regulatory environments, and thinning margins have increased the focus on cost control. Technology is an upfront cost that can reduce costs over the long run.

Appendix: Our Short Views On Rated Asia-Pacific Dedicated Reinsurers

Central Reinsurance Corp.

(Financial Strength Rating: A/Stable/--; Issuer Credit Rating: A/Stable/--) 

We view Central Re as a strong player in Taiwan's reinsurance market. It has close relationships with local life and nonlife insurers, a solid domestic market position, and is the only domestic reinsurance company in the local market. However, it has a small regional and global market presence, and its size is small compared with international peers'.

Central Re is likely to maintain its extremely strong capital adequacy level, given its solid domestic market position, and a moderate risk appetite over the coming one to two years We also expect underwriting performance to remain stable, with combined ratio of 95%-97% amid conservative risk retention. The company reported a combined ratio of about 93% in 2018, compared with 92% in the previous year. The good underwriting performance reflects Central Re's prudent control of its loss ratio by actively adjusting and diversifying its portfolio. The underwriting performance for its growing overseas business also remained profitable. We expect Central Re to remain prudent in exploring the international reinsurance market.

Toa Reinsurance Co.

(Financial Strength Rating: A+/Stable/--; Issuer Credit Rating: A+/Stable/--) 

Toa Re's strong foothold in the Japan reinsurance market, good diversification along geographic and business lines, and excellent capital position support its overall credit profile. Toa Re is the only reinsurance group in Japan that serves both the non-life and life sectors in domestic and overseas markets, and has maintained direct relationships with Japanese clients since its establishment in 1940. Toa Re aims to further diversify its business portfolio internationally, especially in Europe, while remaining weaker than major overseas reinsurers in terms of business diversification and market competitiveness. Due to large claims related to large natural disasters in Japan in fiscal 2018, Tao Re's combined ratio deteriorated to 109.5% from 96.5% in the previous year. Having said that, we expect Toa Re's conservative capital policy to help the group to maintain excellent capital in the medium term (three to five years).

Korean Reinsurance Co.

(Financial Strength Rating: A/Stable/--; Issuer Credit Rating: A/Stable/--) 

Korean Re is the only domestic reinsurer in South Korea with a strong brand and ties to local primary insurers. We expect the company to continue to leverage this home-turf advantage to maintain stable revenue growth in its domestic reinsurance portfolio. Korean Re will likely maintain satisfactory capitalization, while expanding its overseas businesses over the next two years. We believe Korean Re's retrocession programs (i.e., reinsurance for reinsurers) and sliding-scale commission arrangements with local cedants support its earnings stability.

Korean Re's exposure to natural catastrophe events could increase as it grows its international presence. The overseas business accounted for about 25% of gross premiums written in 2018. The reinsurer has maintained its net combined ratio at about 99% over the past five years, largely in line with regional peers, despite exposure to a series of natural catastrophes. The net combined ratio deteriorated to about 101% in 2018, from about 97% in 2017, owing to losses from typhoons in Japan and Hong Kong; however, it stabilized to slightly below 100% in the first half of 2019.

Asia Capital Reinsurance Group Pte. Ltd.

(Financial Strength Rating: A-/Stable/--; Issuer Credit Rating: A-/Stable/--) 

Singapore-based Asia Capital Re focuses on several markets in Asia-Pacific, and we anticipate the reinsurer will only gradually venture into global markets. Asia Capital Re will likely maintain extremely strong capitalization over the next two year, above the average of regional peers', amid ongoing efforts to reduce underwriting volatility and catastrophe exposure while expanding its Asia-Pacific focused portfolio. The company's mediocre operating performance and limited scale continue to constrain its rating but we believe the company is restructuring its underwriting strategy to support improving profit momentum.

Asia Capital Re's combined ratio deteriorated to 113% in 2018, due to exposure to the natural disasters in markets including Japan and China. Excluding these events, the reinsurer's underwriting profitability is improving on the back of increased underwriting discipline and retrocession optimization. We expect underwriting losses to stem, with the company's combined ratio declining to around 100% in the next two years.

China Reinsurance (Group) Corp.

(Financial Strength Rating: A/Stable/--; Issuer Credit Rating: A/Stable/--) 

China Re Group will likely benefit from increasing business diversity following its completed acquisition of The Hanover Insurance International Holdings Ltd., Chaucer Insurance Co. DAC, and Hanover Australia Holdco Pty Ltd. (collectively, Chaucer) in April 2019. For the first six months of 2019, China Re Group reported 27.9% premium growth, boosted by the impact of the acquired assets. The company is also rapidly growing non-motor coverage from China's primary insurance market.

We expect China Re P&C's underwriting performance to remain volatile over the next two years, amid intensifying competition and growing catastrophe exposures in both domestic and overseas markets. This is despite the improved combined ratio of 97.4% as of June 30, 2019 (1H2018: 99.4%), mainly due to a lower loss burden associated with weather-related events. The growth momentum and profitability of China Re's life reinsurance portfolio should stabilize following its shift toward selling protection-type reinsurance.

China Re's exposure to overseas catastrophe events is lower than that of peers. That said, the reinsurers remains exposed to earnings and balance-sheet volatility, stemming from non-modelled risks owing to rapid urbanization in China. We expect the reinsurance group to enhance its risk controls for domestic catastrophe exposure, backed by efforts to establish catastrophe models for domestic exposures. China Re has satisfactory capitalization, albeit t elevated credit and market risks could erode capital buffers.

Taiping Reinsurance Co. Ltd.

(Financial Strength Rating: A/Stable/--; Issuer Credit Rating: A/Stable/--) 

Taiping Re's expanding footprint in China is a key growth driver and behind a 12.1% increase in premiums for the first six months of 2019. The company, which has leading market presences in Hong Kong and Macau, is also increasing its international and business exposure. We anticipate the diversification benefits from geographic expansion and life reinsurance development will be marginal over the next two years.

We anticipate the underwriting profits of Taiping Re's property and casualty (P&C) reinsurance portfolio will become increasingly volatile, stemming from heighted market competition in China. That said, the reinsurer has a track record of outperforming peers', even while grappling with multiple catastrophe events over the past couple of years. The reinsurer reported a combined ratio of 97.3% as of June 30th 2019 (2018 year-end: 98.6%). Taiping Re's capital buffer will likely remain thin over the next two years, owing to its business expansion and rising asset risks associated with investment undertaken by its life reinsurance portfolio. The parent group's ongoing financial support will continue to underpin Taiping Re's satisfactory capital position amid strong growth.

This report does not constitute a rating action.

Primary Credit Analyst:Eunice Tan, Hong Kong (852) 2533-3553;
Secondary Contacts:Johannes Bender, Frankfurt (49) 69-33-999-196;
Eiji Kubo, Tokyo (81) 3-4550-8750;
WenWen Chen, Hong Kong (852) 2533-3559;

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