Asia's non-life insurance markets
No. 6/2003
Asia's non-life insurance markets: recent developments and the evolving corporate landscape
The outbreak of SARS early in 2003 only temporarily dampened insurance market growth in Asia, according to Swiss Re’s new sigma study. The study maintains that the outlook for Asia’s non-life insurance business remains favourable. It also finds that the markets in China and India are quickly gaining importance in the region. In parallel, the corporate landscape and competitive behaviour in the insurance industry are changing fast.
After a breather in 2001, non-life insurance business in Asia has resumed its faster growth rate. Premiums have seen increases across the region with strong growth recorded in most emerging markets. Growth will substantially exceed that of most OECD markets. Nonetheless, weak stock markets in 2001 and 2002 have taken their toll on insurers’ capital bases, thus reinforcing the need to focus on underwriting quality.
Deregulation and the phasing out of state ownership are fast reshaping the insurance landscape. The non-life insurance market is likely to see further consolidation in years to come. According to Swiss Re’s sigma study, “Asia’s non-life insurance markets”, this will lead to more concentrated and polarised markets. Currently state owned insurers are still a significant force in Asia accounting for over a quarter of the premiums outside Japan, while foreign insurers – though making up some 40% of all insurers – have only a 10% market share. Nevertheless, foreign insurers are poised to take on a more active role in the development of the region’s insurance business over the medium to longer term, despite recent reticence in business expansion.
These developments will have a strong bearing on the future competitive landscape of Asia’s non-life insurance industry. To identify who will be the winners and losers of the change – state owned companies, large firms, foreign players or listed insurers – sigma compared the cost efficiency, underwriting results and overall performance of the different groupings.
The most salient features of this analysis, using data from twelve Asian insurance markets, are the following:
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Foreign companies are more efficient in underwriting. However the study finds no evidence for above average overall profitability.
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Large companies on the whole show better cost control, a phenomenon that holds true in all markets. At the same time, there is no conclusive evidence to suggest large companies are less effective in risk selection than their smaller competitors.
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State-owned insurers are at least as efficient in underwriting as their privately owned counterparts. However, their overall profit margin is lower in all markets.
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Listed companies have adapted to lower combined ratios, as additional scrutiny by shareholders and analysts has helped to bolster performance.
The study’s results only partly validated the assumptions widely shared in the business community. Nevertheless the general impression that foreign companies will gain at the expense of state owned companies seems quite robust, despite the surprisingly positive underwriting results of state owned firms.
Download "Asia's non-life insurance markets: recent developments and the evolving corporate landscape"
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For further questions please contact sigma@swissre.com.
