Opportunities and risks in emerging markets

The 7th annual Chief Risk Officer Assembly was hosted at Swiss Re’s Centre for Global Dialogue on 16-17 November 2011. A joint initiative between Swiss Re, the Geneva Association and the CRO Forum, the event provides a unique global platform for re/insurance CROs. With emerging markets high on the 2011 agenda, Michel Liès, Chairman of Swiss Re Global Partnerships, says the firm is building capabilities in emerging markets.

What are the opportunities entailed in originating business in the emerging markets?

Over the next 10 years, premium growth rates across both reinsurance and insurance in emerging markets (EMs) will outpace those in developed economies by more than a factor of two, and premiums in EMs will come to represent a third of global premiums. Food security, infrastructure investments, natural resource demands and shifting demographics are global mega-trends that are driving demand for insurance and reinsurance solutions in emerging markets, which translates into opportunities for Swiss Re.

Take Brazil, for example. The country is expected to become the fifth largest economy in the world by the end of this decade as it continues to leverage its position as a leading energy and food producer. Driven by important commitments from the government to invest in infrastructure projects, foreign investments are surging to historical highs. The country´s middle class is rapidly increasing, with 40 million Brazilians joining this group in 2010 alone, bringing with them new demand for services, goods and insurance coverage. These trends make Brazil, amongst other developing economies, a very exciting market for Swiss Re. Similar observations are also valid for China, India, Mexico and other major emerging economies in Asia.

How important are public-private partnerships in emerging markets?

Many EM governments are exploring risk transfer mechanisms to deal with the increasing burden stemming from natural catastrophes and climate change. For governments everywhere, this presents a twofold challenge. They need to juggle the diverse risks they face and put solutions in place for financing short- and long-term impact, should the risks become reality. Strong public-private partnerships are a lifeline here. And the epicenter of success is a paradigm shift from obtaining funding after the event, to securing financial protection before it occurs.

Another opportunity we see is microinsurance. The global microinsurance market has a potential of covering up to four billion people through market-based risk transfer solutions and public private partnerships. This translates into a potential premium volume of up to USD 40 billion. The last decade has seen increasing institutional activity in microinsurance, with rapid growth observed in many regional markets. Let's not forget that by providing a first introduction to the concept and benefits of insurance, microinsurance can be one of the first steps towards forming the middle classes of the future.

What are the risks entailed in doing business with emerging markets?

Of course there are always risks inherent in exploring EM opportunities. We need to do our homework to understand the specific and somehow unique market environment, find the right partners and navigate new regulatory landscapes. We need to be agile enough to operate in environments where we may not have the same level of experience as we have in other markets. Last but not least, we are not the only ones interested in EMs. Excellence is a must if we want to achieve a genuine differentiation.

What strengths does Swiss Re bring to the table?

The same strengths we bring to more industrialised markets – our strong reputation, our capital, our sustainable capacity, and our keen appetite and ability to innovate. Our company values – in particular client-centricity and agility – will serve us well as we seek to grow in these markets. Our vast experience in more mature markets is also extremely valuable when it comes to calibrating new initiatives in EMs. We must nevertheless always keep in mind that knowledge of the past is only a reference, and not an absolute truth in the new environment.

What have been our most significant business achievements thus far?

In addition to the fact that many successful local players in these markets have been considering Swiss Re as a reliable partner for years, we continue to build up our capabilities in EMs across numerous lines of business. As an example, in India, a weather insurance scheme we introduced six years ago with micro-finance institutions and local insurers has developed into a market that now covers 1.5 million people against the negative impact of monsoon rains. In China, Swiss Re has been able to offer Chinese insurers capital relief in the form of reinsurance quota shares, enabling them to meet new regulatory capital requirements. In Latin America, Swiss Re's majority investment in UBF Seguros will enhance our ability to access the specialty insurance market in Brazil, where significant investments in infrastructure, energy and agriculture are driving demand. In microinsurance, we recently launched a very innovative natural disaster protection for low-income people in Haiti. This transaction received broad industry recognition and was named "Company Launch of the Year" at The Review magazine’s annual Worldwide Reinsurance Awards 2011. And we have launched several transactions with governments including Mexico, the Caribbean, China Malawi, and various development organizations.

Where do we want to be 12 months from now?

We are making the necessary investments today to ensure that Swiss Re is uppermost in the minds of each of our EM clients. Twelve months from now, we would like to combine marked increases in our market share with sustainable results in our key EMs. We also plan to continue attracting top-talent from São Paulo to Shanghai joining Swiss Re, however, we see this mainly as a long-term opportunity.

Becoming a major player in the EMs is not only an excellent complement to our successes in established economies; it will also help to define the global winners of our industry – sooner, rather than later.

Published 17 November 2011

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