You are on page 1of 74

Asia Market Review 2018

Aon’s Fifth Annual Report on Insurance and Risk Trends


Contents
Headline

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

01 Market Review — Specialties


Aviation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Captives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Casualty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Default Risk – Structured Credit & Political Risk. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Default Risk – Trade Credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Financial Lines. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Health & Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Marine. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Mining. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Power. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Reinsurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Terrorism and War. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Transaction Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

02 Market Review — Technology, Innovation, and Associated Risks


Innovation and Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Cyber. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

03 Market Review — Countries


Macroeconomics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
China. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Hong Kong . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Indonesia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Japan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Malaysia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Pakistan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Philippines. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Singapore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
South Korea. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Taiwan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Thailand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Vietnam. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

Asia Market Review 2018 2


Introduction

Welcome to the 2018 Asia As these changes continue to develop, the support
Market Review, our fifth annual and direction of truly global risk and insurance
publication providing you with partners will become increasingly valuable.
a comprehensive view of the
risk and insurance landscape in In 2017, as in prior years, we witnessed a continuing

the world’s most populous and increase in the level of risk maturity in the region,

fastest growing region. although there are a number of areas where


significant economic losses continue to be suffered
In this document, we review the major events unnecessarily due to insufficient risk transfer
witnessed in 2017, and take a look ahead to 2018 strategies. One such area is cyber risk, where clients’
and the key trends we expect to play out over the exposures continue to grow exponentially, year
coming 12 months and beyond. We cover the key on year, whilst buyer behaviour lags behind that
specialty lines of insurance, the majority of Asian of peers in other geographies. Given the pace of
geographies, major technology and innovation technological development, adoption, and reliance
developments, and the regional macroeconomic in key business processes, the impact of these losses
landscape in the following pages. In order to will begin to be felt at the most senior levels of
provide you with the most complete view of the organisations if they fail to grasp the significance of
region, we have once again enlisted the support these exposures.
of some of the leading underwriters in Asia to
provide their perspective on the most significant The increasingly tense stand-off between the United

developments which are impacting businesses and States and North Korea is fast becoming the greatest

markets now and into the future. challenge of Donald Trump’s fledgling, controversial
presidency, and is an issue which impacts the entire
2017 has been a year of both familiarity and region. The significant exposure represented by
divergence for the Asian insurance market this historic challenge has been recognised by a
when compared to prior years. We witnessed number of clients with operations in North and East
a continuation of the softening market trend of Asia who are seeking to transfer a portion of this
previous years as capital continued to flow into risk. The devastation that would be caused by any
the market, and a largely benign loss environment conflict between North Korea, the United States,
within Asia for most classes of business. This ensured and other regional and global powers raises a very
that downward pressure on rates continued. real challenge to the insurance market in terms of
However, whilst regional loss experience remained the level of risk the insurance market is able to bear.
benign, 2017 was a year where increasing This acute issue of insurability has also raised wider
globalisation and the interconnectedness of questions around policy wordings. We have seen,
global businesses and financial markets became and can continue to expect to see, underwriters
more tangible in Asia. The Asian market, which seeking to clarify what is covered under traditional
traditionally has been highly insulated from external products, so as to prevent losses being picked up
shocks felt in other global markets, is now feeling which were not intended to be covered but must
the effects of the losses incurred by international be paid due to ambiguous policy language. In this
insurers as a result of hurricanes Harvey, Irma, environment, the technical ability of the broker and
and Maria. As the world continues to connect its consultancy skills are paramount. Clients must be
with developments in information technology, cognisant of this change in tack and confident in the
efficiencies in scale, and financial innovations driving advice they are receiving.
change, markets will converge further and faster.

Asia Market Review 2018 3


In recent years, there has been a significant level of My view is that whilst the natural catastrophe losses
focus on innovation, InsureTech and FinTech, and the incurred in North America and the Caribbean will
potentially disruptive impact technological advances be felt, there is still a global surplus of capacity in
could have on the insurance industry. Whilst we the insurance market, and the losses incurred will
constantly see innovation impact our industry generally impact insurers’ earnings but not their
and that of our clients, changes in the insurance capital in 2018 in a significant way. Whilst there
industry have been incremental rather than such as will be concern from underwriters around natural
those witnessed in the travel, real estate or private catastrophe exposed risks and default risk in 2018,
transportation sectors, for instance. Client and other classes of business such as Financial Lines
industry innovation can only be viewed as a positive, and Liability should be largely unaffected as the
and we continue to support this through our global region remains significantly less litigious than other
investments in data and analytics which are in excess parts of the world. The net effect of this is likely
of USD350 million annually, as well as through our to be that the market will be largely unchanged
global innovation centres, based in Singapore and through 2018, with positive client results available
Dublin. Therefore, whilst I expect to see increasingly for well-managed risks. For buyers of insurance,
sophisticated modelling techniques supporting the importance of well-articulated and enacted
underwriting processes as the industry harnesses risk management plans, detailed and accurate
the power of big data, I do not foresee any across- presentation of their risks, and sophisticated
the-board disruptive changes to the way we do insurance buying strategies will be key to achieving
business in the near term, although we embrace the optimal risk transfer cost clients continue to
positive innovation for our clients. search for. At the centre of this equation is the
broker, whose role becomes more complex but
I commented earlier that global insurance markets more valuable in evolving market conditions.
are becoming increasingly interconnected, and in
2017, we began to witness a hardening in some of From everyone at Aon, we wish our clients and
the insurance markets in Australia, which could be future clients every success in 2018 and beyond.
taken as an indicator of things to come elsewhere.

Geoffrey Lambrou
CEO, Specialty Broking & Operational Excellence, Asia
Aon

Asia Market Review 2018 4


Headline

01
Market Review
Specialties

Asia Market Review 2018 5


Aviation

2017 Rate Movements 5–10%


Key Risks Affecting
the Aviation Sector
2018 Rate Movements 5% -5%
1. Cyber crime/
hacking/viruses/
Loss Experience malicious codes
benign moderate severe

2. Business
interruption
Global passenger and air traffic volume continued to increase in 2017,
primarily on the back of rapid growth in the low cost carrier (LCC) segment,
3. Major project
which has increased accessibility for both business and leisure travellers alike. failure

The Asia Pacific (APAC) region once again towards insurance purchasing with an
retained its position as the dominant increased number of clients procuring 4. Damage to
reputation/brand
region for air travel, commanding 35 coverage for previously uninsured risks
percent of the global market. Data from such as cyber.
the International Air Transport Association
2017 was another benign year for Aviation 5. Economic slowdown/
(IATA) also showed that air traffic for APAC slow recovery
airlines grew nine percent year-on-year in claims, with improvements in aircraft

August – a faster pace than other regions . 1 technology and industry risk management
resulting in the safest year on record. The
6. Regulatory/
Whilst the industry in Asia continues continuing benign claims environment legislative changes
to experience growth as incomes and resulted in further downward pressure
living standards increase, airlines remain on rates, with clients enjoying reductions
under extreme cost pressure in an in the range of five to ten percent on 7. Failure to attract/
ultra-competitive global market with average, with greater reductions on offer retain top talent
low entry barriers. Given the prevailing for well-managed risks. Whilst catastrophic
competitive environment and low cost or large losses were absent in 2017, the
model adopted by increasing numbers of value of attritional losses increased. As 8. Political risk/
uncertainties
airlines, it is important that clients ensure the value of aircraft continues to rise, the
that they are protecting themselves value of everyday losses from bird strikes,
appropriately, rather than buying “cheap hard landings, and other sources of minor
cover”. The value of fit-for-purpose incidents have increased in tandem. As 9. Property damage
insurance is even more greatly felt in low the premium pool continues to shrink, the
margin industries such as Aviation where cost of attritional losses will become more
uninsured losses have the potential to of a concern for insurers as they begin to 10. Increasing
significantly impact businesses. In 2017, impact underwriting profitability. competition
we saw growing maturity in the industry

Source:
1. “Traffic growth for Asia-Pacific airlines up 9% in August, outpaces other regions”, Nisha Ramchandani, The Business
Times, 9 October 2017 (URL: www.businesstimes.com.sg/transport/traffic-growth-for-asia-pacific-airlines-up-9-in-
august-outpaces-other-regions)

Asia Market Review 2018 6


Aviation fast facts Outlook

In 2018, Aon also expects to see


an increase in seating density
on some flights as the low cost
model becomes increasingly
pervasive. The case for higher
5.6% 27.8m USD125bn seat-count configurations on
increase in passengers total passengers earmarked for Asian the A380 is growing as interest
in 2017 in 2017 airport infrastructure in more dense arrangements
improvement gain momentum among airlines
and lessors. Malaysia Airlines is
to re-configure its A380s in to a
700-seat layout for pilgrimage
flights, while an international
lessor is considering offering this
Failure to attract and retain talent was a number of routes due to a holiday type of configuration for charter
operations. Increasing the seating
another concern for Aviation clients in scheduling mistake, and the airline found
density, and therefore number of
2017, as the industry continues to grow itself without enough staff in reserve to passengers on each flight to this
and demand for key personnel, such as cover the shortfall. Currently, the global extent, will significantly add to the
liability exposure which the flight
pilots, continues to increase. Outside Aviation industry employs circa 500,000
operator must bear and/or transfer
the region, organisations like Ryanair pilots, with that number expected to the insurance market.
have experienced well-publicised to grow to 1,100,000 in the next 20
As tensions rise on the Korean
difficulties when they fail to attract and years. As the labour market for key staff
Peninsula, we expect to see more
retain talent, causing clear economic and becomes increasingly competitive, scrutiny and interest in hull war
reputational disruption. The European employee benefits offerings will become and allied perils cover as the threat
airline cancelled 18,000 flights, affecting an ever more important talent acquisition of war continues to intensify.
This trend has already begun to
400,000 customers, when it did not and retention tool. emerge in the final months of
have sufficient pilots available to fly 2017 and will only grow if the
rhetoric from each side continues
to escalate.

In 2018, we expect to see an


increase in the amount of private
business travel in the region, which
brings with it a slightly different
risk profile from commercial
travel, albeit one which is often
viewed favourably by the market.
We will also see a number of
construction projects as core
aviation infrastructure is upgraded
and regional aviation capacity is
“For over a decade and half, the Aviation insurance market has experienced year-on-year soft increased as it continues to chase
market conditions in every sector of our market. This has been driven by overcapacity, improving the continued fleet expansion of
safety records, and fierce competition in both the insurer arena as well as the broker arena. the region’s operators.

However, in 2018, we believe that the market will be taking a more cautious approach to Clients can expect some rate
renewals generally. This will be led by the airline market where we expect to see at least reductions in 2018, although we
a flattening of rates and a tightening in coverage, although small rate reductions may be do not believe these will be of
achieved on clean renewals with healthy exposure growth. The aerospace and general aviation the magnitude afforded to clients
market have their own dynamics, however we expect to see a change in the market resolve in in prior years. However, with
these sectors of the business as well. such low margins, there is now
greater scope for large swings
Every assured will continue to be assessed on their own merits, but the Aviation insurance in premiums for risks with poor
markets stance is changing. With a generation of buyers, brokers, and insurers who have never loss histories. Whilst we are not
experienced a firming market, 2018 will be an interesting year.” forecasting a hardening of the
market, the almost perpetually
David Boyle
soft conditions of prior years seem
Head of Property and Special Risks, South East Asia
unlikely to continue as per the
AIG APAC Holdings Pte. Ltd.
status quo, going forward.

Asia Market Review 2018 7


Captives

2017 Rate Movements 0–10%

2018 Rate Movements Flat

Loss Experience
benign moderate severe

Last year we commented that we may be approaching the bottom of a soft


market cycle, globally. It appears that this may now be the case, as years of
thin rates, compounded by large natural catastrophe losses in North America
and the Caribbean, has led to a hardening of the market in some territories
for some risks. Whilst more pronounced in the London market, we saw this
trend play out to an extent in the Asian market, as rate reductions for early
renewals in 2017 trended towards flat renewals or smaller reductions as the
year wore on. If this is a trend which prevails over the medium term, we
anticipate an uptick in the number of clients looking to captives as a key tool
to manage total cost of insurable risk. Asia still has some way to go in this
respect, with captive utilisation for established businesses in the region still
lagging well behind that of their peers in Europe and North America.

Property and Casualty remain the key In 2017, we saw an increase in interests In 2017, the Monetary Authority
lines of business for captives, with from captives wanting to write life and of Singapore (MAS) made some
utilisation fairly similar in 2017 and 2016. Health & Benefits (H&B) business, two amendments to legislation regarding
The historic, soft market conditions classes which typically have not been the tax incentives scheme impacting
which clients have enjoyed for a number widely written in the region. Utilising a Singapore domiciled captives. In the
of years has meant that there has been captive for life and H&B provides clients past, the captive tax incentives scheme
less impetus on clients to retain even with a greater level of flexibility, rather applied only to offshore business, but has
challenging risks, due to the over- than buying an off-the-shelf product now been expanded to cover onshore
capitalised global insurance market. from the insurance market. The tailored business as well. Companies have up
However, in a market where there is less solutions which can be created via a till 31 March 2018 to benefit from the
appetite for certain risks, we may now captive vehicle also provides clients captive tax exemption scheme for a 10-
start to see an increase in the number of with a-typical exposures who are year period on qualifying underwriting
businesses who either take larger self- looking for highly specialised cover, and investment income. A concessionary
insured retentions, or incubate certain such as key man insurance, with a useful tax rate of 10 percent will apply for
new risks in their captives in order to alternative to purchasing traditional applications made after 31 March 2018.
develop a track record which will later insurance products.
support risk transfer.

Asia Market Review 2018 8


Captive domiciles by country Outlook

As the level of risk maturity in


Singapore 71 Labuan 43 Micronesia 18 Hong Kong 3 the region continues to increase,
we expect to see an increase in
the usage of captives as a tool to
reduce total cost of insurable risk,
manage attritional losses, prevent
The MAS has been keen to develop the Finally in 2017, Labuan, a domicile that is
dollar swapping with the market,
insurance-linked securities (ILS) market typically focussed on domestic Malaysian and to collect risk information
and recently announced the offering of corporate business, marketed itself far and data to improve risk
management processes.
an ILS grant that will fund 100 percent more aggressively in strengthening its
of the upfront costs incurred in issuing presence in the Asia captive market. A key trend exhibited by
catastrophe bonds in Singapore. Details The territory is attractive to a number of businesses globally is the move to
break down silos, increase synergy
of the grant scheme have not been businesses as the only jurisdiction in Asia
between different departments
announced, but the scheme is available that offers protected cell companies and and encourage business units to
for catastrophe bond issuance from sharia-compliant captives. work closely together. As such
initiatives continue to take hold of
1 January 2018.
organisations and the functions
of Risk Management, Finance,
and Human Resources become
increasingly intertwined, we
expect to see an uptick in the
number of businesses placing
Medical, Life, Kidnap and Ransom,
and other similar policies where
purchasing traditionally falls
outside of the risk manager’s
remit, into captives.

Asia Market Review 2018 9


Casualty

2017 Rate Movements Flat

2018 Rate Movements 0–10%

Loss Experience
benign moderate severe

With the rapid emergence of new technologies, clients in traditional


business sectors, such as manufacturing, are facing increasing pressure
to innovate in order to compete. As ever greater levels of automation
and digital technology are integrated into all businesses, supply chains,
operational processes, and production systems become increasingly
complex. For this reason, cyber exposure, supply chain disruption, and
brand and reputational damage – three often interlinked exposures – are
fast becoming key risks in the region. As the pace of technological change
continues to accelerate, these exposures will become increasingly acute.
We noted in 2017 that while Asian businesses are now becoming more adept
at managing their supply chain risks, cyber still represents a major coverage
gap for most organisations.

Increasingly, we are seeing Asian servicing, and international claims significantly reduce their lines if they
businesses entering the European and handling as a key priority for clients. felt pricing levels were not sufficient to
North American markets as they search deliver their target return on equity.
for growth opportunities overseas, 2017 was another year where clients While there were no notable new market
either by establishing a physical enjoyed risk adjusted rate reductions. entrants in 2017, those who entered in
presence, or by exporting. Whilst these However, while reductions were 2016 and other less established players,
developed economies represent exciting achievable, the large reductions which conversely to some established insurers,
marketplaces for Asian businesses, were readily available in previous behaved extremely aggressively.
they also introduce new and more years did not materialise. Whilst we Some markets were willing to provide
challenging regulatory and legislative did not witness a hard market in 2017, significant reductions in rates and
environments. The increased exposure there has been a tapering off in the deductibles, or in some instances at nil
to litigation in these markets brings size of reductions available and the deductible levels. This counteracted
into focus the importance of public and behaviour of some underwriters is the approach of some of their more
products liability covers, well-structured starting to change. We saw a selection seasoned competitors, with the net
international programmes with network of established liability players starting effect being improved terms for clients.
to either walk away from risks, or

Asia Market Review 2018 10


Whilst casualty market conditions were favourable Outlook
for clients in 2017, businesses remain challenged by a
There has been significant become increasingly invested
number of risks which are either partially insurable or
discussion whether the large in environmental concerns,
uninsurable, such as damage to brand and reputation, natural catastrophe losses organisations will see their
failure to innovate, and failure to attract and retain new sustained in the global property exposures grow exponentially.
market will have an impact on the
talent. In some cases, products are available in capital
casualty market in 2018. Whilst This change is already taking
markets which can support clients in mitigating these insurance markets are global, place. In June 2017, the Chinese
risks, but in other instances, such as failure to innovate, insurance classes are linked, government announced that it
and insurers’ cost of capital may will make environmental insurance
these exposures are pure business risks. The increased
increase slightly, we believe that mandatory for businesses in
client awareness of and focus on partially insurable the abundant capital available heavily-polluting industries,
risks has driven some product innovation in the shape in the market will be sufficient such as mining, pharmaceutical
of hybrid products, which are blending elements of to prevent any hardening of the production, and hazardous waste
Casualty market in 2018. Whilst disposal. This change has already
traditional insurance cover with non-traditional and taken place in South Korea,
some insurers may be seeking
alternative capital deployment solutions. Given the to impose rate increases, there where since 1 July 2016, the
challenging macroeconomic situation, competitive are a number of markets which purchase of environmental liability
will emerge relatively unscathed insurance has been mandatory
global environment, and low margin trading conditions
from 2017. Therefore, whilst for a number of industrial sectors,
many clients find themselves in, effective balance conversations will be held on an although specifically in Korea,
sheet protection becomes a key concern. Continuing individual basis, we believe that government schemes reduce the
there will not be widespread rate premium volume which enters the
the trend of increasing maturity in the Asian market,
increases in 2018, and that most commercial insurance market.
we saw a number of clients transferring previously clients will achieve some rate
uninsured risks, such as product recall, to the insurance reductions at next renewal. As exposures increase and
purchasing becomes mandatory
market over the course of the year, whilst pricing
A gradual shift in the regulatory in some industries, the demand
remained attractive. landscape in Asia is beginning for products which effectively
to raise the awareness level of transfer environmental liabilities
environmental risk, as well as will only increase. Closely linked
the demand for environmental to this exposure and another key
liability protection. Asia as a risk for clients is the associated
region still lags behind other reputational damage which
markets in this respect, where occurs following an environmental
environmental liability is catastrophe. There is significant
considered a core cover in high opportunity in this space for
risk industries such as Oil and Gas. product innovation from the
As the regulatory environment insurance market, and we expect
in the region begins to shift, to see a continuation of the
environmental laws become trend of recent years of blended
more onerous, and governments risk transfer and alternative risk
transfer solutions.

“Casualty insurance has not been profitable on a global basis, Bodily injury awards in Asia have been increasing over the past years.
notwithstanding the recent large natural catastrophe losses. North For example, in Singapore, the well-publicised SGD8.65 million
American Casualty has been particularly unprofitable, leading to some bodily injury award* in December 2016 represented an increase of
insurers pruning their portfolio or exiting industries or lines of business. more than 200 percent over the prior maximum bodily injury award.
Increased bodily injury awards in Asia have not yet permeated into
Asian manufacturers’ Casualty programmes are driven by their pricing models.”
North American exports. The ‘America First’ attitude and increasing
protectionism has manifested in larger verdicts or awards against *Source: The Straits Times
Asian exporters. Further, the severe losses in North America are
increasing challenging Asian portfolios, which may lead to pricing Jim Amberson
corrections in 2018. Head of General Liability APAC,
Swiss Re Corporate Solutions

Asia Market Review 2018 11


Construction

2017 Rate Movements


Key Risks Affecting
10–15%
the Construction Sector
2018 Rate Movements Flat–10%
1. Economic slowdown/
slow recovery
Loss Experience
benign moderate severe

2. Increasing
competition
2017 saw a continuation of the softening market trend that had been
witnessed in 2016 and prior years. Sponsors, developers, and contractors
3. Major project
alike have enjoyed the benefits of a perpetual soft market cycle which has failure
offered an average alleviation in rates in the region of 10–15 percent for
projects reflecting similar risk profiles, compared to those that achieved
4. Cash flow/
financial close during the prior year. liquidity risk

Whilst the claims environment for coupled with more local challenges,
construction risk in Asia during the such as environmental and land disputes, 5. Commodity
past 12 months was benign overall, the contractual delays, and other varied and price risk

construction market has, however, been more specific owner/developer issues.


impacted during the course of the year by
estimated insurable losses in the region of Furthermore, whilst China’s much hyped 6. Regulatory/
“Belt and Road” Initiative has started to legislative changes
USD60 million as a result of Typhoon Hato.
Furthermore, significant natural catastrophe materialise and gain some momentum

events that have occurred outside the within Asia, there has so far been little
7. Workforce
region have impacted the global insurance evidence of these projects entering the
shortage
market. As such, these events may have regional market place, as for the most part

a bearing on how the insurance market they have been handled at a local level

addresses natural catastrophe exposures, and generally remained firmly within the 8. Damage to
as well as impacting premium levels for national interests of Chinese organisations. reputation/brand

catastrophe exposed risks as we move


In addition to the well-publicised “Belt
forward into 2018.
and Road” Initiative and other Chinese 9. Third party liability
Whilst the opportunity for investment is foreign direct investment (FDI), we (incl. E&O)

ripe in a number of Asian territories, the have also seen a steady flow of Korean

number of feasible and bankable projects and Japanese FDI funded infrastructure
projects entering the construction market 10. Failure to attract/
coming to fruition in 2017, compared
retain top talent
to earlier years has slowed, and 2017 throughout 2017. These projects, whilst

was viewed as a faltering period for the prevalent throughout Asia, are also

construction industry. A disproportionate springing up further afield in African and

number of large and more complex Latin American countries. Participation

projects have been delayed or been in these types of overseas projects

unable to achieve financial close in 2017. brings a myriad of risks to the numerous

This downturn in projects reaching stakeholders involved, with varying levels

financial close was due to a myriad of insurability, which our clients need to

of reasons, which include a general be cognisant of relative to political risks,

economic slowdown within the region, terrorism, and currency risks.

Asia Market Review 2018 12


As we have seen in prior years, the insurability of unproven technology, Outlook
continued development of new and particularly when the projects employing
In 2018, we envisage that we
enhanced power generation technology these technologies are marketed at
still see a further softening of
has remained a challenge for a number highly competitive terms and conditions. the construction market as
of insurers operating within the Competitive terms are naturally to be competition for projects combined
with insurer growth aspirations
construction and power sectors. Asia expected by developers and sponsors
prevail, albeit at a slower rate than
has for some time been seen as the entering a softening marketplace. we have witnessed in recent years.
go-to market for the original equipment However, at times, this has presented
Delay in Start-Up (DSU) remained
manufacturers when promoting their a challenge in completing some of the
a relatively underutilised cover in
new and enhanced power technologies, placements where the deployment of 2017. Looking forward, we expect
as a result of the increasing demand capacity has been limited due to the to see the continued trend that
and investment that has been prevalent perceived inadequacy of terms relative to the key driver of DSU procurement
will be lenders’ requirements on
in the region over the past few years. the risk presented by the project. Whilst project financed deals. However,
Manufacturers aiming to promote the use of unproven technology can be it is Aon’s view that given the
and sell their latest advancements in viewed as less problematic during the potential financial exposure clients
face and the current soft market
gas turbine technologies have in turn construction phase of a project, concerns
conditions, opting for an owner-
offered attractive incentives to owners, become more acute during the testing controlled insurance structure
who themselves have been seeking and commissioning phase, and even and transferring DSU exposure to
the insurance market is the most
competitive pricing and increased more challenging as the project moves
prudent course of action for the
efficiencies for the development of into its first year of commercial operation. majority of projects.
power plants. These incentives, which At this point, it becomes increasingly
Whilst insurers will no doubt
have included attractive manufacturers’ important that owners have negotiated
continue to view projects as
warranties, have proven to be an effective robust manufacturers’ warranties, they have in the past i.e. in line
sales tool in Asia’s price-elastic market. which will enable them to more easily with their internal product line
approach, we do believe that as
Consequently, the insurance market’s achieve the requisite level of cover and
the exposures and challenges
view and approach to some of the newest deductibles, as well as the competitive that developers are facing within
technologies can be best described pricing they desire when seeking terms the Construction sector become
as tentative, with underwriters often from the operational power market. increasingly complex, it will also
become increasingly important
struggling to accept and support the that the insurance market evolves
with our clients’ needs for greater
flexibility in their approach to
accepting risk. A more considered,
holistic approach to projects will
be an important step forward
for many, and the ability to bend
and flex to a client’s specific
needs will ultimately differentiate
these insurers from pure capacity
providers, and thereby enable
them to maintain and consolidate
a strong market position in the
coming years.

“For construction, 2017 saw the continuation of the soft market cycle. 2018 promises a number of large projects, including high speed
Particularly rail and wafer fab projects had very cheap rates. As we rail projects in Malaysia and Indonesia, Chinese backed projects in
end 2017, we still see broad coverages being granted by underwriters the Philippines, and region wide power projects. Hopefully, more
in Hong Kong, even after the market suffered typhoon loss and a premium in the market will allow underwriters to be more selective.
possible USD240 million hotel fire in Macau. There were also a number
of mid size losses elsewhere throughout the region that didn’t jog For operational power, 2017 saw underwriters getting squeezed
underwriters into corrective action. at both ends with rate decreases of 10–35 percent together with
increases for facultative reinsurance from the London market of 10–20
Towards the end of the year, a number of projects have been pushed percent. Whilst QBE decided to come off some risks, there appeared to
into 2018 which may make some underwriters, who haven’t met be little shortage of others to replace us.”
budget, desperate for any premium they can get. As a result, any
market pushback to cheap rates will be postponed to 2018. Brendan Dunlea
Regional Construction and Engineering Manager Asia Pacific,
QBE

Asia Market Review 2018 13


Default Risk
Structured Credit & Political Risk

2017 Rate Movements 5%

2018 Rate Movements Flat

Loss Experience
benign moderate severe

Despite economic growth in most large Asian countries strengthening in the


first half of 2017, a modest recovery in commodity prices and world trade
appearing on track to expand at its fastest pace since 2010; a key theme for the
second half of 2017 was continuing volatility in intra-Asian trade and investment
flows resulting in subdued volumes of transactions requiring credit and political
risk insurance.

The outlook for Asian growth has 16 percent to USD215.9 billion in the first Insurance enquiry volumes increased,
improved, largely spurred by an six months of 2017 compared to 2016 as did client demand for higher levels
improvement in the economic picture (USD256.6 billion), the lowest 1H level of indemnity, as increased geopolitical
in China, with better than expected since 2010 despite moderately improved instability led an increasing number of
external demand leading the Asian economic growth and M&A activity. financial institutions and multinational
Development Bank (ADB) to revise This comes on top of a nine percent companies (MNCs) to explore the use
upwards its growth forecasts for this year reduction in volume in 2016. of insurance to manage their exposure
and next. However, amid the positivity, to emerging market risks and to achieve
most analysts agree that it is impossible Crude oil prices averaging USD52/barrel better rates of return on capital. In
to make concrete predictions at a time YTD 2017 have been insufficient to offset 2017, insurers came under pressure to
when geopolitical risk remains so high. reduced export activity from China as offer increasingly lengthy policy tenors
This includes rising protectionism, the country continues to rebalance its in order to support longer bank loan
economic nationalism, the risk of a trade economy in its shift towards services and tenors. This trend is set to continue
war involving the U.S. and China, and technology, away from manufacturing. in 2018 as long term Engineering,
the risk of conflict between the U.S. and Procurement, Construction (EPC)
Uncertainty over the timing of increases
North Korea, which would be hugely contracts and infrastructure projects
in U.S. interest rates also continued to
destructive to regional supply chains connected to China’s “Belt and Road”
weigh heavily on transaction flows in the
and have a massive impact on regional Initiative reach the insurance market.
market in terms of transaction volumes,
trade flow and economic activity.
government decisions on major Sovereign and sub-sovereignnon-payment
According to the Asia Pacific Loan infrastructure investments, and delays in risk capacity rose to a notional USD2.8
Market Association, syndicated lending reaching financial close. billion per risk, while total credit risk
in Asia Pacific, excluding Japan, fell by capacity rose to USD2.3 billion per risk.

Asia Market Review 2018 14


Claims Outlook
2017 has been characterised by a significant number of
The economic growth outlook for at least the next few years.
debt defaults by sovereign borrowers (governments for the region remains generally This is, to some extent, being
of Gabon, Ghana, and Mozambique), credit defaults positive for 2018. The World counter-balanced by increasingly
by state-owned enterprise borrowers and private Bank is projecting Chinese active development banks and
economic growth to moderate export credit agencies in the
corporates as well as political risk claims across a wide to around 6.4 percent in 2018- region (public sector providers
range of industry sectors (agri-commodities and 19 as the country continues to of financing, credit and political
metals, telecoms, construction, mining, power and rebalance away from investment risk insurance, notably JBIC, NEXI,
and external demand towards Sinosure, KEXIM and K-Sure).
logistics) and geographies (China, Colombia, Ethiopia,
domestic consumption. Malaysia
India, Indonesia, Mozambique, Thailand, and Vietnam). is expected to grow more rapidly As far as regional security is
reflecting higher investment concerned, as we correctly
In May, state-owned International Bank of Azerbaijan and the recovery in world trade. predicted last year, North Korea
Gradual increases in growth are increased the frequency of
(IBA) defaulted on its USD3.3 billion of debt, and the provocative missile weapons
also foreseen for Indonesia and
bank’s subsequent restructuring, followed sustained Vietnam in 2018, the latter on the tests. However, the likelihood of
low oil prices sent the country’s economy and back of strong export-orientated full-scale conflict between the U.S.
manufacturing. Philippines is and North Korea in 2018 is low,
currency reeling.
expected to continue to be the but isolated exchanges remain
fastest growing of the large likely and the risk of unintended
Insurers estimate that in 2017, approximately USD650 conflict has increased.
ASEAN economies.
million of political risk and structured credit risk claims
North Korea is likely to
have been reported, are pending, or have been paid of However, this generally positive
intermittently “provoke” South
outlook for 2018 will be subject
which USD250 million have been in Asia Pacific. Korea and the United States
to the same significant downside
including by sending vessels over
risks of uncertainty around trade
the Northern Limit Line (NLL)
protectionism and escalating
or carrying out cyber-attacks.
geopolitical tensions which
Should the Trump administration
persisted throughout 2017 and
back away from the nuclear
led to low volumes of cross-
threat to South Korea and Japan
border trade, export and project
posed by North Korea, this may
lending. Any sanctioning of
increase the risk of a nuclear arms
“Whilst attention has been focussed elsewhere in the China by the U.S. would likely
race in Asia.
world as protectionism has grown strength over the past be hugely disruptive to Asia’s
few years, threats against foreign investors by a few Asian extensive hyper-connected Asia will still remain the most
leaders at the start of 2017 demonstrated that the region supply chains and have a massive attractive region to foreign
isn’t immune from the trend. Furthermore, as geopolitical impact on regional trade. investors, as it ticks a number of
tensions in the South China Sea have eased, we have seen boxes compared to Europe, Africa,
hostilities on the Korean peninsula take center stage, along Lower transaction volumes North America and the U.K.
with a pronounced increase in risk level in the Middle means the excess of (loan) supply
from lenders will continue to As this recalibration of Asian
East due to turbulence inside Saudi Arabia, regional
chase limited demand from market growth continues,
disagreements with Qatar and continued Sunni-Shia
borrowers in 2018, so we predict increased geopolitical tensions
tensions. These developments have spooked some of our
the overall quality and pricing in the region could generate
Asia clients and resulted in a notable increase in demand
of many transactions presented volatility in global financial
for Credit and Political Risk insurance for exports, lending,
to the insurance market from markets that could cause capital
and investments into North Asia and the Middle East.
corporate and banking clients outflows for some ASEAN
2017 has, however, seen Asia (notably China) take the will be generally lower than in economies, putting pressure
lead in promoting global cooperation, starting with Xi 2016 and 2017, and there will be on the currencies of several
Jinping’s firm defense of free trade at the beginning of an increasing number of cases export-oriented emerging
the year in Davos, and reaffirmed by his optimistic view where there is a misalignment market countries in the region
of globalisation expressed at the November APEC summit between client demand, bank to continue to come under
(in stark contrast to the words of his U.S. counterpart). market capability, and insurance pressure, for example, the
We’re confident this optimism will continue into 2018 market risk appetite. Malaysian ringgit, Thai baht and
with “Belt and Road” projects coming to fruition boosting Vietnamese dong.
intra-Asian trade flows and beginning to fill the significant As the rising cost of capital,
increased compliance costs, and We expect to see increasing
infrastructure gap that exists in the region. Credit &
banking regulations continue demand from both financial
Political Risk insurance will continue to play a critical
to bite, an increasing number institutions and corporate
role in facilitating, with increased cooperation between
of previously very active clients for cover for sovereign
private insurers and local Export Credit Agencies ensuring
international investment banks and sub-sovereign non-payment
capacity is available for increasingly large deals.”
are scaling back their long-term risk and exchange transfer risk
infrastructure funding activities (cover against currency controls
Tim Warren
in Asia at a time when Asia’s being implemented by certain
Head of Credit Lines Asia Pacific,
infrastructure funding gap is governments to prevent
Zurich
projected to be at its widest capital flight).

Asia Market Review 2018 15


Default Risk
Trade Credit

Overall flat with some variations


2017 Rate Movements
in geography & sectors

2018 Rate Movements 0–5%

Loss Experience
benign moderate severe

In our previous report, we commented on how insurers had exerted a


great deal of effort in tidying up their existing books of business, and had
significantly reduced exposure in certain areas in order to prime their Asian
portfolios for growth in 2017. This trend did not bear out as predicted and
instead, 2017 saw a continuation of a number of trends exhibited in 2016.

Insurers continued to review their Commodity prices, whilst showing corporate governance, rather than purely
positions and reduce exposure to a some signs of recovery, were still as a risk transfer instrument.
number of industries and countries, depressed compared to historic levels,
particularly focussing on China, India, China’s economy exhibited slower than In 2015, 2016, and 2017, a number of

and hard commodities. The focus on usual growth as it continues to shift unexpected losses occurred which

Know Your Client (KYC) and the amount towards a service driven model, and shocked the market, with a couple of

of leverage in clients’ supply chains international trade was affected by a significant value (eight-figure sum)

continued to be a concern for insurers rising tide of protectionism and political defaults in Singapore and China. In both

and in particular the lack of transparency uncertainty. Driven by a consistently cases, businesses with strong balance

in some countries around buyers was poorly performing local economy and sheets suffered major defaults due to

a material challenge for underwriters. shrinking population, we continued to operational issues which were largely

Therefore, overall, the market was see significant Japanese foreign direct out of their control and which trade

relatively stagnant in 2017 with the lack investment in 2017. As Japanese, Chinese, credit underwriters did not foresee.

of growth representing the continuing and Korean firms continue to expand These high profile losses were another

concern over transparency and accuracy into and invest in foreign markets, we contributing factor to markets reviewing

of risk information. are seeing an increase in clients seeking internal processes and acceptable limits,

to utilise trade credit insurance as a and interestingly to CFOs, Treasurers,


Overall, trading conditions were mechanism to reduce their cost of capital, and CROs, reviewing the potential cost
challenging for Aon clients in 2017. increase free cash flow, and improve of default to their businesses.

Asia Market Review 2018 16


Trade Credit Underwriting Appetite Outlook
Attractive Cautious Adverse In 2018, we expect to see a
more stable trade credit market,
Country Industry / Sector Focus with insurers seeking to grow
their books steadily in a few key
Japan China Mining Hard Commodities
areas. Electronics and financial
institutions will be target areas
India Brazil Heavy equipment Automotive for a number of insurers and
procuring cover for Chinese and
Fast Moving
Russia Singapore Pharmaceutical Indian risks will continue to be
Consumer Goods
a challenge in the coming 12
Hong Kong Korea Food & Beverage Chemicals months, albeit overall we expect
the market to deliver coverage at
the required levels.
Electronics Financial Institutions
KYC and the quality of
Soft Commodities underwriting information
will continue to be a focus
for underwriters. Clients will
increasingly be expected to
produce registration documents
However, 2017 wasn’t doom and gloom financial institution facilities, are typically
and underwriters will ask for
for all businesses; the electronics sector in backed by Trade Credit insurance, an ageing of the ledger. These
Asia performed strongly and a number of allowing the discounter to provide funds are requirements which have
new FinTech platforms emerged offering to the supplier, secure in the knowledge been in place in mature markets
for a number of years, and are
innovative new services. One particular that its own shareholders are protected symptomatic of the tightening up
area of development was around against default risk. Whilst this trend of underwriting practices which
factoring, where bricks and mortar is not yet a head-on and immediate are occurring in Asia.

financial institutions are experiencing scaled-up threat to the operations of From a client perspective, in
competition from potentially disruptive traditional players in the factoring space, 2018, insurance product
new blockchain based models. A number FinTech platforms look primed to capture innovation will be a key focus.
Insurers who are able to offer
of platforms emerged over the past 12 market share in the coming years. From flexible solutions which fit around
months, allowing suppliers to sell invoices an InsureTech perspective, there has also clients’ businesses and online
online through easy to navigate flexible been a considered and concerted effort platforms to support clients’
innovative business models,
systems and products which provide to invest in artificial intelligence, big data,
transactional flows, and reporting
quick access and decisions regarding and modelling capabilities in order to requirements will find themselves
invoice discounting facilities. These improve underwriting results. significantly better positioned than
those who cannot.
platforms, as with many of the established

“2017 has continued to see both opportunities and challenges in closer focus on risk management and profitable business growth
the Trade Credit space for QBE. While new business growth was through strong existing relationships and quality new business
seen in a number of sectors including electronics, technology, coming into the region. The continuing difficulties of disclosure in
and financial institutions, those more traditional markets such as certain parts of the region will make this a challenge and therefore, a
commodities, construction, and engineering have continued to be tighter disciplined approach to on-boarding clients who have strong
difficult, and 2018 does not indicate anything different based on relationships with their own customers is critical in moving the Trade
the macroeconomics flag seen in those markets. The development Credit product forward in Asia.”
of Fintech and blockchain platforms will continue to develop within
the market and the importance of knowing our customers and
understanding the true rationale in purchasing the product.
Barry Robinson
As we move into 2018, capacity is still available throughout the Head of Credit & Surety Asia,
region, and a stable balanced underwriting approach is needed with QBE

Asia Market Review 2018 17


Energy

Offshore 0–10% Key Risks Affecting


2017 Rate Movements
Onshore 5–20% the Energy Sector
Upstream 10% –10%
2018 Rate Movements
Downstream 10% –10%
1. Commodity
price risk
Offshore
benign moderate severe
Loss Experience
Onshore 2. Regulatory/
benign* moderate severe legislative changes

* some global losses of significance outside Asia

3. Political risk/
uncertainties
In 2017, the sustained depressed oil price continued to have a significant
effect on the oil and gas industry. Reductions in the cost of fracking, the
U.S. becoming a net exporter of oil, and a sluggish global economy all 4. Economic slowdown/
slow recovery
contributed to a continued lower commodity price. This resulted in over 50
percent of global jack-up capacity being laid up, and the oil majors diverting
expenditure to fracking in the U.S., or alternatively, turning to gas in Asia. 5. Business
interruption

Indeed, with the low oil price conditions the multiple stakeholders and service
and ageing oil fields, the Asia region is providers in a decommissioning project,
now seen as a mature, marginal field play but taking a liability rather than property 6. Environmental risk
by many in the industry, requiring low cost focussed approach.
operations and financial security for end
of life abandonment. Whilst the prevailing In 2017, Aon witnessed clients taking 7. Cyber crime/
an increased interest in risks which, in hacking/viruses/
conditions are markedly different from
malicious codes
those five years ago, private equity firms, previous years, had been described

banks, and smaller producers still have as “emerging” and “on the radar”

appetite to play in this space and are but not necessarily key priorities. Aon 8. Damage to
fielded a number of enquiries around reputation/brand
snapping up the assets of traditional oil
and gas majors in the region. cyber insurance and the extent to
which traditional coverage would
In these conditions, there is evermore indemnify them in the event of a cyber- 9. Major project
failure
impetus on clients to adequately protect attack. Existing energy wordings are
their balance sheets at reduced premium currently considered to be insufficient,
levels. Furthermore, decommissioning and therefore clients are advised to
10. Increasing
is increasingly becoming an issue purchase standalone cover for this competition
which the industry is forced to deal peril. In addition, contingent business
with. Decommissioning carries with it a interruption (CBI) was an increasingly
number of risks, including Environmental important focus for clients, with the
Liability, Removal of Wreck and Debris, market under pressure to provide CBI
Employers and Public Liability, and extensions, contrary to previous years’
Financial Guarantees, and Aon is seeing underwriting conventions. Along with
an increase in client enquiries regarding cyber and CBI, terrorism and political
specialist cover as a result. This presents risk emerged as additional key risk
an opportunity for the insurance themes for the year, particularly within
market to innovate and come up with the onshore sector. Major infrastructure
new products to meet this client need remains a key target for terrorists, and as
with Decommissioning All Risks style the threat level intensifies in the region,
wordings, which behave in a similar clients became increasingly cognisant of
way to construction policies, covering their exposure.

Asia Market Review 2018 18


In addition to differing focusses on A key change is in the behaviour of Outlook
coverage, clients became increasingly Japanese and Chinese insurers, with
One of the key challenges to risk
concerned with insurers’ ability and an increased appetite for writing
professionals in the Energy sector
willingness to handle and pay claims. non-national interest business, which that we foresee in 2018 is the
This trend is expected to continue is significant to their respective nature of risk management roles.
The large premium reductions
and intensify further in coming years. domestic market places. Chinese
which have been available in
Specialist Aon-client claims advocates and Japanese insurers have also been previous years will not be on
continue to receive a greater volume looking beyond their borders for offer in 2018. We expect risk
of large and complex claims each year investment opportunities, representing managers will find themselves
under pressure to deliver added
from the Energy sector and elsewhere, an interesting new dynamic as these value outside of pricing reductions
as regulatory, legislative, and contractual markets now become direct competitors and to develop more advanced
environments become increasingly with markets that provide them with and strategic risk finance plans.
Procurement driven market
complex. Moreover, property claims reinsurance capacity. In addition to
quotation tender processes are
continue to increase in quantum with witnessing changes in insurer behaviour, unlikely to deliver the value they
the incorporation of new, expensive in 2017, Aon also witnessed changes in have done in previous years.
Therefore, we expect an increased
technology in client operations, and Japanese and Chinese client behaviour,
emphasis on tenders seeking
adverse weather events become with a number of previously domestic brokers’ intellectual property,
more frequent. placements now being placed, via a rather than simply ascertaining the
broker, directly into international markets market price.
Market news was fairly limited in 2017, in Singapore and London. This trend With global oil prices suppressed
but Ascot exited the downstream market, is expected to grow further in the for a number of years, refining
while AXA entered it, with AXA’s foray coming years. capacity is set to significantly
into the offshore market expected in increase in India, the Philippines,
Malaysia, Vietnam, and Indonesia.
2018. Zurich is also expected to re-enter
These new projects bring very
the downstream market in 2018. large risk exposures which must
be adequately addressed, and
possibly an increase in oil prices
in the medium-term. If the
global economy strengthens and
domestic demand in a number
of Asian countries continues to
grow, rising oil prices would also
foreshadow a number of currently
“2017 has seen a stabilising of commodity prices. This has enabled players in the upstream and
idle assets being reactivated. From
downstream energy industry to be more confident about forecasting future projects, and we’ve
an underwriting perspective, the
seen a positive trend towards new activities in exploration and expansion of production.
quality of these assets and their
In turn, this optimistic view of the future will, and is already translating into increasing demand crews will be a key concern,
for risk transfer solutions, not only for the standard product range, but also including requests with adverse loss experiences
for Cyber, Environmental Liability, Business Interruption, and Political Risk to mention a few. being anticipated.

At the same time, Energy insurance is still largely a global line of business with global markets As the losses from hurricanes
dominating the insurance panels. As such, we expect the recent catastrophe events in the U.S. to Harvey, Irma, and Maria, which
have a corrective impact on insurance terms and conditions, and in particular, for certain higher battered the Caribbean and North
catastrophe-exposed regions in Asia. America this past summer, are
felt, there may be an increased
As well as traditional covers, there is a trend to consider alternative risk transfer solutions, such focus on premium levels by the
as parametric solutions, to complement traditional insurance programmes and help plug the main insurers and almost certainly
protection gaps for hitherto uninsurable risks.” greater scrutiny on natural
catastrophe sub-limits.
Andre Martin
Head Engineering & Construction APAC,
Swiss Re Corporate Solutions

Hon Chan
Senior Underwriter Energy Offshore,
Swiss Re Corporate Solutions

Louise Wai
Senior Underwriter Energy Onshore & Utilities,
Swiss Re Corporate Solutions

Asia Market Review 2018 19


Financial Lines

2017 Rate Movements 5–10%

2018 Rate Movements Flat

Loss Experience
benign moderate severe

2017 was another year in which buyers of financial lines insurance enjoyed
further rate reductions. Whilst rate movements differed between insurance
lines and are risk specific, on average, we saw reductions of the order of five
to 10 percent for most risks. Loss experience could be described as benign
to moderate, with some notable large losses witnessed over the course of
the year.

FinTech, InsureTech, and other To ensure safe and quality medical Interesting statistics from
technology disruptors have dominated care for the public, Malaysia’s Ministry The Association of Certified
many of our client conversations over of Health has amended the Medical
Fraud Examiners annual global
the past year. However, whilst financial (Amendment) Act 2012 and Medical
survey of its members:
institution clients are cognisant of the Regulations 2017, which came into force
potential opportunities and disruptions on 1 July 2017. Under the new rules,
presented by new market entrants in the doctors must have insurance in place,
Typical
financial services sector, we are yet to see and attend continuing professional
organisation loses
these firms have a tangible impact. As development courses to upgrade their
traditional financial institutions partner skills, before they can renew their Annual 5%
of annual revenue to
with start-ups, we are seeing an increased Practising Certificates. This is just one
fraud each year
interest in hybrid, financial lines solutions further example of the tightening of
offering blended coverage to meet the regulation in the region and the
demands of the FinTech phenomenon. renewed focus on patient protection. Almost
1 in 4 (23%)
Healthcare Crime insurance fraud cases caused
The healthcare market in Asia remains a A key challenge with the crime insurance losses of at least
market split between insurers offering portfolio in 2017 was the extent to which USD1 million

claims made and claims occurring losses resulting from cyber events would
solutions, with more underwriting be covered under crime insurance.
Frauds lasted an
aligned with the claims made portfolio. Continuing with the 2016 trend, insurers average of
Legal developments in the medical demonstrated an increasingly conservative
risk transfer appetite for the extent of
18 months
malpractice portfolio show authorities before being
leaning towards a more patient-centric cyber risk underwritten within their detected
approach, and away from a “doctor crime portfolios. This became a more
knows best” attitude. The implication of pronounced issue for social engineering
these developments is clear; maintaining risk, which in 2017 saw an increase in the 58.1%
level of sophistication of attack methods, of victim organisations
fit for purpose medical malpractice do not recover any
insurance is essential for practicing as too the frequency of attacks. Into 2018,
losses suffered
and retiring doctors. Hence with the we expect this trend to continue, with due to fraud
latter, the continued demand for claims underwriters attempting to further tighten
occurring insurance protection. wordings and restrict cover.

Asia Market Review 2018 20


Professional Indemnity (PI) have made it clear that all sponsored Outlook
As with other specialty liability insurance ADRs are subject to U.S. securities laws
Social engineering fraud risk
portfolios, the 2017 Asian market regardless of what level they fall into. The
will continue to be a challenge
experience stood apart from global Volkswagen opinion is significant because for the crime portfolio, and
claims trends. International PI portfolios it is the first to consider thoroughly how risk differentiation will be an
important strategy during renewal
experienced a number of significant loss the Supreme Court’s 2010 Morrison
negotiations. We have seen a
events in 2017, whilst the Asian market v. National Australia Bank Ltd. opinion marked increase in demand for
experience was significantly more benign. should be applied in the context of social engineering risk management
private federal securities claims under services across our portfolio. This
For the large global insurers, we expect
type of activity can favourably
more disciplined underwriting aimed at the antifraud provisions of the Securities position clients in seeking optimal
achieving technical rate countered by a less Exchange Act of 1934 with respect to the coverage and maximising available
purchase of ADRs in the over-the-counter insurance limits.
litigious regional environment, coupled
with strong competitive tensions by (OTC) market in the United States. All The Australian financial lines
regional and domestic insurance capacity. companies with sponsored ADRs need market, which is sometimes taken
to be aware of their exposure to U.S. as a forecast of coming changes
in the Asian market, has been
Another notable trend in 2017 was an securities laws and should be purchasing
experiencing significant claims
increased demand for construction PI D&O insurance accordingly. Companies activity, both in terms of frequency
insurance. Project owners and principals should not be caught off-guard under and severity. Insurers have been
are adopting a more comprehensive the prior held view that sponsored ADR imposing significant premium
increases, reducing capacity,
approach to construction risk aimed (level 1) is not exposed to U.S. securities
and tightening coverage. These
at addressing risk transfer gaps with class action laws. hard market dynamics are set to
contractor and sub-contractor design continue into 2018 in Australia.
D&O rates softened for the first half of Even though some of the global
professionals. Such coverage is designed
2017 and then started to flatten in Q3 & insurers present in Australia
to address, in a seamless manner, the risk have Asia Pacific underwriting
Q4. In Q4, insurers were more resistant to
of financial loss, property damage, and portfolios, the events in Australia
coverage enhancements and there were are unlikely to migrate to the Asian
bodily injury arising from negligence and
declining opportunities where technical financial lines market.
other design errors on the part of third- rate was not being realised, specifically for
party consultants and contractors where Overall, we expect greater focus
the U.S. component of the D&O portfolio.
on underwriting discipline
limited recourse is otherwise available. It is important to note with U.S. exposed primarily driven by global
D&O risk, the Asian market has historically directives and a reduction in
Directors and Officers been discounted to other U.S. exposed aggressive underwriting tactics
(D&O) liability to achieve growth. The financial
risk, and therefore this trend is more of
lines market is expected to
A landmark decision involving Volkswagen an alignment rather than a correction. be flat on average, with rate
extended the jurisdictional reach of U.S. However, the remaining component of reductions available for risks that
class actions to companies with level the portfolio, including those accounts can positively differentiate from
peers, and potentially some rate
1 American Depository Receipt (ADR) with attractive risk profiles, continued to increases for risks with distressed
programmes. Recent rulings in the U.S. benefit from rate reductions. risk profiles.

“Medical malpractice costs are expected to rise with increasing drug Governments are responding with the introduction of safeguards.
costs, advanced treatments, and escalating medical inflation. In Asia, Liability reform that caps non-economic damage awards can
an award of USD5–10 million on a medical malpractice case is not only help to stabilise outcomes in the medical malpractice litigation
uncommon. It is no longer the exception but rather the norm. arena. Other notable risk management measures such as the
Apology Act in Hong Kong, and the advocating of mandatory
Increasingly, modern medicine has witnessed technological evolution medical malpractice insurance purchase in neighbouring jurisdictions,
at a pace not witnessed before. These include mobile apps that are are prudent and welcomed.”
revolutionising healthcare delivery, the advent of telemedicine, and
robotic arm technology.

Undoubtedly, medical malpractice insurers must evolve from simply Kamal Hamzah
being capital providers to complete holistic solutions providers, Medical Malpractice Underwriting Manager, Asia Pacific,
arming their clients with knowledge on effective risk mitigation Chubb Asia Pacific
techniques, for instance.

Asia Market Review 2018 21


Health & Benefits

2017 Rate Movements 8–10%

2018 Rate Movements 9–11%

Loss Experience
benign moderate severe

Our review of the employee benefits market in Asia in 2017 begins with a key
statistic which impacts upon business sustainability. Employee engagement
across the region has slipped several points to 62 percent 1 with China
experiencing a 3 percent drop and India and Japan both registering a 2
percent decline. There are several reasons this Key Performance Indicator
(KPI) is significant.

The primary factor driving engagement macroeconomics trends, including to meet specific employee needs are
across the region is ‘Reward and protectionism, suggest that Asia can ill becoming increasingly successful at
Recognition’2. In today’s market, afford this inflationary outcome. Should attracting the hottest talent4”.
increasing remuneration or pay Asia stumble and lose its competitive
represents the best opportunity to edge, Latin America is poised to benefit What does this look like and why is it
engender an uptick in engagement. In from inflows of global capital. so important?
markets such as China, it is common
This deterioration in engagement Firstly, let’s take a step back and address
practice for employees to job-hop their
coincides with the finding that 52 what are continuing themes in this, the
way to higher pay. But, it begs the
percent of organisations are committed Asian Century. Asia now represents 61
question, is this practice sustainable?
to exploring new benefits that meet percent of the global population, but the
The obvious risk is that increased employee needs, a full 12 points up from real story on population is that by 2020
competition for talent and wage the previous year3. This is supported by 54 percent of the world’s middle class
inflation will produce a higher cost the concept of ‘Mass Customisation of will live in this region5, and increasingly
of goods and services, irrespective Rewards’, whereby “organisations that are concentrated in urban areas6.
of industry sector. The prevailing able to tailor their rewards programmes

2017 Aon Trends in Global Employee Engagement Survey

Engagement
Region Change Top Engagement Opportunities
Score
Global 63% -2% Rewards & EVP Senior Leadership Career Enabling
Recognition Opportunities Infrastructure
North 64% -1% Enabling EVP Rewards & Senior Leadership Performance
America Infrastructure Recognition Management
Latin 75% +3% Rewards & Senior Leadership Enabling Collaboration Career
America Recognition Infrastructure Opportunities
Africa 61% +2% Talent & Staffing Career Rewards & EVP Work/Life Balance
Opportunities Recognition
Europe 58% -2% Rewards & EVP Enabling Career Senior Leadership
Recognition Infrastructure Opportunities
Asia-Pacific 62% -3% Rewards & EVP Career Opportunities Work Fulfilment Senior Leadership
Recognition

1 Aon 2017 Trends in Global Employee Engagement


2 Aon 2017 Trends in Global Employee Engagement
3 Aon APAC Benefits Strategy Study 2017
4 Aon People Trends Report 2017
5 Global Economy and Development at Brookings Institute: The Unprecedented Expansion of the Global Middle Class: An Update (February 2017)
6 United Nations: World Urbanisation Prospects 2014 Revision: 50% of people concentrated in urban areas.

Asia Market Review 2018 22


OECD Out-of-Pocket (OOP) Costs (CAGR) of five percent 2015-2020). The over-arching challenge then
as Share of Total Expenditure Aside from the expanding middle for many organisations is to affect
class and rapid growth of chronic an orderly transfer of intellectual
Country % OOP Cost
diseases, it is an ageing population property, satisfactorily addresses
India 62.4% and costly development of clinical and multi-generational talent management
Pakistan 56.3% pharmaceutical innovations that are requirements, all the whilst avoiding
Singapore 54.8% key drivers of healthcare expenditure. In blowing up their cost base and losing
Philippines 53.7% dissecting Asia’s healthcare expenditure market competitiveness.
Indonesia 45.2% by payer source, governments
Vietnam 36.8% contributed 50.1 percent of total health 2018 Trends
Malaysia 35.3% expenditure and consumer out-of- Our world is experiencing unprecedented
pocket costs totaled 42.2 percent10 in levels of political, economic,
China 32.0%
2014. The balance was funded by Asia’s technological and social change, with
Japan 13.9%
developing private medical insurance organisations facing the challenge of
Thailand 7.9%
market. Driven by an underlying disruptive technologies being one
medical inflation rate of nine percent11, of the top 10 global risks by 202013.
Generally, urbanisation is characterised Organisational success is now driven by
this consumer co-pay to access quality
by significant lifestyle changes which the mantra ‘adapt or die’.
healthcare is forecast to significantly
results in a deterioration of health and
outpace public health expenditure and
well-being set against the backdrop As organisations strive to attract and
Consumer Price Inflation (CPI).
of rising community expectations of retain the best talent in their quest to
improved health outcomes. The funding of healthcare is not the only drive growth in revenue, profits and
rewards related area where organisations shareholder earnings, here are some of
Across the developed world and much
explicitly recognise the yawning the key trends that we expect to either
of Asia there has been a generational
gap that exists between current and emerge or gather steam.
change in the community disease
desired states. Improving the physical
burden from communicable to non- Data is king. With our focus on the
and financial well-being of employee
communicable in nature–due in part inter-dependency between talent
populations is a trend that has been
to national government and non- management, employee engagement,
emerging for several years but is now
governmental organisation’s efforts employee well-being and cost
resonating more strongly due to:
to largely eradicate the scourge of competitiveness, data is essential
communicable diseases such as malaria, • An ageing workforce financially to driving informed discussion. Yet,
cholera and Hepatitis B. In their place ill-prepared for retirement today, 89 percent of organisations are
has come the proliferation of chronic • Impact of chronic illness that still surveying employee engagement
illnesses attributed to the adoption of drives absenteeism and dilutes just once per year14. It’s a similar
a western lifestyle. By 2020, 50 percent productivity metrics story regarding employee feedback
of global healthcare expenditure, on benefits15. Organisations that are
• Demand from Gen Y & Millennials
approximately USD4 trillion, will be setting the pace in creating engaging
for health engagement tools
consumed by the three leading causes rewards programmes are gathering
of death: cardiovascular diseases, cancer In Singapore, for example, there is a
demographic, benefits and claims data
and respiratory diseases7. sizeable gap between organisational
real-time through digital channels. They
aspirations and the current provision of
identify macro trends early and make
As we pivot back to Asia, healthcare financial well-being tools and resources.
incremental changes to their benefits
expenditure is forecast to reach 6.7 Some 69 percent of employers want to
programmes that drive improvement in
percent of GDP in 20178 and grow assist employees in setting their financial
engagement scores.
in total to USD1.96 trillion by 20209 goals yet only 25 percent provide
(Compound Annual Growth Rate employees with the relevant tools12.

7 World Health Organisation “Top 10 Causes of Death”


8 The Economist Intelligence Unit forecast for Asia & Australasia
9 The Economist Intelligence Unit: World Industry Outlook, Healthcare and Pharmaceuticals, June 2016
10 OECD/WHO Health at a Glance Asia-Pacific 2016
11 Aon Global Medical Trends Report 2018
12 Aon Singapore Retirement Financial Wellbeing Survey 2017
13 Aon 2017 Global Risk Management Survey
14 Aon 2016/17 Trends in Global Employee Engagement
15 Aon 2016/17 Trends in Global Employee Engagement: 16% of respondents don’t gather employee feedback on benefits, 60% father data manually, in-house.

Asia Market Review 2018 23


Top focus areas Past Future

Improve employee engagement and morale 59%


62%
Align with global or corporate benefits strategy 44%
45%
Explore new benefits that meet employee needs 40%
52%

Understand employee behaviour and preferences 36%


36%

Contain healthcare related cost increases 35%


34%

Streamline administration efficiency 33%


22%

Improve employee health and financial well-being 32%


42%

Partner with providers on innovative benefits solutions 26%


38%

Source: Aon APAC Benefits Strategy Study 2017

Digitisation is now. The digitisation of financial services that promote greater employee relationship. Environmentally,
healthcare administration and member flexibility, choice and cost-efficiency in this will play out in the next generation
service is already in full swing across employee benefits expenditure. of workplace wellness programmes
much of Asia, in both emerging and along with other benefit programmes
mature markets. Mobile applications Driving engagement through including maternity/paternity leave, Paid
are allowing employees to lodge and communication. Consumers today Time Off (PTO) etc. Facilitated by digital
track their claims as well as accessing are exposed to up to 10,000 brand communication channels, we forecast
information on clinic availability, messages a day and reportedly switch a significant increase in the distribution
benefit limits etc. Insured benefits between screens up to 21 times and utilisation of consumer health and
broking and benchmarking is now an hour. By 2020, leaders will have well-being engagement tools through
occurring in a digital environment that to communicate with at least four the workplace, including wearable
drives transparency, cost-efficiencies generations with 50 percent of the devices. These tools will drive changes in
and timely outcomes. Availing these workforce being millennials. In Asia, employee lifestyle behaviours, improve
operational efficiencies is critical to there are already 2.7 billion unique health risk and increase productivity and
both cost-management and employee mobile subscribers16 and 1.9 billion engagement metrics.
engagement objectives. internet users17. We forecast a significant
investment in resources to leverage It is people who create business value,
Mass customisation of rewards. digital and social media channels which is why attracting and retaining the
Resolving the intrinsic tension to create compelling content that right talent is fundamental to building an
concerning cost/benefit trade-offs educates employees on their rewards organisation’s competitive advantage.
requires a clear understanding of and recognition programmes and Today, organisational thinking and
employee needs and how these align encourages them to become strong actions have to be nimble with data
with organisational talent and reward employment brand advocates. assessed real-time to drive strategic
objectives. Whilst there is evidence benefits direction. Digital channels must
that both the prevalence and scope Beyond work/life balance. The be maximised for benefits administration
of employer sponsored medical plans World Economic Forum’s drivers of and communication purposes. Employee
is expanding, that is only part of the change study found that the changing benefits and rewards programmes
answer. In responding to an individual’s work environment and flexible work need to become increasingly agile and
health, financial and lifestyle needs arrangements attracted top billing with flexible to drive engagement in a cost-
we forecast a rapid growth in the a 44 percent rating. Work boundaries are sustainable fashion.
distribution of voluntary insurance and blurring, as is the traditional employer-

16 GSMA: The Mobile Economy Asia-Pacific 2017


17 Internet World Stats

Asia Market Review 2018 24


Marine

Marine Cargo 10% Key Risks Affecting


2017 Rate Movements Marine Hull & Liability 10%
the Marine Sector
Protection & Indemnity (P&I) 5%

Marine Cargo 0–5% (segment


dependent) 1. Damage to
2018 Rate Movements
Marine Hull & Liability 5% -5% reputation/brand
Protection & Indemnity (P&I) 0–5%

Loss Experience 2. Increasing


benign moderate severe competition

3. Economic slowdown/
2017 was another challenging year for the maritime industry with slow recovery
continuing, depressed commodity prices, sluggish global trade, and
a wavering global economy. Buyers of insurance sought and achieved
4. Cyber crime/
premium reductions across the main classes of Cargo, Hull, and P&I, with hacking/viruses/
reductions on offer of five to 10 percent on average depending on the malicious codes

line of business, risk, and loss record. A benign claims environment in Asia
insulated insurers against another year of soft market pricing conditions. 5. Regulatory/
legislative changes

The spate of industry mergers and and appetite for these risks, with cars
acquisitions (M&As) witnessed in recent particularly negatively affected. The poor 6. Failure to attract/
years showed no sign of letting up in historic loss experience of the sector retain top talent
2017. Asia’s largest container line, China’s means that even automotive sector
Cosco Shipping Holdings, announced clients who are willing to take large self-
7. Failure to innovate/
that it would pay more than USD6 billion insured retentions face steep pricing and
meet customer needs
for rival Orient Overseas International, a dearth of capacity on offer.
which owns the world’s biggest vessel.
Denmark’s A.P. Moller-Maersk is also in Within the commodity industry,
several insurers suffered severe losses 8. Business
the process of acquiring Hamburg Sud. interruption
In 2017, there was a tangible increase in as a result of misappropriation, which

the number of M&A transactions across potentially have values running into

all industry sectors where Warranty and the hundreds of millions of dollars. The
9. Cash flow/
Indemnity (W&I) insurance often plays influence on premium appears limited, liquidity risk
a key facilitating role. W&I benefits both but as a result, insurers moved to exclude

parties in an M&A transaction and the cover, sub limit cover, and impose large

popularity of this type of cover is set to aggregate deductibles.


10. Property damage
grow exponentially in the coming years.
2017 was also a year of increasing
maturity in the market. We saw more
Cargo
clients enhancing their existing cargo
The cargo market in Asia remained soft
programmes, and achieving coverage
in 2017 with premiums decreasing in
and pricing improvements by utilising
combination with the widest covers we
more sophisticated stock throughput
have ever seen, whereas London has
(STP) programmes, rather than covering
experienced some levelling off in the last
cargo through supply chain under
quarter of 2017.
separate property and cargo programmes.
Cars, pharma, and commodities were Although commonplace in many
segments hit by losses globally and as a developed markets, STP programmes are
result, we saw a withdrawal of capacity still underutilised in Asia.

Asia Market Review 2018 25


For 2018, we still see reductions possible P&I Members, this is sure to be much more
for good performing and well-managed The P&I Clubs that make up the welcome than the token credits on past
risks; however, in specific industry International Group continue to sit on years that Clubs have tried to appease
segments like cars, pharma, and an embarrassment of riches, with over Members with of late.
commodities, we expect more restrictive USD5 billion in the collective treasuries.
underwriting by insurers. The Britannia’s ‘membership dividend’
This is due in part to the still benign is to be applauded, as is the Gard’s
Hull & Machinery (H&M) claims experience, but also to a pleasing cancellation of last year’s 25 percent
The status quo continued in Asia during investment return for the year ending deferred call. The Swedish Club has
2017 as owners continued to enjoy 20 February 2017, which brought in an also shown some innovation (and
modest reductions alongside broad additional USD368 million. confidence!) with its four percent return
cover and low deductibles. Whilst on the current year. However, these and
underwriters lamented what they Clubs might point to an increase in the other concessions are, in the scheme
saw as an unsustainable position, the Combined Net Ratio, which rose on of the Clubs’ collective progress, fairly
relatively low incidences of loss and the average from 91.36 percent to 94.39 insignificant, and a General Decrease
continuing influx of capacity supported percent. However, this is not indicative would be more readily welcomed by the
the incessant drift of this soft market. of a worrying trend, but instead, the majority of risk managers and owners
result of waivers of calls and returns of that we have spoken to.
The international H&M market continues premiums that a number of the Clubs
to talk of a coming ‘hardening’, and have made this year. Also on the agenda this year is a
whilst evidence of this in practice so far potential extension of cover to include
is scant in Asia, the logic is hard to refute. From a P&I perspective, however, the ground-up P&I war risk, which is
Hull insurers, who are for the most part soft market still appears to have some currently insured by most owners
commercial entities, are simply not way to run, and even a number of high under their H&M/War policy to hull
making enough money from this line. profile Pool claims this year will fail to value, and in excess of that with the
International Union of Marine Insurance trouble the Club boards as they meet P&I Clubs. Provided that Clubs can
(IUMI) and The Nordic Association of in the coming weeks to agree on their bear the cost of this additional cover,
Marine Insurers (CEFOR) data continue General Increases. we are all in favour of this move, and
to show that many insurers are writing it would perhaps remove some of the
Aon wonders however, whether
a breakeven at best book, with no room uncertainty which abounds in this area,
‘General Increase’ is an appropriate
for larger losses, and even less room for for example, regarding the passenger
consideration in the current market and
further reductions in premiums. liability regulations, where Clubs issue
perhaps a ‘General Decrease’ would be
certification from ground-up regardless.
Aon continues to monitor the situation, more fitting! On the face of it, this might
but we anticipate that, as we head into seem amusing. However, should a Club
2018, we are approaching the bottom of actually be brave enough to consider
this soft market. a uniform reduction in rates for its

Asia Market Review 2018 26


Marine Liability Business Interruption (BI) loss suffered by Outlook
In 2017, the size and insured values Maersk forecast to be as much as USD300
Looking ahead to 2018, we do
of Ports and Terminals in the region million in lost revenue1. The cyberattack
not foresee the large premium
continued to increase, as did the size and caused outages of Maersk’s computer reductions which have previously
value of ships and cargo. As this trend systems across the world. Maersk’s been available to clients in prior
years, although savings may
continues, clients faced with increasing port operator, APM Terminals, was also
still be possible for risks which
aggregation of risk will be keen to ensure affected with a number of hard drives present well. Clients may well
that they are buying sufficient coverage. rendered inaccessible by ransomware. look to rearrange their existing
A number of high profile losses have programmes in order to seek
efficiencies in their insurance costs,
Within the traditional logistic insurance begun to crystallise cyber risk in the mind if they do not think a standard
market, the majority of insurers in Asia of Aon clients across multiple industry renewal approach will be effective
still provide limited and restrictive sectors. The Marine and Logistics sectors – consider STP arrangements
liability covers. In 2017, we saw insurers rather than traditional cargo and
can be especially exposed due to the
property covers.
being more willing to insure “full value” increasing use of technology in complex
liability for their clients, empowering supply chains. The extent of BI coverage In 2018 and beyond, digitisation
and technology will have an
clients with wider and more flexible available to clients under traditional
even greater impact on the
insurance solutions. Property Damage & Business Interruption maritime industry. E-commerce
(PDBI) policies is an area of contention, will continue to become
Increasing cyber exposure and therefore clients are advised to clarify
increasingly pervasive and
digitised supply chain technology,
Container shipping company A.P. their existing coverage position and as an such as blockchain, will offer
Moller-Maersk was also affected by the optimal solution, to buy standalone cover increasing opportunities to the
NotPetya cyberattack in August, with for this risk. sector. Whilst digital technologies
and connected devices enhance
the ability to record and share
information, reduce errors and
omissions (E&O) exposures,
and streamline procedures,
they also bring increased cyber
risk. As reliance upon digital
technologies increases and the
levels of automation in the
sector rises, clients who do not
purchase bespoke cover will
leave themselves open to
significant losses.

Source:
1. “Maersk says June cyberattack will cost it up to US$300m”, The Business Times, 16 Aug 2017
(URL: http://www.businesstimes.com.sg/transport/maersk-says-june-cyberattack-will-cost-it-up-to-us300m)

“2017 continued to be a challenging year for the marine market with As the insurance market becomes more global and the Asia market
excess capacity and rates continuing to reduce. This trend did start matures, we will start to see business from further afield being
to change towards the end of the year following a difficult natural underwritten and reviewed in Asia, as well as the more complex
catastrophe season and discussions on treaty renewals. business not just simply going to London because it always has done.

There was an increase in broker innovation with a shift from separate The increasing use of risk management and technical expertise will
cargo and storage policies, to stock throughput polices. The marine allow the market to adapt to the ever changing risk profile to ensure
market, rather than the historical property market, started to absorb that we meet the needs of our clients.”
excess storage capacity, as insured and broker needs changed. We also
saw further product innovation in the marine liability space with Asian Harry Taylor
markets adopting package business which historically would have Head of Marine, Singapore
been offered from London or European markets. AIG

Asia Market Review 2018 27


Mining

Key Risks Affecting


2017 Rate Movements 5–10%
the Mining Sector
2018 Rate Movements 0–5%
1. Commodity
price risk
Loss Experience
benign moderate severe

2. Regulatory/
legislative changes
The mining industry seems to have dug itself out from one of the worst
troughs in recent memory in 2017 after enduring a sustained slump that
3. Political risk/
lasted almost five years marked by challenging macroeconomics conditions, uncertainties
diminished opportunities and overall lacklustre global demand. Over the
past year, commodity prices stabilised, cash flow improved, some delayed
mining projects came back online, and miners generally experienced a 4. Economic slowdown/
slow recovery
tentative return to form.

Industry sentiment was cautiously not be acceptable. The coverage clients 5. Business
interruption
optimistic, with increased levels of enjoyed remained largely stable in
mining activity seen particularly around 2017, although, where non-damage
iron ore as mining companies sought coverage had been included in Business
to take advantage of the opportunities Interruption policies in prior years, some 6. Environmental risk
presented by the rally in raw material insurers started to challenge its inclusion
prices, and a restructuring of China’s towards the end of the year.
steel sector which boosted demand 7. Cyber crime/
for higher-quality ore, primarily from Another key trend witnessed in 2017 was hacking/viruses/
China’s shrinking coal consumption as malicious codes
Australia. In its outlook released in 2017,
the World Steel Association has indicated it embraced cleaner sources of energy

that it anticipates a cyclical upturn in in a bid to reduce global greenhouse 8. Damage to


gas emissions and combat the effects of reputation/brand
steel demand through to 2018 with
continuing recovery in the developed climate change. This is driven primarily

economies and an accelerating growth by Chinese government officials as

momentum in the emerging and policymakers try to steer the nation 9. Major project failure
developing economies1. increasingly away from a reliance on fossil
fuels. After hitting a peak in 2013, China’s
On the back of poor underwriting results coal consumption has since dropped
10. Increasing
in 2016, insurers (and reinsurers) were 7.3 percent, according to government competition
less prepared to support large rate statistics compiled by Rock Environment
reductions as focus shifted to portfolio and Energy Institute, a Beijing-based
profitability from market share. In difficult think tank. Some other regional miners
cases, the market had to consider if they and producers were also expected to exit
were prepared to walk away or not renew the coal sector.
policies should terms and conditions

Asia Market Review 2018 28


Against this backdrop, in a seeming Claims Outlook
paradox, some Chinese companies 2017 has seen significant frequency
2017 saw a significant number of
funded new mining and construction of natural catastrophe events, both natural catastrophe events, both
projects overseas, in an attempt to locally and overseas, further affecting in Asia and outside the region
diversify their businesses and exploit underwriting profitability. North causing in excess of USD100
billion of insured losses. Global
other opportunities within Asia. An American exposed risk in particular has insurers with North American
example of this can be seen in China’s been the hardest hit due to the Mexico catastrophe exposure were
investment into coal developments in the earthquake and hurricanes Harvey, particularly affected by hurricanes,
Thar region of Pakistan2, as part of the earthquakes, and wildfires. Whilst
Irma, and Maria, although this has not
the mining sector was largely
China-Pakistan economic corridor. significantly impacted mining operations. spared, the global nature of
insurance and capital markets
However, such foreign direct investment means that mining markets will
(FDI) initiatives leave companies exposed still experience somewhat of a
ripple effect. Whilst some global
to a number of risks including terrorism,
insurers have suffered capital
political risk, regulatory risk, foreign losses as a result of these events,
exchange risk, and natural catastrophe there is enough unaffected
risk in some host countries. capacity in Asian markets to
prevent any significant hardening
of the market.
In 2017, the regulatory and political
challenges of operating overseas were Therefore, the general consensus
evidenced once again. At the beginning as we enter 2018 is that most risks
will achieve small reductions,
of 2017, the Indonesian Minister of Energy
between five percent and a flat
and Mineral Resources (MEMR) issued renewal, depending on how the
significant new legislation impacting individual client has performed.
The most effective driver of
the mining industry which stipulated
premium savings in 2018 will be
that every producing mine in Indonesia well-managed risks with adequate
(whether under a Contract of Work or flood protection, strong asset
‘IUP’ Mining Business Licence) must management and effective health
and safety regimes. Those that
become at least 51 percent Indonesian- maintain their insurer relationships
owned. The exceptions which previously will be well placed to withstand
allowed foreign control of underground any market pressures for increases.

mines and mines with processing and


refining facilities have been scrapped.
The clampdown in the Philippines of
several mines discovered to be flouting
environmental legislations also means
that it is not easy getting an approved
mining permit to operate in the country.

Source:
1. “We believe in 2017 and 2018 we will see a cyclical upturn in steel demand”, Mining Journal, 24 April 2017 (URL: http://
www.mining-journal.com/commodities/iron-ore/we-believe-in-2017-and-2018-we-will-see-a-cyclical-upturn-in-steel-
demand)
2. “China kickstarting new coal boom in Pakistan “, Climate Home, 17 March 2017 (URL: http://www.climatechangenews.
com/2017/03/17/china-kickstarting-new-coal-boom-pakistan/)

Asia Market Review 2018 29


Power

Outlook
2017 Rate Movements 10–30%
In 2018, capacity will remain
largely unchanged. In general, we
2018 Rate Movements 10% –10% anticipate that rates, deductibles,
and coverage will remain
largely stable whilst reinsurers
Loss Experience evaluate and respond to the
benign moderate severe
losses sustained globally, with
reductions achievable for risks
which present well.

However the Q4 natural


The first three quarters of 2017 saw a continuation of the previous years’ soft
catastrophe events (earthquakes,
market: global operational power capacity was at a historic high in excess of hurricanes and wildfires) in North
America, the Caribbean, and
USD4 billion, and the largely benign loss environment in the region meant that
Asia may have a knock-on effect
clients benefited from increased underwriting leniency with rate reductions, for natural catastrophe exposed
locations where reinsurers will
lower deductibles and broader coverage on offer. However, significant natural
seek to impose rate increases as
catastrophe losses in the Americas and Asia in the fourth quarter of the year saw their natural catastrophe treaty
prices are pushed up.
a reduction in the softening of the market as re/insurers took stock of their cost
on capital. Asia’s commitment to a sustainable
future powered by renewable
energy has become a focus area
It became apparent in Q4 that lenient point regarding what they can accept in of many markets, globally, as
underwriting processes were in decline terms of rates and deductibles for certain mentioned in the retrospective
as underwriting methodologies attracted risk profiles, and therefore, tangible section of this report. Government
and private spending in the
greater due diligence. Double digit differences in what is offered between
renewables sector is likely to run
reductions were generally only offered on international and domestic insurers in some into the many billions of dollars
risks that were well-managed with above markets may start to emerge. At this point, in the coming years, and as an
average loss ratios. In addition, long-term risk managers have difficult choices to make increasing number of green power
agreements were more challenging to secure regarding how comfortable they are with projects come on line, demand
due to the uncertain nature of the market. insurer panels, backed by unrated or less for bespoke solutions to the
solar, wind, and hydro sectors in
secure capacity.
Asia remained a popular testing ground particular will be in great demand.
The shorter construction periods
for new gas turbine technology in 2017, There has been a continued focus from
of renewables projects than other
continuing the trends witnessed in prior insurers on developing their technical forms of power production will
years. Such technology remained a key underwriting capabilities in Asia. Singapore mean that this trend will accelerate
underwriting concern for the power and Hong Kong are now established global rapidly in 2018 and beyond,
market with newer, unproven, or enhanced insurance hubs, and in recent years, we becoming a key focus for the power
technologies initiating some hesitation from have witnessed a ramping up of the number market, with global capacity now in
markets to commit to both competitive rates of risks which are written purely in Asia by excess of USD4 billion.
and/or low deductibles in 2017. Warranties underwriters who are more receptive to Cyber risk currently still represents
offered under operations and maintenance the expectations of Asian clients. A notable a significant coverage gap for
(O&M) are sometimes ignored or example of this trend was the establishment the power industry as a whole,
overlooked, meaning some clients continue in 2017 of a number of specialist renewable with take up of standalone
to seek to transfer the risk of failure of new power teams within prominent international solutions in Asia still lagging well
behind other geographies. As
technology to the insurance market. As the insurers based in Singapore.
the number of high profile cyber
speed of new technology released outpaces
incidents continues to increase
the re/insurance markets ability to digest and Integrated policies are also becoming more
and core infrastructure becomes
analyse new technology, we are likely to see common place and acceptable, especially an increasingly targeted sector,
further disinclination to offer rate reductions on renewable energy placements, with we expect to see an upsurge in
and coverage enhancements. various markets endorsing these innovations the take-up of this product in the
both as a lead and follow markets. As the coming years.
The gap between the terms offered renewables industry in Asia continues to be
by domestic and international markets a major focal point of most governments
continued to widen through the year as in the coming years, the power market
the domestic markets in many territories will also seek to grow with it. Aon is at the
continued to deploy more capacity and forefront of this trend, working with the
retain more risk onshore. Some international market to develop tailored solutions for
markets are now approaching saturation the industry.

Asia Market Review 2018 30


Property

Natural catastrophe exposed 0–5%


2017 Rate Movements
Non-catastrophe exposed 10–15%

Natural catastrophe exposed 0–5%


2018 Rate Movements
Non-catastrophe exposed 5–10%

Loss Experience
benign moderate severe

In 2017, the property market continued to soften, with premium rates


continuing to fall across most countries in the region. Non-natural
catastrophe exposed businesses experienced rate declines of between
10–15 percent with five to 10 percent reductions available for natural
catastrophe exposed risks.

While there were no significant new to expand their international presence policies also restricted BI cover to fire,
entrants to the market in 2017, there was through acquisition. lightning, explosion, aircraft (FLEXA)
a significant amount of insurer activity only or named suppliers only which
as industry consolidation continued. Loss experience in 2017 was resulted in a number of uninsured losses.
A number of notable acquisitions took characterised as moderate. Whilst there

place in 2017, including Mitsui Sumitomo were no market changing events in The impact of the storm was less

Insurance Company Ltd’s (MSI) recent Asia, there were a number of notable severe on insurers, with moderate

purchase of Singapore’s First Capital losses, including the Resorts World impact on earnings but limited effect

Insurance Ltd for USD1.6 billion from Manila attack in June, Typhoon Hato on their financial strength, given their

Canada’s Fairfax Financial Holdings, in a which struck Hong Kong, Macau, and conservative reinsurance arrangements,

bid to gain market share and strengthen Guangdong in southern China in August, low penetration of natural catastrophe

its competitive position. This acquisition and severe flooding which swept across coverage on personal lines, and robust

marks the biggest takeover by a Japanese large parts of south Asia during the same capitalisation. Therefore, effects were

insurer in South East Asia, potentially period. These events shone a spotlight mainly locally contained to domestic

representing a ramping up of the trend, on coverage gaps in some organisations’ markets with no substantial impact felt

which has been witnessed over a number policies, where business interruption (BI) regionally.

of years, of Japanese insurers seeking cover had not been purchased. Some

Asia Market Review 2018 31


Clients’ businesses across the region continue to Outlook
automate and integrate digital technology at an
In 2018, we anticipate a growing Clients will continue to be price-
unprecedented pace. As businesses continue to
disparity between what local focussed in 2018 and will seek
become ever more reliant on technology in their markets will do and what further rate reductions from
production processes and supply chains, clients are international markets want to insurers. In terms of coverage
charge. International markets in changes, there has been notable
becoming increasingly cognisant of the scale of their
Asia may now find themselves demand from real estate clients
cyber exposure. Client concern around the extent in situations where their global for non-damage BI cover and we
of cyber coverage afforded in existing BI wordings headquarters start to mandate expect this trend to continue
presents a challenge to the market which underwriters that rates cannot be further to be a feature in 2018. With
significantly reduced, due to the exception of non-damage
must meet. In addition, clients are increasingly loss experience outside Asia. BI, markets have been, on the
concerned about the possibility of property damage The 2017 North American and whole, unwilling to grant further
resulting from a cyber event – something which until Caribbean natural catastrophe wording extensions to clients.
losses may be the initial catalyst This has resulted in the majority
recently, was only the subject of science fiction.
for this. Given this potential of buyers purchasing stand-
two-speed market, clients are alone cover for perils such as
cautioned against being overly cyber and terrorism, the latter of
reliant upon local capacity which which was historically covered
is priced attractively but does not under property policies. This
bear the same financial security low innovation environment
as the capacity which is offered presents both a challenge and
by international markets. an opportunity to insurers. One
way in which Aon is supporting
Notwithstanding natural clients and markets in this area
catastrophe losses in North is the development and delivery
America and the Caribbean, of alternative insurance and
in recent years, a number of capital products such as weather
international markets have derivatives with parametric
withdrawn or reduced Asian triggers, which are used to
property capacity and therefore transfer risk from clients to
their Asian property exposure. reinsurance and capital markets
However, we believe that there and pay out a pre-agreed amount
would be enough innocent within a short timeframe on the
capacity waiting on the sidelines occurrence of a defined weather
to prevent a significant hardening event, regardless of actual loss to
of the market in the near future, the client.
unless a massive catastrophic
event were to take place.

“Our view of the market place concurs with Aon’s observations. has seen the largest drop in premium rates over the past six years and
The dichotomy of the local and international markets allows buyers to this is where urgent action is needed.
make choices, but we would agree with Aon that clients should not
be driven by price alone. Underinsurance of Business Interruption (BI) continues to be a
problem due to a lack of understanding of the real exposures or
The long-term financial security of insurance companies should misunderstandings about the cover actually purchased. This could
be a buyer’s top priority, and this can only be guaranteed by be due to numerous causes: inadequate Indemnity Period purchase,
allowing capacity providers to charge a fair price for the trends in the business, supply chain issues, etc. Again, further
capacity deployed. education is needed.

This has not been the case for at least six years now in Asia. We Cyber and non-damage BI will continue to be big topics in 2018.
advocate for working with our broker partners to help educate the As these exposures continue to increase, insurers will want to
industry in this respect and other common market misconceptions, ring fence them in stand-alone policies with well-defined triggers
such as rate decreases because of increasing volumes and lack of loss including parametric insurance solutions. We see this as a fruitful area
activity on excess layers. for innovation.”

In Asia, clients have benefited from unusually low natural catastrophe Stanley Cochrane
activity for many years and even when there were larger isolated Head of Property Asia Pacific,
events, there was no market response. The large corporate segment Swiss Re Corporate Solutions

Asia Market Review 2018 32


Reinsurance

2017 Rate Movements 0–15%

2018 Rate Movements 0–15%

Loss Experience
benign* moderate severe

*Depending on country

2017 saw three globally significant wind natural catastrophe events as well
as a major bush fire, which impacted the reinsurance and insurance markets,
the effects of which will continue to reverberate into 2018. Hurricanes
Harvey, Irma, Maria, and the Californian Wild Fires resulted in over USD100
billion of insured losses, with significantly greater economic losses incurred.
Insurers and reinsurers have suffered earnings erosion as a result of these
events, with some loss estimates running into double digits relative to
equity. The Retro market was also heavily affected with a significant amount
of capital impacted, including a considerable amount of “insurance-linked
securities” capital being lost or trapped.

The four major U.S. events were ultimately, taxpayers. Sadly, this is just aiming to enhance supervision rules,
compounded by the accumulation of the latest manifestation of a global complete the execution mechanism, and
year-long attritional loss events including protection gap – a trend which is strengthen supervision collaboration. In
earthquakes Chiapas and Puebla in exacerbated especially in Asia. Economic the Philippines, the regulator announced
Mexico, and in Asia Pacific specifically: development and demographic trends that its RBC 2 took effect for non-life
Cyclone Debbie in Australia, Typhoon in the region are generating new insurers and reinsurers. In India, the
Hato in Hong Kong/Macau, Sri Lankan concentrations of exposure, often in regulator has formed an RBC steering
and Malaysian floods, and several areas prone to natural catastrophes and committee and aims to implement RBC
typhoons in Japan. Additionally, in Asia at a time of increasing frequency. by 2021.
Pacific, the loss catalogue was further
impacted by the Australia PI/D&O Regulatory Movements The RBC frameworks are also seeing

market dislocation, and also significant Across the region, we see continued enhanced catastrophe reporting criteria.

risk losses that affected the Garment, efforts of introducing or enhancing Risk Hong Kong RBC will include catastrophe

Tyre, Waste, and Petrochemical sectors Bearing Capacity (RBC) requirements to risk charge, although it is not included

in Asia, further impacting insurers and bring Asian solvency standards in line in the first round of QIS. Regulators in

reinsurer’s balance sheets. with the Insurance Core Principles (ICPs) Singapore and Thailand are considering
specified by the International Association adding catastrophe risk into solvency
There is a very human dimension of Insurance Commissioners (IAIS). Three capital calculation as part of their
to many of the natural catastrophe years after issuing the RBC consultation RBC 2 initiatives. In the Philippines,
disasters, given the low proportion paper, Hong Kong started the first round the RBC 2 that took effect this year
of policy holders in the affected areas of Quantitative Impact Study (QIS) in includes catastrophe risk charge, and
that have insurance cover for flood. 2017 and the second round of QIS is the calibration level will progressively
Beyond the immediate financial distress, expected to start in mid-2018. In China, increase by 2019. These regulatory
it is clear that economic losses have after successfully implementing the changes help motivate insurers to pay
far exceeded insured losses. As a China Risk Oriented Solvency System more attention to their management of
result, the burden will ultimately fall (C-ROSS) in 2016, the regulator recently catastrophe risk.
mainly on the individuals affected and announced the C-ROSS Phase 2 project,

Asia Market Review 2018 33


Modelling Enhancements Outlook
RMS released the South East Asia (SEA) Earthquake
Heading into 2018, the major insurance risk. In fact, the first
Models in RiskLink v17. This includes re-developed losses incurred by the reinsurance half of 2017 was notable for a
models for Indonesia and the Philippines, and new market as a result of all of the renewed surge of alternative
models for Malaysia, Singapore, Thailand, and Vietnam. catastrophe losses will continue capital, which impacted 2017
to impact the direct market mid-year reinsurance renewals
and end buyers of insurance, and is now finding its way into
CoreLogic expanded their Asia Typhoon model to
as reinsurers re-evaluate the the primary market. Sustained
include the territory of Vietnam. In addition to this, cost of renting their diversified growth in reinsurance demand
the hazard component of the model was updated to capital. However, the fact that is dependent upon increasing
multiple events occurred close the relevance of insurance to
include recent high intensity typhoons experienced in
together and impacted the same the global economy. Although
this area since the previous release. areas in some instances added alternative capital is not
complexity to the situation and immediately expected to have a
Aon Benfield’s catastrophe development team, Impact created some confusion in 2017. material impact on the protection
Forecasting, also released a new model for Malaysia The actual magnitude of some of gap referenced earlier in this
these events is lower than initially piece, it potentially presents
Flood, which incorporates both riverine flood caused
anticipated, and so whilst there an opportunity to grow what
by monsoons and flash flood by thunderstorms. They will be some price pressure, in is insurable and create new
also released new models for assessing flood, typhoon, Asia, this will be portfolio and products that can address some
client specific. Overall, we do not of the underlying issues Aon
and earthquake risk in Vietnam, and a fully probabilistic
foresee a long term hardening clients face. In the meantime, in
flood model for Jakarta. of (re)insurance markets, unless 2018, reinsurance will continue
there is a continued sequence of to prove its worth as a means
Looking ahead to 2018, RMS will be updating their loss events in 2018. of mitigating earnings volatility,
other earthquake models in the region for India, controlling peak exposures,
On a global basis, emerging addressing reserving risk
Taiwan, and Japan. In addition to these updates, they areas of risk such as cyber are and providing capital relief
will also be releasing new models for India Flood and presenting the insurance industry to insurers, which ultimately
Agriculture, South Korean Flood, and Philippines with new challenges which benefits direct buyers of
are commented on in other insurance. There is every reason
Typhoon. CoreLogic will also be updating their suite sections of this report. Yet, the to believe reinsurance will have
of earthquake models in the region, while Impact insurance industry is widely a growing role to play, as capital
Forecasting will be releasing a new Thailand Flood held to be over-capitalised becomes better matched to risk
and new investors are actively in the region.
model. As insurers and clients gain access to more
seeking access to diversified
accurate information on natural catastrophe risk,
pricing of insurance will become more accurate and
clients will gain access to information which will
support the removal of coverage gaps.

Asia Market Review 2018 34


Terrorism and War

2017 Rate Movements 10%

2018 Rate Movements Flat

Loss Experience
benign moderate severe

2017 saw a handful of macro trends playing out across the region and the
world. The increasingly volatile political situation on the Korean peninsula
has captured the attention of political commentators, businesses, and the
general public alike.

As the rhetoric and military posturing retaliation following a targeted surgical provides a propaganda tool for Islamist
ratcheted up, we have seen a significant strike against North Korea, would still be terrorists. We have also witnessed an
uptick in enquiries regarding war counted as an insurable loss. increase in self-radicalisation through the
coverage from clients with operations internet, with this trend also emerging
in South Korea, Japan, and Guam The second macro trend which we are in Europe. With the increase in terrorist
in particular. Whilst nuclear war is witnessing is the intensification of the activity in Asia, we are now seeing IS
uninsurable, and war policies also terrorism threat in Asia. Last year, we producing Asia-specific propaganda and
include a “five powers” exclusion which predicted that as Islamic State (IS) was inciting specific attacks on targets in Asia.
would prohibit payment of claims if, for rolled back in the Middle East, a ripple

instance, the United States and China effect would be witnessed in Asia with The recent propaganda has also

were to go to war, there is still significant returning jihadists carrying out attacks indicated a potential change in narrative,

transferable risk in relation to the current closer to home. Sadly, this trend has more encouragement is given to

situation in Korea. Events such as a borne out in 2017, with numerous attacks individuals unable to travel to Syria/

North Korean test missile accidentally in the Southern Philippines, Jakarta, and Iraq, inspiring them to conduct attacks

landing in a populated area, some form Bangladesh. This is further exasperated at “home” with particular emphasis on

of military miscalculation, or minor by the Rohyinga crisis in Myanmar, which South East Asian nationalities.

Terrorist incidents in
Attacks by sector the Philippines 2017

Police and prisons


13.3% Private citizens and Property
Peacekeeper 30.8%
1.87%

Military
19.48%

Government and political


figures and institutions Public gatherings
6.22% 11.82%
Educational figures and institutions
Religious figures and institutions
1.12%
2.02%
Business—Extractives - Oil
Transportation—Land
1.45%
1.14%
Business—Construction
Other
0.83%
9.95%

Asia Market Review 2018 35


The third trend which we are seeing client and market approach to insuring Outlook
is an increased client interest in full this risk. Clients have rebalanced their At the time of writing, the outlook
political violence (PV) cover, rather focus from solely protecting property and for the market is somewhat
uncertain, as the full effect of the
than just traditional terrorism insurance. revenue against terrorism, to placing an
losses from the North American
Traditionally, PV cover was mainly increased emphasis on protecting their and Caribbean hurricane season
procured by Thai companies following the people and reputation. In turn, markets play out in global insurance
riots in 2010. However, we are now seeing have adapted their offerings to meet this markets. Following significant
loss events such as September
an increased take up for full PV cover, demand with new blended solutions, 11 and Katrina, there have been
for two main reasons. Firstly, because which combines traditional insurance temporary hardening of global
property programmes are increasingly coverage with access to specialist insurance markets, but these
trends have been short lived in the
excluding strikes, riots, and civil consultant services and close support in
past 20 years.
commotion along with terrorism, notably the event of emergency situations.
in territories where political unrest is The ongoing benign loss
In 2017, we saw a slowing down in pace environment in the terrorism
prevalent. Full PV covers a broad spectrum
market and the relative profitability
of perils eliminating any uncertainty of the softening in the terrorism market in
of terrorism in comparison to other
that may surround the proximate cause Asia, which in recent years has provided classes of business means that the
of a loss, for example, terrorism, riots, buyers of insurance with significant rate market will remain attractive to new
reductions year-on-year. This smoothing entrants. The insurance market also
insurrection, or civil war. Secondly, remains driven by capital markets,
given the perceived increase in political of the market trajectory is consistent and with insurance companies
instability in several countries across the with what has been seen regionally and still representing an attractive
globally across most classes of business. investment for banks and interest
region, a number of clients feel their rates remaining low, we do not
exposure has increased materially enough However, the loss environment for
foresee a significant withdrawal of
for them to purchase specialist cover. terrorism risks remained benign again capacity from the market. In 2018,
in 2017 and therefore we feel that this we foresee further rate reductions
available for clients, but not of the
Last year, we also discussed how today’s is a reduction in the pace of softening
magnitude offered in previous,
terrorist threat was shifting from a witnessed in prior years, rather than a recent renewal cycles.
property damage risk to a people risk. In hardening of the terrorism market.
In terms of the terrorism threat,
2017, we witnessed a tangible change in
2017 saw a number of more
sophisticated attacks within
and outside the region using
explosives, “daisy chain” bombings
and coordinated attacks, such
as in Marawi, Mindanao in the
southern Philippines. We expect
this trend to continue into 2018 as
“‘Belt and Road’ infrastructure projects in Asia, Middle East, and Africa regions are driving the Philippines becomes a major
higher demands for insurance. With higher risk awareness of geopolitical uncertainty around training ground for regional and
project sites, Chinese contractors and investors of these projects are keen to understand risk potentially global aspiring Islamist
solutions and are seeking out experienced brokers and insurers. Those risks are often arranged fighters. Indeed, whilst IS has been
alongside Construction All Risks and Property All Risks policies. almost completely rolled back in
the Middle East, it will be a number
Specifically in Asia, we have seen broader demand from the Philippines on Terrorism &
of years before the threat level in
Sabotage and Political Violence coverage this year, following the declaration of Martial law in
Asia is significantly reduced.
southern Philippines. Non-traditional Terrorism/Political Violence markets like Japan, Korea,
China, and Cambodia are also taking up new policies this year, reflecting the changing regional The political situation in the Korean
risk profile and higher risk awareness among local clients in the region. Peninsula will remain a key focus in
2017 as the U.S. and North Korea
Insurance buyers are, and will continue to be, more proactive in seeking solutions to address
continue to escalate the situation
the protection gap, including different classes of insurance policy and wording enhancements.
with potentially catastrophic
Terrorism risk is evolving, as evidenced by the recent vehicle attacks in Europe and shooting
consequences. We do not envisage
incident in Las Vegas. With this in mind, more clients are now looking into Active Assailant
a full scale conflict; however, it is
policies and non-physical damage loss insurance solutions to address the potential coverage
possible we could see a repeat of
gap in a traditional property terrorism policy.”
the Yeonpyeong island incident
which occurred in November 2010
Carrie Huang
– a scenario where small scale,
Underwriting Manager, War, Terrorism & Political Violence, Asia
limited conflict occurs which has
Crisis Management
the potential for large property
XL Catlin
damage and organic casualties.

Asia Market Review 2018 36


Transaction Liability
Warranty & Indemnity (W&I) Insurance and related product lines

2017 Rate Movements 0–5%

2018 Rate Movements 0–5%

Loss Experience
benign moderate severe

2017 saw a continuation of the upward trend in the use of W&I insurance in key
jurisdictions across Asia, particularly in Singapore, Hong Kong, China, South
Korea, and Japan. We also experienced a flurry of European/U.S. acquisitions
by Asian-based clients, resulting in an increased volume of cross-border
W&I insurance placements handled by the Aon Transaction Liability team.
Historically, the use of W&I insurance was primarily driven by private equity
firms as sellers who require clean exits. However, in 2017 we witnessed an
uptick in the use of W&I insurance by corporate clients on non-private equity
deals due to increased education and awareness of the product, as well as a
growing awareness of how W&I insurance can be used as a deal facilitator.

Not only did the volume of W&I business appetite to write Asian risks, 2017 was participating in auction processes,
transacted increase in 2017, but the the first year that saw reducing premium we have seen a slight shift in focus by
size of limits deployed grew as well. We rates in the W&I market, particularly savvy clients when making purchasing
surpassed our record for 2016 by placing for conventional transactions involving decisions. Whilst cost has traditionally
the largest W&I insurance policy in the traditional or perceived lower risk been the key driver behind insurer
region (by limit) on a Korean transaction, industries such as real estate. selection and programme design
and led the placement of one of the decisions, inclusion of key coverage
largest cross-border transactions seen by The Increasing Take-up of enhancements such as “New Breach
the market by an Asian-based corporate W&I Insurance Cover”, and a reduced application of the
client into Europe. As Asian firms continue Furthermore, as Asian buyers are quickly disclosure exclusion under the policy,
to seek to grow overseas through catching onto the strategic uses of W&I just to name a couple, even at the cost of
acquisitions, and as the W&I market in insurance in merger and acquisition additional premiums, are now becoming
Asia develops, we expect to see this trend (M&A) transactions, particularly when key considerations.
increase in coming years as the amount of
W&I business conducted increases.
Global Limits Placed
Along with the uptick in premium
Corporate Policies Non-Corporate Policies
volume witnessed in 2017, we also
Corporate Limit Non-Corporate Limit
noted that there was a tangible increase
in appetite and interest from London- 600 $16.00
based W&I insurers in quoting on Asian $14.00
500
Limit (in USD Billions)

deals. Based on our experience, the $12.00


number of insurers writing primary 400
# of Policies

$10.00
and/or excess W&I insurance for Asian
300 $8.00
transactions has increased by more
than 50 percent in the last two years as $6.00
200
insurers in London, Europe, Bermuda, $4.00
and the U.S. become more receptive to 100
$2.00
undertaking Asian risks. As a result of
0 $0.00
the increased capacity in the market and 2014 2015 2016

Asia Market Review 2018 37


W&I Underwriting Appetite Outlook
Attractive Cautious Adverse We expect the trend of softening
rates to continue in 2018,
Jurisdiction Industry particularly on the less challenging
jurisdictions/industries. However,
Japan Hong Kong Energy Power
given the bespoke nature of W&I
policies which are negotiated to
Fast Moving
Singapore South Korea Manufacturing cater to each M&A transaction, it is
Consumer Goods
important to consider other factors
Thailand Philippines Pharmaceutical Food & Beverage such as the coverage offered,
coverage enhancements, the
experience of the underwriters,
China India Chemicals Electronics
and execution risk when deciding
on the choice of insurer.
Financial Institutions Soft Commodities
As buyers become more
sophisticated in ‘de-risking’ M&A
transactions through the usage
of W&I insurance, coupled with
With softening rates, we have seen With regards to claims, while W&I such Asian-based buyers who are
ramping up their M&A activities
an increase in appetite to underwrite insurance policies issued from Asia
to expand globally through
specific contingent risks, where insurers have historically the lowest rates of acquisition of companies in the
have historically been reluctant to claims, 2017 saw a slight increase in U.K., Europe, and the U.S., we
expect to see an increase in our
explore, insuring against the successful the rate of claims on W&I insurance
transaction volume assisting such
application of regulatory approvals that policies involving Asian targets. This companies in the placement of
may be required in the context of an has led some insurers to relook at W&I insurance policies.

M&A transaction outside of the U.S. In their underwriting appetite for certain
contrast, we have seen a shift away from jurisdictions, while providing an avenue
that approach in 2017, where insurers are for others to enter the market and offer
now more willing to consider insuring more attractive premium rates. That
against the failure to obtain regulatory said, notwithstanding the slight increase
approvals in jurisdictions outside of the in claims activity in 2017, claims for
U.S. (albeit in limited circumstances) transaction liability insurance remain low
and we expect the trend to continue for Asian transactions.
towards 2018.

Asia Market Review 2018 38


Headline

02
Market Review
Technology,
Innovation, and
Associated Risks

Asia Market Review 2018 39


Innovation and Technology

In recent years, a number of countries in the region have emerged as global


hubs of innovation and technological progress. Last year, we spoke about
the emergence of smart cities in the region, autonomous vehicles, and
leaps forward in the way we are accessing healthcare; all of which continue
to transform the day to day experience and futures of people in the region.
This year, we focus on a handful of key trends, which have emerged over
the past years, have been felt with increased prominence in 2017, and
which will continue to gather momentum in 2018 and beyond.

Technology has already changed the In China and several other countries in The Rise and Risk of
way we communicate with each other, the region, a number of start-ups have Digital Communities
consume entertainment, shop, and deployed bikes in cities across that June 2017 marked what was perhaps the
how enterprises manage their country, with “dock free” or “station most significant status update ever from
equipment and price their products. free” bicycles becoming a common sight Mark Zuckerberg, Facebook’s founder,
Insurance has been clearly impacted, in Beijing, Shanghai, and Singapore. who told us that two billion people,
a few clear examples being: Consumers use a smartphone to “open more than a quarter of the world’s
one up” and pay about 15 cents for a 30 population, are active on Facebook at
• Digital or mobile channels to sell minute ride. The two biggest operators least once a month. If Facebook were a
and manage policies in China are O-F-O and MOBIKE. Each country, it would be the most populous
valued in excess of USD1 billion. O-F-O one by far. Yet Facebook is not alone.
• Visual data to underwrite and
has over 3 million bikes in operation and WhatsApp, Instagram, and Alibaba
adjust claims
MOBIKE has 5 million. Every day, both are all building online communities
• Satellite imagery to help us model companies have over 20 million rides that trade information and exchange
natural catastrophes each. At 15 cents a ride (and sometimes goods and services. The scale of these
entrepreneurs are setting prices at free), platforms is staggering, and even
• New decision support tools made there is little chance that fees will be the more transformative is that thousands
possible by Machine Learning to help source of profit for these businesses. of complementary businesses, which
insurers and businesses better manage Most suspect that a primary source of are completely dependent on these
core operations value will be data collection on consumer platforms are formed. The platform is an
behaviours and risk assessment. entire eco-system of commerce.
In this piece, we touch on three key
trends which are creating a myriad One of the most interesting We have all witnessed the rise of digital
of opportunities for our clients and a developments in coming years will communities and their role in replacing
number of challenges for the insurance be what happens when hundreds of the functions of some traditional
industry to meet if it is to remain a key millions of people take multiple trips physical communities. Across the
catalyst of economic and social growth per day on these “sensors attached to region, it is easy to observe in various
and benefit. a bike.” Can the routes consumers take social settings people sitting together
to work tell us about risk preferences? all preoccupied by their smartphones.
Data is the Key Does the timing of the daily commute
In 2017, The Economist proclaimed We are witnessing the slow but sure
tell us something about their likelihood shift from traditional social communities
“data is the new oil”, a reference to the
to repay a commercial loan? Does your to virtual communities. The appeal of
phenomenon of businesses affecting
payment mechanism tell us something what is online in the digital world is
our everyday lives, where the primary
about your consumption, or even claims proving to be very attractive and virtual
source of revenue is not the service
reporting data? The key challenge communities will impact economic
which is consumed, but the data
for the insurance industry will be activity beyond just e-commerce.
which is generated in the process
understanding, qualitatively, different
of consumption.
types of small tailored data which can be
used to assess and understand risk.

Asia Market Review 2018 40


All businesses will have to respond to Consumer Expectations and The other example of this “bending
this shift, including the insurance sector, time” time phenomenon is the sharing
the Use of Time
which has three clear opportunities economy. Companies like AirBnB allow
There is no doubt that consumer
currently emerging: us to divide up access to an apartment
expectations are changing; people want
or a house into individual slices of time.
products delivered “on demand.”
• The first and most obvious one is a new Companies like GetAround, which is a
Think about how Amazon and other
way of thinking about affinity business car sharing network in the U.S., allows
retailers are competing to get you
or programme business, where the individuals to do the same thing with
something almost before you order it.
insurance industry has been provided their personal autos. Sharing economy
People expect information and news “as
a new channel through which to make networks allow a split between
it happens,” not updated once a day or
its products more relevant and easily ownership and access, which can be
once a month. Think about when you are
accessible to consumers. perceived as manipulating time. An
waiting for your pizza to be delivered
owner gets to “sell” small slices of access
• The second is to think about ways and you want to know where the motor
rather than a large chunk of access with
of leveraging these communities bike is on the road, or waiting for a
an asset sale. Grab in South East Asia,
to pool risks. Friendsurance creates delayed flight and everyone wants up-
Didi in China, or Uber globally, are all
communities of “friends” and sells to-the minute information on schedules.
examples of time bending organisations.
personal lines products to groups
There is more to this trend than
of friends that they claim reduce For insurance companies to increase
impatience or multi-tasking, and
acquisition costs, underwriting in relevance to local economies and
the phenomenon called “binge-
costs, and fraud leakage; they are in the global economy overall, it must
watching” is instructive. Binge-watching
the market in Germany and soon to anticipate and support these new
or consuming a large number of
be in Australia. Bandboo, another business models, and not scramble in
television shows in one sitting is not
community example that’s based in response to them. Examples would be
about impatience or multi-tasking. It
Singapore, is an insurance technology moving away from the annual renewal or
is about how people today expect to
platform that pools together the rating models where the primary source
control time.
premium of its members. Bandboo of value of an asset is its accessibility at
is yet to go to market, but they claim a point in time rather than its market or
We are not content with consuming a
their technology will dramatically replacement value.
product on the schedule dictated by
reduce frictions in the system.
the corporate network. We can watch
a show at the prescribed time once a
• Third are risks in these communities
week on Thursday evenings, or not. If we
that we have to deal with in a different
want, we can “bend time” by watching
way including fraud, cyber bullying,
all the shows at once.
and reputation assurance. New
products will be needed.

“Technologies and innovations are changing the framework of improve by capturing data and analysing its environment to optimise
insurance; it is not only changing the way we assess and understand performance? This is a new risk landscape.
risk, but it is also fundamentally changing the nature of risk. Take
autonomous vehicles for example, which will arrive faster than some To stay relevant to our clients, it is crucial for us as insurers to navigate
may think. the change in the risk landscape and evolve in tandem with the
accelerating pace of change. We need to be more forward thinking.
Autonomous vehicles from fork lifts to trucks and cars, will enable Partnering with tech companies to drive the advancement of coverage
greater efficiency and improved safety across many industries; will help us innovate and deliver new insurance solutions to address
they will enhance mobility and generate economic growth, with a the new risks faster.”
significant impact on the global economy and society in general.
However, these benefits will only be realised if the technology David Guest
behind it can be widely commercialised and if it can be insured. But Country Manager, Singapore – Insurance
how do you insure a product that does not have a history of failure Regional Product Leader, Crisis Management, Asia Pacific
or claims? And what if a product has the capability to learn and XL Catlin

Asia Market Review 2018 41


Cyber

2017 Rate Movements Flat

2018 Rate Movements Flat*

Loss Experience
benign** moderate severe

* versus limited take up


** much greater economic loss activity

Having dominated headlines and ranked in the top 10 risks for companies
for the last few years (ranked #9 in the Aon Global Risk Management
Survey 2015, and rose to #5 in the 2017 Survey), cyber can no longer be
considered an emerging or novel threat. Cyber risk awareness is becoming
as deeply entrenched as the reliance on technology, connectivity, and
automation which gives rise to it.

Risk Awareness (USD824 million). A similar shift occurred of 2016 have also been characterised
Aon and Ponemon’s 2017 Asia Pacific for probable maximum loss calculations. by significant cyber-related business
Cyber Risk Transfer Comparison Report While loss calculations for tangible interruption losses.
demonstrated a rapid shift in the value assets increased from USD595 million
in 2015 to USD739 million in 2017, the Those losses have primarily been
placed by organisations on information
estimation of balance sheet impact driven by 2017’s global cyber events:
assets and the size of a probable
arising from loss to intangible assets WannaCry and NotPetya. Although
maximum loss affecting those assets. In
more than tripled from USD297 million these were ransomware attacks, the
the equivalent report in 2015, intangible
in 2015 to USD939 million in 2017. amount paid in extortion payments was
assets (for example, data) were valued,
negligible relative to the scale of the
on average, at USD589 million with
tangible assets (for example, physical Major Losses attack. Losses suffered by companies
Recent years have seen a steady stream affected was much greater, with wide
property) valued at USD706 million.
of headline-grabbing, major data ranging estimates starting in the
In 2017, the value of intangible assets
breaches. While this trend shows no hundreds of millions of dollars up to
increased dramatically to USD903
signs of abating, 2017 and the later part USD4 billion globally, primarily due to
million, eclipsing tangible assets
business interruption loss, as well as
forensic expenses. A.P. Moller-Maersk
was particularly affected, suffering non-
damage business interruption losses of
up to USD300 million, a large portion of
Only
57% 41% which is likely to be insurable.
14% of tangible asset losses of organisations
of potential cyber loss are insured, in line experienced a The aviation sector has been hit
in APAC is insured with global averages cyber attack in particularly hard by a series of unrelated,
the last 24 months
non-malicious system failure events,
which are capable of triggering broadly
worded cyber policies. Relatively short
Average impact 39% power outages (between 15 minutes
of a cyber attack of organisations are and five hours) have caused far longer
planning to purchase
USD3.3m cyber cover in the
disruptions to service and tens of
millions of dollars in losses for
next 24 months
Southwest Airlines, Delta and, most
recently, British Airways.

Asia Market Review 2018 42


Global Trends as those countries from where their system) as well as across the software
The trend towards business interruption customers come are domiciled. and operating systems used by
losses is consistent with the trend companies, which can be susceptible
Recent data privacy regulatory changes to the same exploit irrespective of
towards automation and connectivity
in Asia have narrowed the legislative industry or location. The continued
for most businesses. Realising efficiencies
gap with the western world. The Cyber influx of insurance capacity is needed to
through the use of technology inevitably
Security Law of the People’s Republic of respond more comprehensively to this
increases risk where that technology
China became effective on 1 June 2017. risk. Current estimates place syndicated
is compromised.
Companies are now grappling with the insurance capacity at approximately
Recent developments in artificial implications of the first data protection USD650 million.
intelligence, particularly in machine law affecting companies inside and
learning, suggest that automation will outside of China, irrespective of size Emerging Risk
no longer discriminate by the colour or industry. In particular, businesses Directors and Officers insurance
of your collar. Business processes need to know whether they qualify policies have been unmoved by the
will become increasingly reliant on as “Network Operators” or “Critical rapid emergence of cyber risk, while
automated processes and digital Information Infrastructure Operators”, other Property and Casualty insurance
infrastructure, which will improve and how this affects their obligations. lines have introduced specific cyber
efficiency but will heighten susceptibility Companies in the Philippines are now exclusions. Thus far, claims against
to system disruption, be it malicious required to be fully compliant with Directors and Officers arising from
or inadvertent. When this occurs, the Data Privacy Act. Companies in major breaches (for example, Target,
businesses are expected to find manual Singapore await the 2018 amendments Wyndham, Home Depot, and Heartland)
workarounds more difficult to execute. expected to introduce mandatory have not been successful. That will not
data breach notifications to the Data have dissuaded class action law firms
Companies must also be aware that Protection Act 2012, following a public from continuing to bring these claims,
their cyber risk profile does not exist consultation process. and the recent Equifax breach may prove
in a vacuum. 2016 and 2017 have to be the prototype.
demonstrated that cyberspace is the Outside of Asia, Australia introduced
new battleground for the world’s major its own mandatory notification regime Equifax is a leading American credit
powers. While attacks may be “state- in February 2017, which comes into reporting and monitoring agency,
sponsored”, targets are not limited to full effect in February 2018. The eyes regularly called upon to provide credit
government assets. Hackers will look to of the world will, however, be on the monitoring and fraud prevention
bring down both physical infrastructure commencement of the European Union services to victims of data breaches.
(for example, power assets) and critical General Data Protection Regulation Between May and July 2017, Equifax
information infrastructure (for example, (EU GDPR) on 25 May 2018. Under the experienced a significant data breach
financial institutions, web and cloud EU GDPR, companies may be fined up of its own when hackers gained access
service providers, as in the Dyn attack) to four percent of their annual global to almost 150 million customer records
and access sensitive data held by private turnover for serious breaches. containing personally identifiable
organisations in order to embarrass, information and, in some cases, payment
undermine, and steal from rival nations.
Market Conditions card information. Compounding the
Asia has continued to see the steady breach, it was alleged that three Equifax
As this threat will fluctuate subject to the
introduction of new primary cyber executives sold company shares after the
geopolitical climate, businesses should
capacity. Beazley and XL Catlin, both breach was discovered but over a month
be aware of those times of heightened
major cyber players internationally, have before it was announced.
risk and regularly test the resilience of
cautiously entered the Asian market. As
systems and processes in the face of
underwriting comfort and confidence Equifax shares suffered an initial 13
sophisticated attacks.
grows, we expect to see healthy percent drop after the breach became
Regulatory Landscape competition on pricing and coverage. public. Given the nature of the business,
While keeping one eye on external the alleged actions taken by directors
Accumulation risk remains a concern and other errors made in responding to
state threats, companies must maintain
for insurers, and losses in 2017 the breach, there is a strong possibility
compliance with data privacy and
demonstrated how this can be a threat that this will be the first breach to trigger
network security laws in the jurisdictions
across industry lines (for example, the a major loss (beyond defence costs)
in which they conduct business, as well
breach of Sabre, the hotel booking under a Directors and Officers policy.

Asia Market Review 2018 43


Market Disruptors On the other hand, a series of widespread Outlook
Today, market disruption generally refers attacks on the scale of WannaCry, but
It was expected that legal
to the overhaul of a traditional market with a greater severity in insured losses,
decisions in 2017 would provide
due to the introduction of technology. for example, an attack which takes useful guidance for understanding
In that context, market disruption is only advantage of a hitherto undetected how both cyber insurance and
traditional insurance products
likely to drive interest in cyber insurance. vulnerability in operating systems across
respond to cyber events, but a
a multitude of companies, may test wave of authorities has not yet
However, the current cyber insurance underwriter appetite and diminish the been forthcoming. Given the
market, despite its forecast growth, cyber capacity available. Current loss regulatory shifts highlighted
above, we expect this situation to
is not immune to disruption. On one ratios are, however, sustainable and the improve, particularly when non-
hand, technological developments, for market is expected to be sufficiently specific cyber insurance remains
example, the continued development robust to correct, rather than collapse. silent on cyber risk.
and practical application of technology,
These regulatory developments,
may drastically reduce the impact of along with headline cyber
data breach events and improve events, will continue to drive
interest in cyber insurance, but
system security.
for many companies, the decision
to purchase will be driven by
contractual obligations from
corporate partners, shareholders,
or other stakeholder pressures.
As the concept of cyber insurance
is rapidly normalised, larger
corporates will insist on vendors
and other supply chain members
protecting themselves in this way.

Regionally, we expect there


to be continuing volatility in
underwriter rating models,
with the market in Asia more
closely aligning with global
trends. This will be countered
by increasing competitive
tension within the region in an
expanding marketplace.

“The market has seen several cyber loss events with each event companies. Against this backdrop, we should see price correction as
amounting to over USD100 million from several industries globally, these new exposures are realised.
including the aviation, telecommunications, and marine industries.
These events have raised awareness about the value of cyber The cyber insurance market will continue to mature in 2018 as more
insurance because of the interconnectedness of our global economy Boards appreciate that cyber resilience within their organisations is
and our increased vulnerability to cyber-attacks due to it. not just a technology issue. The risk transfer and the value-added
services of more comprehensive cyber insurance policies will continue
We are starting to see a more consistent market response to “silent to gain traction in helping organisations manage the exposures of the
cyber” with exclusionary language being imposed on traditional digital age.”
industrial age policies. In addition, new privacy legislation is being
passed globally, and increasing corporate exposures to cyber Andrew Taylor
incidents continue to take a costly toll on the financial results of Cyber Underwriting Manager, Chubb Asia Pacific

Asia Market Review 2018 44


Headline

03
Market Review
Countries

Asia Market Review 2018 45


Macroeconomics

Asia benefited from favourable global macroeconomic conditions in 2017,


with the strengthening of the advanced economies and global trade,
as well as a partial recovery in commodity prices. Commodity exporters
such as Indonesia and Malaysia saw crude oil prices rise since 2016
(+87 percent), pushing external balances in their favour. Countries in the
region also experienced robust internal demand, with an exponentially
increasing middle-class in neighbouring countries. Today, with around 1.1
billion people and significant intra-regional trade, with 20 percent of exports
now stay within the region, versus 10 percent in 2000 and 15 percent in 2010.

China dependent on dynamic exports and the country a profile closer to that of
Despite a GDP slowdown since 2010, Japanese Yen remaining at a competitive advanced economies, relying more
China’s economy performed above level. Business confidence is high as large on service industries rather than
expectations in 2017 and remains Japanese corporates have accumulated manufacturing. The GDP profile of
confident of meeting its target of large cash reserves, and are becoming the emerging countries in the region
doubling real GDP between 2010 and more active in cross-border merger and remained fairly constant and relies
2020. Chinese GDP growth is now acquisitions to counter a stagnating from 10 to 20 percent on agriculture,
forecasted to rebound for the first time domestic market. Conversely, household even though the share of this industry
since 2010, reaching 6.8 percent year- consumption is historically moderate, decreased in Malaysia, Thailand,
over-year, before slipping closer to 6 and another consumption tax rise in and Philippines.
percent towards 2020. 2019 from eight to 10 percent could
dampen it further and replicate the brief This new strategy has seen the share
This unexpected uptick in performance recession experienced in 2014. of Manufacturing in the country’s GDP
was driven by an expansionary fiscal fall by six percentage points to reach 34
policy and unanticipated external Despite the bullish sentiment in Japan, the percent in 2015, while in the meantime
demand. Nevertheless, some country is still struggling to lift inflation Finance and Services have grown by two
fundamental concerns over the Chinese to the Bank of Japan’s two percent target, and three percentage points respectively.
economy still remain. The national despite years of quantitative easing. This This trend is set to continue in coming
savings level, at 46 percent of GDP, is is less significant while Japan’s GDP is years and we can expect manufacturing
26 percentage points higher than the growing, however, in the event of an to only account for about 25 percent of
global average, dampening internal economic downturn, low inflation rates the country’s GDP in the mid-term.
consumption. The second point would limit policymakers capacity as their
leverage on monetary and fiscal policy In contrast, the GDP composition
threatening China’s growth household
would be restricted. of China’s North Asian counterparts
is corporate and government debt,
has been relatively stable since 2010,
which currently accounts for 242
South East Asia with Japan’s economy focussed on the
percent of GDP, but is expected to rise
The revival in world trade also services and finance sectors (28 percent
to 300 percent of GDP by 2022. The
directly impacted South East Asia as and 16 percent of GDP), while South
government has started to take measures
all countries, with the exception of Korea and Taiwan derive a large share
to deleverage its private sector, but
the Philippines, experienced stronger of GDP from manufacturing hardware
additional efforts should be taken to
growth in 2017. Malaysia benefited and semiconductors, representing a
curb this expansion of credit.
from higher investment levels and an GDP share in manufacturing of 30 and
increase in global trade, while Thailand 44 percent.
Japan
The second largest economy in Asia, experienced stronger exports and
The land mass of Singapore and Hong
Japan is also starting to generate inflow of tourism, as expected. The
Kong means that both countries have
positive momentum, with its economy Philippines is currently experiencing a
a very different economic profile, as
expanding for six straight quarters, slowdown due to a delay in a planned
government infrastructure programme. almost half of Singapore’s economy is
representing the longest consecutive
organised around services (increase in
period of growth for more than a
decade, catalysed by strong external GDP Composition six percent in five years), while Hong
Over the past five years China’s GDP Kong generates 25 percent of its GDP
demand and public investment.
composition has shifted, giving the from financial services.
However, this promising streak is highly

Asia Market Review 2018 46


Three emerging countries of South sector consolidated its major role to emerging economies barely reached circa
East Asia, Malaysia, Indonesia, and reach 19 percent of GDP. On the other two percent, can also been linked to the
Vietnam, have a significant reliance hand, Indonesia and Vietnam are the emergence of large local companies who
upon the Oil and Gas industry. As this countries with the largest share of grew at a fast pace due to the boost of
market has faced significant volatility agriculture in their GDP, at 20 percent. internal demand, and the resurgence of
and downward trends since 2008, the exports after the financial crisis in 2008.
share of this industry in these three Performing on the world stage
South East Asian corporates do not yet The Forbes Global 2000 ranking was
countries has decreased. It reached nine
have a significant impact at a global previously highly dominated by groups
percent in Malaysia in 2015 versus 16
level, unlike their Chinese counterparts from mature economies, 76 percent were
percent in 2008, 22 percent in Indonesia
which benefit from a large internal U.S., Europe, or Japan based in 2009. The
down three percent from seven years
market and aggressive external trend is now gradually evolving with an
before, and stagnant at 12 percent of
investments, helping them to narrow increased number of Chinese and Indian
GDP in Vietnam. Nevertheless the rest
down the gap with the European and companies, facilitated by a massive local
of the GDP composition of these three
U.S. regions. market with more than a billion potential
countries vary widely, as Malaysia’s
customers, and some degree of barriers
manufacturing share almost reaches Asia GDP growth of circa six percent to entry allowing them to face limited
a quarter of the GDP, while the retail (circa five percent including Japan), while foreign competition.

Real GDP Growth by Country 2016 2017 2018 2019

2016 to 2019 (in %)


6.7 6.9 6.8
6.2 6.2 6.4
5.4
4.9 5.0
4.2
3.2 3.5
2.8 2.8 2.6
2.3 2.0
1.5
1.1 0.9

China Japan S. Korea Taiwan Singapore Thailand Malaysia Indonesia Philippines Vietnam

GDP by Industry

Country with highest share per industry in its GDP SG


TW
44.1% 44.7%
Average Asian countries share in their GDP

Country with lowest share per industry in its GDP

HK HK
ID 25.3% 25.4% SG
ID HK
22.2% 21.3%
20.5% 22.4% 19.6%
18.7%
ID 14.6%
9.4% 13.1%
8.6% 9.8% 9.0%
7.2% 9.6%
5.5%
7.1% CN 6.6%
PH 3.9% HK 4.0%
2.7%
TW 0.1% 1.2% 1.3% PH CN
JP JP HK

Construction Energy Financial Agri-business Manufacturing Public Retail Services Transport/


Institution/ Utilities
Real Estate
Asia Market Review 2018 47
Top Asian Companies

140% +450%

PH
Growth ’09-17 – # of Firms

ID
China

+200%
TW
India
Asia TH

SG S. KR

Growth ’09-17 – Sales US

-30% 50%

EU

Size = Assets
-60%
Forbes Global 2000
Region and Country Growth – 2009-‘17

India indeed placed 11 new firms in the


“Global sentiment has improved in countries are going to experience key
latest 2017 ranking, mainly from the 2017 on improving growth of key elections and changes of leadership
banking industry. China registered the developed markets, including the in the coming one to two years (for
most significant growth, with 109 new U.S., EU, and Japan. Despite lingering example, Thailand, Malaysia, India, and
corporates included in Forbes ranking, uncertainty over U.S. President Indonesia). Although some populist
Trump’s trade policy, international measures in government budget are
35 percent from Financial Services and trade has picked up significantly, expected to give impetus to short-
15 percent from Construction. The U.S. creating a conducive environment for term consumption, it is possible that
still dominates the ranking with 622 firms, the export-dependent Asian region. profound structural reforms and
but their overall performance over the Export-driven economic recovery is long-term investment projects may be
expected to gradually feed through delayed during such period.
2009-2017 period has been stagnant into stronger domestic demand of
compared to their Chinese counterparts. Asian countries to varying degrees, Asia, especially emerging Asia,
U.S. and Chinese firms record a similar depending on the openness of the has stepped up efforts to increase
individual economies. Despite the infrastructure investment as a strategic
amount of sales, but U.S. firms sales grew
lack of progress of the Trans-Pacific move to sustain long-term growth.
by 10 percent while Chinese firms’ sales Partnership negotiation, regional China has taken the leading role
multiplied by five. Over this same period, integration will continue, building through the “Belt and Road” Initiative,
the assets of Chinese firms got multiplied on the framework of the ASEAN with India and South Korea distant
Economic Community (AEC) and Asian peers, while South East Asian countries
by 6.1 versus an increase of only 1.5 for
Infrastructure Investment Bank (AIIB). are catching up rapidly. Commercial
U.S. corporates. The number of firms insurance business is projected to
coming from South East Asia remains On the other hand, geopolitical greatly benefit from the infrastructure
limited, but banks in Malaysia and Vietnam, tensions in the Korean peninsula boom along the way.”
have heated up, and the potential
and conglomerates in Thailand and Clarence Wong
impact on regional economic growth
Philippines allowed the region to be better and asset markets are still hard to Chief Economist Asia,
represented in this ranking. gauge. In addition, many Asian Swiss Re Institute

Asia Market Review 2018 48


China

General Insurance 5–10%


2017 Rate Movements
Health & Benefits Flat

General Insurance 5–10%


2018 Rate Movements
Health & Benefits 0–10%

General
Insurance benign moderate severe
Loss Experience
Health &
Benefits benign moderate severe

2017 was a significant Health market grew by 23.4 percent. The international insurers. As Chinese firms
year for China, marking online segment grew the fastest with continue to invest and operate abroad,
the 19th Communist online gross written premium increasing demand for a number of insurance
Party Congress in well in excess of 100 percent. There products increases, including terrorism,
October and the halfway point in Xi were also two significant regulatory political risks, trade credit and warranty
Jinping’s tenor as President. At the changes in 2017, with phase two of and indemnity insurance.
congress, President Xi Jinping said it China Solvency II kicking off, and the
had been a “remarkable five years” for foreign minister announcing on 10 Capacity remained abundant in the

China as it celebrated achievements November that the Chinese government domestic market in 2017, leading to

in a number of areas, including in the would let foreign investors increase their another year of soft market conditions,

fight against graft, reduction of poverty holdings in life insurance companies where clients with favourable loss

and pollution, national security, and to 51 percent by 2020 and eventually experience enjoyed rate reductions,

strengthening of the Communist Party. totally remove the limitation after five coverage enhancements and reduced

At the same time, President Xi was years. This signals a potential influx of deductible levels. In other significant

elevated by the communist party to the wholly owned foreign insurers into market news, Zhong An, China’s first

same status as Chairman Mao, as his the domestic market representing an online only Property and Casualty

name and political ideas were written interesting new market dynamic. insurer started trading on the Hong

into the party’s constitution. Kong stock exchange. The insurer which
China’s “Belt and Road” Initiative was funded by Ping An, Tencent, and
2017 was also a significant year for continued to generate significant Alibaba raised USD1.5 billion, valuing
the insurance industry in China: total international interest, as a number the company in the region of USD10
premium in the domestic market grew of major construction projects got billion. Zhong An has written in excess
by 21 percent when compared to prior underway in 2017. Thus far, “Belt and of 5.8 billion policies in only three years,
year, with total premium now reaching Road” projects have typically used demonstrating the possibilities of a low
in excess of CNY3045 billion. Chinese contractors, and the projects’ cost, online model in such a large but
The Property and Casualty market grew insurance programmes have been dispersed market.
by 14.5 percent, whilst the Life and largely placed with Chinese rather than

Asia Market Review 2018 49


In June, far-reaching cyber security consumption, a significant investment Outlook
legislation came into effect, affecting a in green energy production, and a
As China continues to move
large number of businesses in China. The government announcement that it was from its historic position as a
law applies to companies considered working on a timeline to completely manufacturing economy towards
“Network Operators” or “Critical remove fossil fuel powered cars from a service and consumer led
economy, the demand for certain
Information Infrastructure Operators”, its roads. This, coupled with America’s products in the domestic market
and imposes restrictions on where data withdrawal from the Paris climate accord, is likely to shift. Due to its heavy
can be stored, as well as granting Chinese and China’s subsequent championing of manufacturing base, typically
Chinese clients have sought
authorities the power to conduct spot the agreement, has led to a significant
cover for property and products
checks on companies’ network operations. level of focus domestically and related exposures: property
The law will impact a number of sectors, internationally on China’s next move in all risks, products liability, and
product recall, predominantly.
but particularly firms in the energy, power, this space.
As we start to see a greater focus
water, IT, communications, and financial on services, demand for financial
services sectors. China itself has not experienced any lines products such as Professional
direct catastrophic losses; however a Indemnity, and Directors and
2017 was also a year where China began clearer picture of the impact of global Officers cover will become more
of a concern. Whilst a rebalancing
to emerge as a leader in the renewable losses will be seen as we enter 2018,
of the Chinese economy is
energy space. The past 12 months as China is still reliant on the global ongoing, manufacturing is not
represented a third year of falling coal reinsurance market. going to disappear in the short
run. However, manufacturing
processes are becoming
increasingly automated and
key processes evermore reliant
upon technology. As this trend
continues, the take up of cyber
insurance and contingent Business
Interruption covers will increase
steadily as organisations come to
better understand the exposures
they face as a result of more
complex and tech-dependent
production processes and
supply chains.

As the middle-class in China


continues to grow rapidly, and
a greater number of families
find themselves with significant
disposable income, we anticipate
an increase in the demand for
savings and investment products.
This is expected to directly impact
the life insurance market where
we believe a significant increase
in gross written premium will be
witnessed in 2018.

Asia Market Review 2018 50


Hong Kong

General Insurance 0–10%


2017 Rate Movements
Health & Benefits 0–5%

General Insurance 5–10%


2018 Rate Movements
Health & Benefits 0–10%

General
Insurance benign moderate severe
Loss Experience
Health &
Benefits benign moderate severe

2017 saw a change in The Hong Kong, Macau, and mainland above in 2017 and the first ‘T10’ since
government and the Chinese governments are also closely 2012, making 2017 the worst typhoon
election of a new collaborating on the Greater Bay Area year since 1999. Typhoon Hato led
Chief Executive plan–the Chinese government’s vision to significant losses in Macau, with
for Hong Kong in July, which in turn for an interconnected Pearl River Delta reserves set in excess of USD400 million,
generated a renewed sense of optimism region in southern China linking Hong approaching double the annual general
that the SAR would benefit from an Kong, Macau, and nine other cities in insurance premium in the Macau
increase in strategic investment, Guangdong province into an integrated market. A significant portion of the Hato
facilitated by a more harmonious economic and business hub, to form losses will be settled in the Hong Kong
relationship between the executive and the largest economic and industrial market. These losses, coupled with the
legislative branches of government. city cluster anywhere in the world. significant natural catastrophe events
Evidence of this has already begun to In the coming years, this will result in in North America, and the loss ratios on
emerge, with the approval granted for significant infrastructure development of Employees’ Compensation portfolios,
a HKD30 billion sports park, which is the west side of the Pearl River Delta. mean that some major international
to be developed on the site of the old insurers in Hong Kong will be
Kai Tak airport in Hong Kong. The new 2017 was another year where we saw increasingly selective and adopt a more
government has also recognised that continued softening across most parts cautious underwriting approach as we
Hong Kong lags behind other global of the portfolio, with the exception of head into 2018. That said, there is still
financial hubs, specifically Singapore Employees’ Compensation, where we ample capacity in the market place and
within the Asia region, with regards to have seen insurers become increasingly we are seeing major Chinese insurers,
the pace of technological innovation. selective with what they will offer for local insurers, as well as some specialty
The government has sought to accounts with poor loss ratios. The level international insurers seeking to capture
encourage investment into the Fintech of Employees’ Compensation claims market share which will temper any
and InsureTech sectors as a result, as it inflation in Hong Kong, particularly hardening rate environment.
seeks to defend the country’s position in respect to common law claims, has

as a global financial services leader. meant that some businesses will be

This has resulted in the creation of a facing significant rate increases in 2018.

raft of incentives, tax breaks, regulatory


Hong Kong saw five typhoons with a
sandboxes, and other forms of
warning system category of eight or
government assistance being offered.

Asia Market Review 2018 51


The H&B market in Hong Kong In June, the new “Insurance Authority” Outlook
continues to be dominated by three came into force, replacing the “Office
In terms of rates and coverage in
major international insurers: AXA, AIA, of the Commissioner of Insurance” to 2018, property markets will wait
and Bupa, and is fairly stable in terms of regulate insurers. They have stated that for the outcome of treaty renewals,
capacity. Medical inflation, and therefore brokers and agents will come under their and wait to see if there is any
further worsening of the major
medical premium rates, continue to regulatory regime within two years of natural catastrophe results to see
edge upwards. Clients are attempting to June 2017. As a result of the Insurance if they can drive pricing up in both
manage the effect of premium costs by Authority coming into force, a new Property And Casualty markets
in 2018. Our view is that the
both changing insurers and modifying insurance levy came into play since
uncertainty around pricing may
policy terms/plan arrangements to 1 January 2018, which is an additional last for the first two quarters of
restrict cover for their employees. charge to be paid by policy holders. This 2018, at which point the market is
likely to settle into a more historic
As medical inflation rates rise, the is being introduced on a stepped basis,
rating pattern. As covered earlier
importance of accurate data and analytics and will increase over the coming years. in this piece, there is significant
to manage and identify utilisation rates, excess capacity in the Hong Kong
where claims are coming from, and market which is seeking to capture
market share, should incumbent
whether claims can be managed to a markets present an opportunity
lower cost, will only increase. by significantly altering their
underwriting pricing models.

In 2018, we expect to see some


areas where clients will purchase
higher liability limits, particularly
for Directors and Officers (D&O)
and Professional Indemnity (PI)
policies, as awareness grows of
the increasing cost of litigation,
and therefore the need to procure
greater limits. We have seen an
increase in enquiries in cyber
insurance this year following
WannaCry, Petya, and the recent
WWPKG attack. We expect more
companies will purchase cyber
insurance in 2018 to protect their
businesses.

There is an expectation that


there will be higher volumes
of construction business as the
Legislative Council approves
additional construction projects.
There is an ongoing concern for
employers around the cost of
Employers’ Compensation for
construction projects, which can
now be multiple times the size of
the Construction All Risks premium
spend, and we anticipate these
concerns to continue.

Asia Market Review 2018 52


Indonesia

General Insurance Flat


2017 Rate Movements
Health & Benefits 11%

General Insurance Flat


2018 Rate Movements
Health & Benefits 10.5%

General
Insurance benign moderate severe
Loss Experience
Health &
Benefits benign moderate severe

A positive and reinsurance premiums, representing take-up remains modest as insureds


economic outlook growth of approximately 12.7 percent continue to tightly control their
with a forecast when compared to 2016. insurance spend.
growth in real GDP of 5.1 percent in
2017 bodes well for Indonesia, although Property and motor vehicle premiums, Marine insurance has seen a worsening

this remains below the government constituting over 50 percent of the total loss ratio develop through 2017, perhaps

target. Buoyed by rising commodity insurance spend in Indonesia, remain as a reflection of several years of financial

prices, notably in coal, and crude palm under tariff pricing conditions, resulting pressure on shipping lines which may

oil, exports have surged by over 17 in a stable premium for insureds. Tariff have impacted crew, training, and

percent year-on-year. changes effective from 1 April 2017 maintenance budgets. While several
were relatively limited with a handful insurers are adopting a stricter approach
The insurance industry has benefited of industries impacted by changing to their marine portfolio, capacity
not only from the impact of a growing tariff rates. remains plentiful and the market
economy, but the government’s remains soft.
continued focus to strengthen Cyber insurance has become more of

the Indonesian insurance market. a talking point in Indonesia following


• Indonesia jumped from 91st to 72nd
Gross written premiums are on track to major data breaches, including in in the World Bank’s Ease of Doing
meet the OJK’s (the regulator’s) 2017 neighbouring Malaysia, with several Business index in 2017

target of USD 19.1 billion in insurance insurers in the local market active in
• S&P lifted Indonesia’s sovereign debt
offering solutions to clients. However, rating to investment grade

Asia Market Review 2018 53


Across the region, the threat of terrorism increased in Outlook
2017 as Islamic State (IS) was rolled back in the Middle
Organisations face uncertainty Life insurance remains a key
East, prompting Asian fighters to return to their home caused by both domestic and growth area in Indonesia,
countries, trained and radicalised. In May, we saw an overseas factors in the year with premiums anticipated to
IS-linked bombing at a busy bus station in Jakarta. ahead. Domestically, 2018 will continue their growth in excess
see the last full year of President of 12 percent, a reflection of
Whilst this major event increased awareness of the
Joko Widodo’s first term in office. an increasing middle-class
terrorism exposure in the country, Indonesia remains a Widodo’s initial target of adding population and the continuing
two-speed market for terrorism insurance. Foreign firms 35gigawatt (GW) of power development of business-to-
capacity by 2019 will not be consumer (B2C)
with operations in Indonesia still exhibit a much higher
realised, and pressure will be distribution channels.
propensity to buy cover than domestic organisations, on to ensure revised targets are
which are much more comfortable leaving this not missed. The FinTech revolution is slowly
building up pace in Indonesia.
exposure uninsured.
Indonesia has planned 247 In 2017, the OJK set up an official
national priority projects for registration system for FinTech
development between 2015 start-ups, formally recognising
2017 saw some notable fire losses in the domestic market. and 2019, requiring USD355 the sector, as well as creating
The two most notable losses occurred at a plastics billion of financing, of which a FinTech advisory forum.
production plant and a cotton warehouse, with the first 40 percent will be government Bank Indonesia, the national
loss caused by an electrical short circuit, and the cause funded. Only five of the 247 central bank, is also planning
of the second loss yet to be determined at the time projects have been completed to create a regulatory sandbox
of writing. Both losses represented total losses for the as of June 2017, with another 130 for Indonesian FinTech startups,
insured, resulting in combined claims in excess of projects under construction. The following the footsteps of Hong
USD45 million. The sizeable losses will impact both construction industry will look Kong and Singapore. The areas
local and international insurers who participated on the to 2018 to hopefully represent of e-commerce, online payment,
insureds’ programmes. a breakthrough year with more and InsureTech are expected
projects commencing. Any surge to see significant investment
in power and infrastructure and development in 2018, as
projects commencing Indonesia seeks to boost the
construction will have a positive financial services sector of
impact on the insurance industry. its economy. Creating more
effective and ubiquitous lending
External challenges to the infrastructure, such as peer-to-
outlook for Indonesia’s economy peer platforms will also be a key
include geopolitical uncertainties focus in 2018. Access to finance
in advanced economies, and remains a challenge for small
slower than expected economic to medium-sized enterprises in
slowdown in China, one of the Indonesia, therefore online and
top foreign direct investors alternative models provide an
in Indonesia. encouraging opportunity to drive
new growth in the economy.

Asia Market Review 2018 54


Japan

General Insurance 0–7.5%


2017 Rate Movements
Health & Benefits Flat

General Insurance 0–5%


2018 Rate Movements
Health & Benefits 0–5%

General
Insurance benign moderate severe
Loss Experience
Health &
Benefits benign moderate severe

There is a general market places. This too is likely to expects to pay out about JPY70 billion
feeling that ‘a change in view of Japan Inc’s brand and (USD0.62 billion) to JPY110 billion
change is in the air’ reputational damage in recent times. (USD0.97 billion) in connection with
for Japan. This is in the North American hurricanes and
many aspects of With the acquisitions of international earthquakes. Sompo has yet to announce
life, be it politics, firms, there also comes an understanding an estimate, but is seen coming up with
business, and perhaps even culturally. of well-established and sophisticated risk a similar figure. Clearly these payouts
The insurance market and attention management controls of the acquired place downward pressure on full-year
to risk is not excluded. More Japanese companies. Management level people, earnings; however, whilst this may
multi-national corporations are seeking who have experience of dealing with impact pricing for international risks, it is
global control for their risk and insurance global brokers in the U.S. and/or Europe, unlikely this will have a negative impact
management. The shrinking domestic are introducing the idea of using global on the Japanese domestic market, which
economy, caused by the continuation of brokers upon return to headquarters will continue to be underwritten outside
a rapidly shrinking population, means in Japan. of the global norm.
that many Japanese corporations need
With regards to notable global events, In 2017, the commercial Property
to seek assets and businesses outside
Japanese insurance groups Tokio Marine Damage and Business Interruption
of Japan. Last year, we commented
Holdings, MS&AD Insurance Group insurance experienced no major rate
on M&A activity, especially within the
Holdings, and Sompo Holdings may end change. In the large enterprise market,
insurance industry, which continues to
up paying out more than JPY200 billion international brokers’ penetration has
be a key talking point, in view of the
(USD1.78 billion) in total for damages driven stiff competition from the insurers
most recent purchase of Singaporean
caused by the recent hurricanes in the for this sector, resulting in clients
First Capital Insurance Ltd by Mitsui
U.S. and major earthquakes in Mexico. achieving substantial premium savings.
Sumitomo Insurance Company Ltd for
Tokio Marine said that it expected to pay Significant flood damages were caused
USD1.6 billion. As a result, Warranty &
about JPY65 billion (USD0.57 billion), by heavy rainfall, including the torrential
Indemnity and Directors and Officers
which would be the company’s biggest downpour that hit northern Kyushu in
insurance has become more actively
payout for natural disasters overseas July. Typhoon 18, the first typhoon ever
considered, mainly for Japanese
since the JPY130 billion (USD1.15 billion) to make landfall on each of the four
outbound and international inbound
in losses stemming from the 2011 floods major islands of Japan, caused a major
business, as domestic deals are still not
in Thailand. MS&AD has quoted that it damage all across the country.
on a par with other major international

Asia Market Review 2018 55


From a Liability viewpoint, with the A major topic of discussion in Japan is Outlook
exception of some specific industries such Cyber risk and insurance. Approximately
Despite the significant damages
as pharmaceutical manufacturing, Japan half of Japanese financial institutions caused by the flood and large
is still a favourable buyer’s (soft) market. have been on the receiving end of a typhoons, the loss ratio of major
Insurance premium reductions continue, cyberattack since 2015. Of the 411 banks, local companies continue to be
favourable, and so the softening
particularly in large corporate markets. credit associations and other financial market trend of 2017 is expected
This is primarily due to promotion of institutions recently surveyed, 1.2 percent to continue through 2018. The
competition among insurance companies said they suffered significant fallout high level of broker penetration
in the large corporate market
via the appointment of international from a cyberattack while 9.7 percent
will also continue to generate
brokers and the optimisation of noted a minor impact. Japanese financial downward rate pressure on local
insurance arrangements. institutions are now spending an average insurers. There is an increasing
tendency in the large corporate
of JPY178 million (USD1.59 million) on
Unfortunately, from a branding space for organisations to seek to
cybersecurity each year. The costs, optimise their global insurance
perspective, Japan Inc continues its run of which include system development and arrangements in an attempt to
scandals. Top Japanese automakers said personnel expenses, totalled just JPY113 drive consistency and premium
that they were scrambling to assess the savings, which is expected
million two years ago. Japan’s megabanks to continue in 2018 as large
safety of vehicles containing products continue to boost their defenses, but businesses consolidate their
from a major Japanese steel manufacturer, attackers are increasingly turning their insurance operations and leverage
which has admitted falsifying quality data their group buying power.
attention to small and midsize regional
in a growing scandal. Toyota, Nissan, financial institutions, whose cybersecurity Major Japanese non-life
Honda, Mitsubishi Motors, Subaru, and responses vary drastically depending insurers have started reviewing
Mazda joined aviation firms and defense their earthquake insurance
on the institution’s strength and other underwriting models, reassessing
contractors Mitsubishi Heavy Industries, factors. Serendipitously, as the demand earthquake ratings by region and
Kawasaki Heavy Industries, and IHI that for cover increases, due to an increase in some cases, postcode. Tokio
have used the steelmaker’s products. The Marine & Nichido Fire Insurance
in insurance companies providing cyber
Co, as well as Sompo Japan
brewing crisis is the latest in a string of insurance, the market continues to soften. Nipponkoa Insurance Inc., will
quality control and governance scandals However, some insurers have tightened amend their pricing models for a
to hit major Japanese businesses in their underwriting on specific industries number of earthquake and tsunami
recent years, undermining the country’s exposed regions, although the
which have suffered large losses overseas. major areas of Osaka Prefecture
reputation for quality, trust, and integrity. and Tokyo will remain unchanged.
It remains to be seen what impact, if any, This is not cause for alarm, as it is
these events will have on Directors and more a correction than a general
sign of the market. The insurers
Officers insurance premiums, especially in
will keep premiums unchanged
view of a recent high profile case where for the major areas of Osaka
three retired directors of a well-known Prefecture and Tokyo.
power company were brought before the
Japanese courts following the 2011 Great
Easter earthquake.

Asia Market Review 2018 56


Malaysia

General Insurance 5–10%


2017 Rate Movements
Health & Benefits 0–5%

General Insurance 5–10%


2018 Rate Movements
Health & Benefits 0–5%

General
Insurance benign moderate severe
Loss Experience
Health &
Benefits benign moderate severe

The most to managing the risks they face are are seeing clients increasingly take
significant able to achieve significantly better targeted interventions in their employee
single impact renewal outcomes than their peers. populations to attempt to reduce future
on the Malaysian insurance market in loss experience. One way of doing
2017 was the continued loosening of Another significant trend in 2017 this, which is becoming increasingly
tariff pricing in the domestic market. has been the continuing interest of popular, is the use of employee wellness
This deregulation of insurance which international markets to write Malaysian programmes which make an upfront
began in the motor market is now risk on a tier two basis, by establishing investment in the health and well-being
being applied to the property market, an offshore presence in Labuan. We have of a company’s employee base, in order
with fire insurers now permitted to recently seen a number of insurers enter to prevent future negative outcomes.
deviate from the tariff price by up the market in this way, including Allied

to 30 percent. This freeing up of the World, Berkley, and Berkshire Hathaway. Cyber is a risk which has been spoken

market has led to a wave of product about for a number of years, but in
The H&B market in Malaysia remains 2017 we saw a significant increase in
innovation as insurers now have to
dominated by a handful of large the number of Aon clients seeking to
aggressively compete to gain or
international players, including AIA, close their existing coverage gap in
maintain market share. From a client
Allianz, Prudential, Great Eastern this area. There were a number of high
perspective, this regulatory change
Life, Tokio Marine, and AXA Life. As profile cyber losses report in Malaysia
shines a spotlight on the importance
medical inflation rates continue to sit and further afield in 2017, and these
of effective risk management. In
well above the overall level of inflation, losses seem to have crystallised the
contrast to the previous, tariffed
clients continue to look for new ways risk of a cyber breach in the mind of
market, clients with a superior loss
of containing the cost of their medical many insurance buyers in Malaysia.
experience and a clear commitment
plans. As utilisation rates increase, we

Asia Market Review 2018 57


As cyber stops being thought about Malaysia’s Ministry of Health amended Outlook
as an emerging risk and is accepted the Medical (Amendment) Act 2012
The Malaysian economy is
as a core exposure which must be and Medical Regulations in 2017, which expected to perform well again
appropriately managed and transferred, came into force on 1 July 2017. Under the in 2018 with real GDP expected
we expect to see a significant rise in new rules, doctors must have medical to expand between five to 5.5
percent led predominantly by
the demand for cyber insurance and malpractice cover in place, and attend strong domestic demand. Private
with it a renewed wave of product continuing professional development sector expenditure is expected
innovation from the insurance market. courses to upgrade their skills, before to expand by 7.3 percent, in line
with the anticipation that private
they can renew their Annual Practising
consumption and investment
Another area where we saw elevated Certificates (APCs), which are required activities will keep pace. All sub
activity in 2017 was in the terrorism to practice medicine in Malaysia. The sectors will continue to expand
market. The terror threat level across new requirement, which is set to come
in 2018 with manufacturing
the entire region rose in 2017, with sector forecast to increase by 5.3
into effect on 1 January 2019, makes it percent, and agriculture expected
returning fighters from the Middle East mandatory for doctors to accumulate 20 to grow by 2.4 percent in 2018.
seeking to execute attacks on home soil, Continuing Professional Development The construction industry is
the Philippines perhaps being the most forecast to grow significantly, with
(CPD) points, which can be obtained a rate of 7.5 percent expected,
high profile example of this. Malaysia through attending courses, seminars, supported by an increase in large
is not immune to this phenomenon, and workshops. The amendments were infrastructure projects. Gross
and over the past 12 months, we have exports are projected to expand
made to address the current needs of
by 3.4 percent, led by continued
seen increased take up of standalone medical practice, and ensuring safe and demand for electrical products
terrorism solutions form our retail, hotel, quality medical care for the public. and commodities.
and leisure portfolios in particular.
In 2018, we expect market
capacity to continue to grow
The Malaysian economy performed well
for Property and Casualty and
in 2017, with growth rates between financial lines risks. The increasing
5.2 percent and 5.7 percent achieved. market capacity, and the relaxation
The Malaysian Ringgit strengthened of tariff conditions means that
well-managed risks can expect
compared to other key benchmark to achieve further premium
currencies, in contrast to the prior reductions in 2018. The strong
year where significant weakening interest in cyber cover exhibited
in 2017 is forecast to grow
took place. This, coupled with
exponentially again in 2018 and
somewhat of a recovery in commodity beyond, and similarly, we expect
prices, boosted a number of sectors to see an increased level of interest
in financial lines products as risk
including Oil and Gas, Construction,
managers move to deal with
Agriculture, Palm Oil, and Rubber. existing coverage gaps.

Asia Market Review 2018 58


Pakistan

General Insurance 10–15%


2017 Rate Movements
Health & Benefits 5%

General Insurance 0–5%


2018 Rate Movements
Health & Benefits 0–10%

General
Insurance benign moderate severe
Loss Experience
Health &
Benefits benign moderate severe

The Pakistani insurance The Health & Benefits (H&B) market in their workforce to increase health and
market, dominated also remained extremely competitive in well-being, and to control their medical
by aggressive local 2017, with organisations achieving rate insurance expenditure. At the same
players, was incredibly reductions, despite continuing medical time, a number of large organisations
competitive in 2017. inflation. Year on year, the demand from which had previously self-insured their
The cut throat environment in the large corporations for H&B products and H&B exposure through in-house funds,
local market resulted in some accounts services continues to rise, as employee now looked for external solutions, in an
receiving significant rate reductions as headcounts increase, and benefits are attempt to reduce their administrative
insurers wrote for market share. The increasingly used as a talent retention burden, and insulate themselves
more established, larger markets in the and attraction tool. 2017 was a year against rising healthcare costs. From
Pakistani Property and Casualty market where the H&B market in Pakistan an end user perspective, Pakistanis,
attempted to stabilise a market which started to exhibit a major change particularly from younger generations,
has been softening at an incredible in market dynamics. Having been are becoming increasingly interested in
rate for a number of years, but found dominated for years by agents offering smart healthcare delivery, on-demand
themselves undercut by smaller outfits off-the-shelf products with restrictive services, and online/mobile app delivery.
who continued to drive rates lower. cover, discerning organisations began to As this area of care delivery expands
As with other markets, terms differed by search for more tailored, sophisticated and develops, consumers will enjoy
risk, but competition was particularly offerings as demand for targeted greater choice and access to healthcare
fierce in the Construction, Power, and interventions and the popularity of services, particularly in hard-to-reach or
Energy sectors where Aon witnessed wellness programmes increased. We underserved areas.
significant appetite to support risks at also saw an increase in the demand for
incredibly low deductible levels, with data-backed insights, as organisations
particularly thin rates. sought to make targeted interventions

Asia Market Review 2018 59


Healthcare was not the only sector which saw Outlook
interesting developments from a consumer perspective
One of the most significant Chinese capital invested into
in 2017. As the middle-class in Pakistan continue to influences on the domestic Pakistan appears to be trickling
grow at an exponential rate, the demand for personal economy in 2017 was the down into the local economy
lines insurance coverage grows with it. In recent establishment of the China- benefiting all insurers, insurance
Pakistan Economic Corridor brokers, loss adjusters, and risk
years, the Pakistani insurance market has seen a (CPEC), with a number of engineers. Our estimate is that 40
significant uptake in insurance on personal devices significant projects starting percent of CPEC related premium
such as phones and tablets, as well as a flourishing to kick off. Looking forward to is placed with international
2018 and beyond, this initiative markets, with this proportion set
bancassurance sector for products such as Personal
is set to have an enormous to gradually increase over the
Accident, Travel, and Income Protection. As Pakistanis impact on the country as China course of the project, whilst the
become richer and the middle-class grows, the amount invests billions of dollars in balance is placed in the Chinese
creating new motor, rail, power, market. CPEC has also given
of insurable property will continue to increase, as will
and energy infrastructure in great confidence to other large
the corresponding demand for insurance products. Pakistan. The country, currently local groups who are now also
Linked to this is the increased purchasing power of suffering from a 5,000 megawatt investing in major projects
the millennial generation, which is tech savvy, and shortage of power generation in Pakistan.
capacity, will see an additional
prefers to purchase online. As these trends grow in 10,000 megawatts added over Overall, in 2018 we expect to
coming years, we will begin to see more and more the next 10 years as part of the see the H&B market remain
insurance business done online, and greater success for project, including a significant incredibly competitive and so,
investment in wind, solar, and despite its status as a loss leader
convenient channels such as bancassurance. for many insurers, further rate
hydro, as well as coal and nuclear
power. The project, which was reductions are anticipated,
Terrorism remains a key challenge for the country, originally estimated to be worth although how sustainable this
and 2017 was a year where we saw increasing take-up circa USD46 billion has already is can be questioned. In the
expanded to an estimated USD60 Property and Casualty market,
of terrorism coverage. However, there still remains a
billion over the course of its 10- we believe that after a number
significant coverage gap in Pakistan, with the majority year lifespan. The project, linking of years of softening market
of affected premises uninsured. This means that despite the Port of Gwadar in the south conditions, and against the
the significant exposure in the country, most insurers of Pakistan to Kashgar in western backdrop of catastrophic global
China via a series of infrastructure reinsurance market losses
boasted positive loss ratios for the year, resulting in following the North American
projects, is expected to generate
another year of significant reductions for clients. up to USD600 million in hurricanes, earthquakes and
additional insurance premiums wildfires, we believe that the
in the coming years. Unlike insurance market will be largely
other “Belt and Road” initiatives, flat in Pakistan in 2018.

Asia Market Review 2018 60


Philippines

General Insurance 10%


2017 Rate Movements
Health & Benefits 0–10%

General Insurance 0–10%


2018 Rate Movements
Health & Benefits 0–10%

General
Insurance benign moderate severe
Loss Experience
Health &
Benefits benign moderate severe

2017 was a positive Aon fielded a number of enquiries insurance market in 2017. The Business
year for the Philippines around alternative natural catastrophe Process Outsourcing (BPO) sector
on the whole, despite products such as catastrophe bonds and remains a key revenue driver for the
growth slowing slightly in parametric solutions over the course of Philippine economy, and with the
comparison to prior years. the year. These products are increasingly trend of offshoring back office and
This was driven by a fall attractive to clients due to the lack of support functions for developed
in foreign direct investment (FDI) into ambiguity around insured losses, and market businesses showing no sign of
the country, which had been elevated the speed of pay out in the event of a abating, the sector provides a significant
in 2015 and 2016. Notwithstanding qualifying event. opportunity for the insurance market.
prior bumper years, reduced FDI figures The long hours and shift work patterns
of USD4.5-5 billion still represent a Whilst clients showed increased maturity which are typical of the BPO sector have
significant investment and driver of in 2017 around alternative risk transfer resulted in heightened rates of lifestyle
wealth creation in the local economy. solutions, there was also an increased related illnesses, such as hypertension
focus on enterprise risk management and and diabetes. Organisations are now
Over the past 12 months, large corporate governance. This represents starting to gain a more complete picture
corporate buyers of General Insurance a positive development, particularly of the impact upon their workforce of
have enjoyed rate reductions in the now we may be witnessing a different these working conditions. By utilising
region of 10 percent, whilst SME market dynamic from that seen over the claims data from existing employee
businesses have experienced even past decade, with well-managed risks populations, Aon is able to assist clients
greater savings. Conversely, global always performing favourably. For those in identifying developing health trends
medical inflation rates and adverse who are committed to understanding within their own workforce and the
claims experience resulted in average their risk profile, Aon sees a significant progression of different conditions,
H&B rate increases of up to 10 percent opportunity for Philippine clients to find through specialist medical staff and Aon
on average. solutions to risks which may not include Pulse, an award-winning data analytics
traditional forms of insurance or off-the- platform. As organisations gain a more
Towards the third quarter of 2017, we shelf products. complete view of the economic and
saw significant natural catastrophe losses
reputational cost of work and lifestyle
in North America and the Caribbean. Whilst the Property and Casualty
related conditions, Aon is seeing an
Insurers in the Philippines, which is market continued to be reliant upon
increased interest in well-managed clinic
also exposed to natural catastrophe FDI and the government facilitating
programmes, as well as more effective
risk, watched closely as the losses private investment into the power
(and measurable) wellness programmes,
mounted on the other side of the world. and construction sectors, the H&B
with clients making significant
Interestingly, and largely unrelated to and Life insurance markets were the
investments in physical and mental
hurricanes Harvey, Irma, and Maria, real growth engines in the Philippine
health interventions.

Asia Market Review 2018 61


Technological developments continue Finally, the Philippines was also Outlook
to drive change and progress in the affected by acts of violence in 2017
As a country exposed to natural
Philippines, as in other countries around (well publicised kidnappings, the lone catastrophe risk, the Philippines
the world. In 2017, we saw an increase wolf attack on Resorts World, and the market will possibly feel the
in the gamification of benefits and occupation of the City of Marawi being effects (coverage restrictions or
withdrawals of capacity) of the
employee engagement tools, particularly a few obvious examples) and this has events in North America and
targeted towards the millennial raised interest in the Special Contingency the Caribbean more than other
generation. Smart phone penetration is and Political Violence/Terrorism lines of markets in the region. Reinsurance
capacity driven accounts in
now at such a high level that all major insurance. Understanding the risk these
particular will be affected by the
businesses have mobile accessible types of events pose and mitigating global market’s (facultative and
platforms, with laggard businesses being against them remains a top priority, with treaty reinsurance) reaction to
the massive losses incurred in
left behind. As businesses continue to more firms engaging qualified advisors,
2017. Rates may be flat or even
become increasingly reliant on online and consultants, and brokers to perform such marginally increased, unless
automated technology to drive business work and also offer risk transfer solutions. strong risk management and loss
critical processes and sales channels, they experience continues to attract
interest. For SME businesses,
become further exposed to cyber risk. In conditions are likely to remain
this sense, adoption of technology has extremely competitive, as the local
outstripped take-up of appropriate risk insurers who play in this space are
not as reliant upon international
transfer solutions, with many Philippine
reinsurance capacity. The impact
businesses now finding themselves with a of global medical inflation
significant coverage gap. rates and the deteriorating loss
experience in the Philippines
Referencing technology, the risks means that H&B programmes are
likely to see rate increases in 2018.
associated with all things tech and data
are also on the rise, and in the Philippines The biggest medium- to long-term
client concern in the Philippines
there was a lot of activity around this
is regarding the future of artificial
topic in 2017. That being said, the activity intelligence, automation, and how
was mostly seminar/conference chatter, this may affect the outsourcing/
risk assessments, and attempts at risk BPO sector. As the amount of
low skilled work which can be
value quantification. The actual uptake of automated increases, more and
risk transfer solutions/products remains more BPO jobs may be lost.
almost zero, with more money being
Clients in the Philippines, who
spent on understanding and minimising have become increasingly exposed
the risk and the impact of a breach when to cyber risk as their businesses
it happens – which did happen in 2017. automate and digitise, have
shown greater awareness of their
exposure in recent years. Whilst we
commented in the retrospective
portion of this piece that
awareness of exposure has not yet
translated into appropriate uptake
of cyber risk transfer solutions, we
believe 2018 may be the year this
begins to change. Cyber risk can
now be accurately quantified, and
the tangible impact that uninsured
losses could have on even the
largest businesses is expected
to prompt action in the coming
years.

Asia Market Review 2018 62


Singapore

General Insurance 7.5–12.5%


2017 Rate Movements
Health & Benefits 5–12%

General Insurance 5–10%


2018 Rate Movements
Health & Benefits 5–12%

General
Insurance benign moderate severe
Loss Experience
Health &
Benefits benign moderate severe

2017 was another offering, designed to provide increases businesses’, individuals’, and
good year for reputational protection to the insured the country’s exposure to cyber hacking.
buyers of insurance when there is a major loss event. These
in Singapore. offerings not only reflect a maturation in 2017 was somewhat of a breakthrough

Though there was a higher than usual underwriting models in the Singapore year for the cyber market in Singapore.

level of attritional marine cargo losses market, but also an increase in client For a number of years, clients have

and a number of major fires in the west demand for value-added services and closely monitored their cyber exposures,

of the island, rate reductions remained products which go beyond the scope of although risk transfer practices for cyber

on offer throughout the year. traditional insurer offerings. have lagged behind that of developed
markets such as North America and
As the softening trend of previous 2017 saw the Singapore government Europe. However, a number of high
years continued to play out in 2017, a ramp up its efforts to push Singapore profile events in 2017 and the resulting
number of Singapore-based markets towards being a world-leading smart significant financial losses have now
looked to guarantee premium income by city. A number of private and public prompted a number of businesses to
putting their capacity behind structured projects were launched to upgrade take action, with Aviation and High Tech
portfolio solutions or facilities, which critical infrastructure within the city two examples of industries leading
are largely still profitable. In addition, state, embedding smart technology the way.
we also saw some insurers relax their into everyday processes such as traffic
underwriting criteria and increase their lights, transportation systems, and One major infrastructure initiative

appetite for risks that they had not retail outlets. These developments will which has yet to impact Singapore in

typically written in the past. continue to have a positive effect on the a meaningful way is China’s “Belt and

lives of Singaporeans and residents, as Road” Initiative, which has seen major
Over the past 12 months, there has well as create an environment in which Chinese-funded infrastructure projects
also been an increase in the number of businesses can flourish. Whilst there undertaken across the region. Thus far,
blended products offered by Singapore- are a myriad of benefits derived from investment has been focussed on faster
based insurers. New offerings emerged the utilisation of smart technology in growing economies in the region with
that combine traditional insurance every day processes, the reliance on Chinese contractors and insurers almost
coverage for physical damage and loss connected devices and digital systems exclusively involved.
of revenue with a crisis consultancy

Asia Market Review 2018 63


Last year, we commented on the government’s SG Outlook
Secure campaign. Public information campaigns such as
Heading into 2018, we expect harden, this increase in the cost
SG Secure and news coverage of high profile terrorism Singapore-based clients to of medical services is likely to
incidents across the region and elsewhere in the world continue to seek the rate start finding its way into the cost
have certainly raised the public level of awareness reductions which they have of funding medical plans, a staple
enjoyed in recent years. Whilst employee benefit across the
of the threat posed to Singapore. Singapore-based cost remains a key focus in region. However, in the short-
businesses already have a fairly high level of maturity the prevailing, challenging term, the extremely competitive
regarding terrorism and most businesses already macroeconomic conditions, environment in Singapore is likely
as risk maturity continues to to result in 2018 being another
have risk transfer strategies in place. However, as the
increase, so too will the demand year of H&B rate reductions.
threat level increases across the region, businesses are for value-added services from
becoming more aware of the threat posed to their staff insurers and brokers. Looking In the medium-term, one key
ahead to the next 12 months, challenge for the economy and
operating and travelling abroad. Terrorism is no longer
some underwriters from the country is the effect of the
just a risk to property and revenue, but is now also very international insurers will be vast increase in digitisation
much a people and reputational issue. Businesses must under pressure from their head and automation which is taking
therefore ensure that they have appropriate coverage office not to provide further rate hold currently. Singapore has
reductions in 2018, but overall, established itself as an innovation
and response plans in place in case of an incident either we expect to see reductions hub, and two of the key
at home or abroad affecting their business or people. available for well-managed risks, industries driving growth in 2017
Aon assisted a number of clients in 2017 with arranging albeit of a smaller order than in were the semi-conductors and
2017. As clients continue to push high tech sectors, which are both
blended cover, including an element of consultancy.
for further premium reductions, closely linked to global supply
we expect to see an increase in chains and quick to automate
One of the largest pieces of market news in 2017 was the number of hybrid products processes. As more and more
Mitsui Sumitomo Insurance Company Ltd’s purchase offered, with multiple liability manual jobs are automated,
of First Capital Insurance Ltd from Canadian group covers offered within one policy, greater numbers of low-skilled
giving insurers and clients the workers will find themselves
Fairfax Financial Holdings, for USD1.6 billion. First benefits of efficiency which is out of work. This will be a major
Capital is the largest non-life insurer in Singapore and generated when combining challenge for Singapore and
its acquisition by Mitsui Sumitomo Insurance could multiple covers under one a number of countries across
umbrella. the world as governments
be the first of many as Japanese insurers continue
seek ways to find meaningful
to grow their international presence in the region. The H&B market is likely to once employment for large portions
First Capital currently writes a number of lines which again be affected by medical of the workforce. From a risk
inflation, with another year of perspective, this also represents a
MSIG Insurance Singapore (who’s parent company
increasing costs for employers. major challenge to the insurance
is Mitsui Sumitomo Insurance) does not, which has In Singapore and across the market, as it tries to update
led to speculation in the market that MSIG Insurance region, the rate of medical and innovate products to meet
inflation continues to out-strip the needs of the world rapidly
Singapore may slowly, over time, seek to expand its
the pace of general inflation. evolving around it.
own book by writing new lines of business. As the H&B insurance markets

Medical costs continued to escalate in Singapore, with


cardiovascular conditions, cancer, respiratory illness,
gastrointestinal conditions, and diabetes representing
the most significant utilisation drivers. Specifically in
Singapore, advancements in technology and drugs,
high rental costs, increasing private sector treatment,
and deteriorating public health profiles all contributed
to medical inflation in the range of seven to 13 percent.
Despite these trends, 2017 saw H&B clients achieving
premium savings as incredibly competitive market
dynamics forced prices down.

Asia Market Review 2018 64


South Korea

General Insurance 0–10%


2017 Rate Movements
Health & Benefits 0–10%

General Insurance 0–5%


2018 Rate Movements
Health & Benefits 0–10%

General
Insurance benign moderate severe
Loss Experience
Health &
Benefits benign moderate severe

2017 was a largely greater independence from the United nuclear war is uninsurable, events
stagnant year in the States, increased trade with regional such as a North Korean test missile
Korean insurance neighbours, and seeking to improve accidentally landing in a populated area,
market. SME business relations with North Korea. If Moon was some form of military miscalculation, or
continued to be a conciliatory in his tone upon election, his minor retaliation following a targeted
tariffed market, meaning North Korean counterpart was anything surgical strike against North Korea would
that minimum rates remained fixed, but. Over the course of 2017, Kim Jong still be counted as an insurable loss.
whilst large corporate business saw Un continued to ratchet up tensions on
flatter rates than in previous years, with the Korean Peninsula as public barbs Urged on by the public, who are

maximum reductions of up to 10 percent were traded with U.S. President Donald concerned about safety and air

achieved for well-managed risks. No Trump, and a series of nuclear tests pollution, President Moon has pledged

notable product innovations occurred in and missile launches were conducted. to significantly reduce South Korea’s

the 12-month period, but Allianz Global Whilst Koreans have lived with the reliance upon coal and nuclear energy,

Corporate and Specialty entered the threats of their Northern neighbour’s setting a target that 20 percent

local market continuing the ongoing regime for generations, relations have of all power generation will come

trend of international insurers seeking become unusually tense over the past 12 from renewable sources by 2030

to gain direct exposure to Korean risk. months due to a nuclear armed North – an ambitious target considering

Korea, who is able to strike a number of that less than five percent currently
If 2017 was a quiet year for the Korean targets within the region, where even originates from renewable sources.
insurance market, the political scene mainland U.S.A. is a distinct possibility. Given this lofty target, a significant
was anything but benign. Korea elected As a response to the escalating tensions, increase in the number of renewables
its 19th president in May, Moon Jae In Aon fielded a number of requests construction projects can be expected
of the democratic party, following from clients regarding their War and in the coming years. A number of
the dismissal and impeachment of Terrorism coverage. A number of clients, these projects will also have a non-
the incumbent president Park Geun- particularly foreign organisations traditional risk profile as new technology
hye. The new president outlined a operating within South Korea, sought is utilised and innovative construction
wide sweeping agenda covering an to broaden policy wordings to transfer techniques are employed to build
increase in the minimum wage, creating as much of their risk as possible. Whilst a number of floating solar plants.

Asia Market Review 2018 65


South Korea Electricity Generation by Type, 2015

Hydroelectricity
1%
Oil
Other renewables
6% 4%

Nuclear
Coal 31%
39%

Natural gas
Souce: Kepco 2016 Annual Report
19%

2017 was another year where Korean up cyber policies, with some taking Outlook
businesses continued on the journey up slightly reduced limits of liability, as
As Korean buyers of insurance
to bring their risk management and businesses get a feel for their true cyber
mature, so too will the domestic
transfer culture and strategies into exposure. Following a series of high insurance market. In 2017, we
line with what is generally accepted profile product recall incidents in recent began to see more and more
domestic capacity utilised on
as global best practice. Whilst clients years, both in the region and outside,
large and complex Korean risks.
remain price sensitive, we saw an we also experienced an increase in the In 2018, we will see the market
increased willingness to deal with risks number of domestic clients, particularly continue to play an increasingly
which previously had been topics of from the electronics manufacturing important role on these large
corporate insurance programmes.
discussion rather than targets of active sector, taking up product recall policies. As the domestic market writes
treatment. A number of clients took more business, we also expect
to see Korean insurers increasing
their retention levels and utilising
local reinsurance capacity, rather
than ceding to the international
market. As buyers and the market
continues to mature, we will
see a move towards the model
of creating long-term, strategic
tripartite relationships between
the insured, insurers, and brokers.
Aon is taking the lead in this
space, creating opportunities for
direct client-insurer interaction at
renewal roadshows, Aon events
such as the Aon Risk Symposium
– Asia, and in the course of annual
strategic planning. In 2018,
we expect the value of these
strategic partnerships and the
evidence of client commitment
to risk management and the clear
articulation of this to the market to
become increasingly evident.

Asia Market Review 2018 66


Taiwan

General Insurance 0–5% Outlook


2017 Rate Movements
Health & Benefits Flat
Green energy, particularly solar,
General Insurance 0–5% water, and wind will be a key area
2018 Rate Movements for growth in Taiwan in 2018 and
Health & Benefits Flat
beyond. Prime Minister Lin Chuan
has announced ambitions to
General increase the share of power output
Insurance benign moderate severe attributed to clean sources on
Loss Experience
the island to 20 percent, from its
Health & current level of circa five percent
Benefits benign moderate severe by 2025. In order to deliver this,
the government is seeking up to
USD59 billion in private capital
investment. This project will not
only require the creation of new
2017 was an eventful, but suffering significant, uninsured losses, generation capacity, but also an
successful year overall as well as a number of local insurers upgrade to existing power storage
and transmission infrastructure.
for Taiwan. President Tsai experiencing capital erosion as a result Therefore, we expect to see
Ing-wen’s first year in of overstretching themselves. There in the near- to medium-term,
office was a testing one, was a response to this event in 2017, a significant increase in the amount
of construction work undertaken,
marked by challenges domestically on as the market, which is dominated by
the level of FDI into the energy
key policies and difficulties internationally local players, hardened somewhat and and power sectors, recruitment
with Chinese relations, as the anticipated as organisations started to take a more of skilled overseas labour, and
sourcing of alternative financing
support from U.S. President Donald mature approach to risk management
such as green bonds.
Trump did not materialise. Despite this and transfer.
challenging political backdrop, 2017 The major earthquake losses
saw significant overseas investment The Electronics sector remained a key incurred in 2016 meant that on
driver of growth for the Taiwanese average most businesses were
into Taiwan, which fuelled strong hit with rate increases in 2017.
performance by both the national stock economy in 2017, meaning that a focus However, general insurance loss
market and currency. on supply chain and product risks was experience in 2017 was relatively
at the centre of a significant proportion benign, and the domestic
insurance market remains awash
Organisational behaviour regarding risk of our client conversations over the past
with capital – a trend which is
management and risk transfer remains year. Contingent BI, products liability, set to continue again this year.
a three tiered concern in Taiwan, with product recall, and trade credit covers Therefore, small rate reductions
and coverage enhancements are
some organisations boasting dedicated were key concerns for electronics and
expected to be on offer for clients
risk management and insurance manufacturing clients. Supply chains in 2018.
functions, some where this function and global trade continues to increase in
is predominantly limited to insurance complexity and technology, and become
purchasing and falls under finance’s further embedded in core processes. As
remit, and still others where risk is limited this trend wears on, we have seen and
in its entirety to insurance purchasing will continue to see an ever larger group
and is viewed as a procurement matter. of organisations looking for end-to-end
This has a challenging knock-on effect for solutions, such as stock throughput cover
insurers, with a number of organisations and cyber insurance to protect against
purely focussed upon buying “cheap losses resulting from hacking of vital
cover”. The shortfalls of this approach operating systems.
were highlighted last year when a major
earthquake led to a number of businesses

Asia Market Review 2018 67


Thailand

General Insurance 0–10%


2017 Rate Movements
Health & Benefits 0–5%

General Insurance 0–15%


2018 Rate Movements
Health & Benefits 0–10%

General
Insurance benign moderate severe
Loss Experience
Health &
Benefits benign moderate severe

2017 was a year of reflection significant infrastructure projects. Two condominiums. New construction
and contemplation for such projects were the expansion of projects also enjoyed historically
Thailand. The passing of the Bangkok’s public transport over and low rates, as the significant appetite
king in October 2016 was a underground rail infrastructure, and the and readily available capacity from
historic national event, and State Railway of Thailand double tracking international insurers drove rates
marked a year of mourning project, linking a number of key regional down even further, with some projects
which impacted every aspect of the hubs. In addition, Chinese investment having rates applied as low as 0.01
country, including business and the as part of the country’s “Belt and Road” percent. Conversely, QBE departed
insurance market. Initiative started to materialise in 2017, the Thai market in 2017 after 40 years.
although not yet at the scale anticipated. This decision is felt to be partly due to
Amid this backdrop, the economy wider issues which impacted QBE over
moved more slowly than usual, The military-led government the course of the year, through losses
exhibiting growth in the region of delivered political stability to the suffered on legacy business and partly
three-3.5 percent as investment slowed country in 2017 and continues to remove due to the unprofitability of its local
and projects were put on hold. Despite what it considers to be the undesirable operation. Whilst some commentators
the sluggish growth, the Thai Baht influence of politicians associated with believe that this may signal a change
remained strong against other Asia the Red Shirt movement. in the status quo in the market of
currencies, which was a challenge for falling rates and abundant capacity,
Thai exporters. Notwithstanding the The insurance market has seen a
we anticipate the opposite with strong
reduced overall economic activity, continuing decline in all insurance
rumours locally that CV Starr and
compared to the status quo, 2017 ratings over the past 12 months,
Berkshire Hathaway are considering
did see development of a number of particularly for less technical property
entering Thailand.
risks such as offices, hotels, and

Asia Market Review 2018 68


The insurance market in Thailand is driven In line with the trend witnessed across Outlook
by the motor business, with circa 60 Asia, healthcare costs continued to rise
Whilst we commented that 2017
percent of all premiums coming from the last year, with the average rate of medical was a year of reflection, we
Automotive space. 2017, therefore, was inflation hitting eight percent in Thailand anticipate that in 2018, Thailand
a challenging year for the industry as the in 2017 and forecast to reach 8.5 percent will experience significant
growth and activity. With an
slowing economy and year of mourning in 2018. The key cost contributors were election scheduled for the fourth
resulted in reduced numbers of new car hospitalisation, physician services, quarter of 2018, we anticipate
purchases. This further exacerbated the prescription drugs, and maternity costs. significant effort from the
national government to stimulate
oversupply of capacity in the market, With the cost of inpatient procedures,
growth and push forward key
forcing already thin rates down even rent, and medication set to increase, infrastructure projects. Foreign
further. The country experienced some these trends and their impact on direct investment will also play a
key role in the local economy in
moderate flooding in 2017, which could businesses’ employee medical plan costs
the coming 12 months, as “Belt
be described as greater than typical are beginning to be noticed. As the H&B and Road” initiatives start to ramp
seasonal flooding, but not enough to market continued to harden, driven by up, and Korean and Japanese
genuinely test the insurance market another year of unprofitable underwriting businesses continue to seek
growth opportunities in Thailand.
or lead to a meaningful withdrawal results, organisations showed an increased
of capacity. focus on targeted interventions in their The country’s economic growth
estimate for 2018 has been
employee population. As medical costs
In contrast to the soft market conditions increased from its 2017 level
continue to spiral, we expect to see more to 3.8 percent, with the Thai
exhibited by the majority of the market in and more wellness and health promotion economy expected to show an
Thailand, there are certain specialty risk initiatives being undertaken by employers export-led expansion this year.
areas where insurers have been seeking The Baht is anticipated to remain
to control their H&B expenditure. strong against the U.S. Dollar
rate increases. One such area is the
and regional currencies again in
Power market, which has suffered severe 2018. Furthermore, the Tourism
operational losses recently. Authority of Thailand is also
launching “Amazing Thailand
From a client perspective, the economic Tourism Year 2018” with budgeted
revenue of THB3 trillion, providing
pressures, which are being felt by an additional boost to the
everyone globally, have driven clients to Thai economy.
focus on pricing rather than the financial
security of their insurance panel or the
quality of cover provided by them.
This has led to businesses turning to
second tier markets, because of their
aggressive pricing.

Asia Market Review 2018 69


Vietnam

General Insurance 10%


2017 Rate Movements
Health & Benefits 0–5%

General Insurance Flat


2018 Rate Movements
Health & Benefits 0–10%

General
Insurance benign moderate severe
Loss Experience
Health &
Benefits benign moderate severe

A period of sustained relatively consistent amongst insurers, and efforts to purchase insurance locally
economic growth continued with the top five insurers accounting should be made in order to adhere
throughout 2017, fueled by for approximately 60 percent of to local regulations. For larger, more
foreign investment, a rising market share. complex risks, it is common for insurance
middle class, continued to be purchased offshore, however, a
growth in factory work, and The market consists of a mix of local and local insurer must be engaged to place
the maturation of private and publicly international insurers, with competitive the cover and the law stipulates that 10
listed businesses in Vietnam. Over the pricing, particularly for small and percent must be retained onshore.
past five years, Vietnam has experienced mid-market risks, when compared

25 percent GDP growth, with annualised to other regions in Asia and globally. Within the property market, a property

growth around seven percent. After a International insurers typically price insurance tariff applies to all locations

strong increase in 2015 of 6.7 percent, between 20 percent and 30 percent under USD30 million in value, and

GDP saw a slightly gentler growth rate higher than their local counterparts. has been in place since 2010. The

in 2016 of 6.3 percent, then rebound Broad terms and conditions can be tariff premium rates are reasonably

by the end of 2017, recorded at negotiated in the market, however, competitive; however, for large

6.81 percent growth year-on-year, buyers should review terms carefully to operators with a high number of low

thanks to numerous policies on ensure they understand the scope and single value locations (for example, a

public investment. limitations of coverage offered by each retailer network or grocer) premium
insurer. Underwriting expertise, financial reductions cannot be achieved. For
In 2017, the insurance market in Vietnam security, and claims service should be locations above USD30 million, the
grew 14 percent, driven by a 27 percent considered when reviewing quotes from market remains competitive with
increase in H&B premiums (excluding insurers to ensure coverage is aligned reductions of 10 plus percent achievable
Life) and a 12 percent increase in General to the needs of the business. Fronting throughout 2017.
Insurance premiums. The distribution is common in Vietnam, however, local
of the total premium pool remained insurance is mandatory in certain classes,

Asia Market Review 2018 70


The liability insurance market is Within the Financial Lines market, there Outlook
particularly competitive, driven by a has been an increase in the number
With GDP growth of 6.5 percent
non-litigious environment and preference of notifications and claims, however, expected in 2018 and country goal
to settle matters in a more traditional overall market pricing continues to at 6.7 percent, the economy shows
manner. Whilst premiums are extremely be competitive. Clients are aware of positive economic prospects.
Vietnam’s underlying growth
competitive, the claim environment cyber threats, with frequent incidents momentum remains robust,
is benign and typically businesses will covered in the local and international underpinned by strong
only purchase public liability (and not press. Despite an increase in awareness, export-oriented manufacturing
activity, increased FDI, robust
products liability). With a growing the uptake of cyber insurance in
domestic demand, and a rebound
number of exporters providing products Vietnam remains relatively limited. In in agricultural production.
to the U.S., North America, Europe, and the healthcare sector, outside of larger However, the impact of U.S.
President Donald Trump’s
Australia, businesses should review their providers, medical malpractice insurance
decision to pull out of the
contractual arrangements with buyers, uptake remains minimal, despite the need Trans-Pacific Partnership is yet
and consider exposures to product to comply with local regulations that to be fully understood and trade
liability claims from abroad. Purchasing stipulate insurance should be maintained. protectionism could negatively
impact the region.
insurance is a cost-effective risk mitigation
for exporters, and costs can The H&B (non-Life) market continues to Starting in 2018, ASEAN Economic
be negotiated with buyers, who will likely grow rapidly in Vietnam. With insurers Community (AEC) rules will
competing aggressively for health come into effect, with various
see this as a value-add, if it is not already preferential tariffs applicable for
a contractual requirement. Whilst liability insurance, and medical inflation at 20 ASEAN made goods. These tariffs
losses are infrequent, the value of a claim percent over the past three years, insurers include 0 percent import tax for
are experiencing elevated loss ratios. automobiles with 40 percent
can be very high, and many businesses in country localisation rates. This
Vietnam are unnecessarily exposed. Short-term premium savings have been
will threaten the local automobile
achievable in 2017, with new entrants manufacturing industry that
In March 2017, a construction tariff was competing aggressively on price to win mainly consists of parts assembly
with low average localisation rates.
introduced which applies to all projects market share from more established
below VND70 billion (around USD32 insurers. However, at renewal, for In recent years, the Vietnamese
million) which has resulted in increased accounts with loss ratios in excess of 80 General Insurance market has
been a growth target for a number
insurance costs between three to five percent, premium increases have been
of international insurers and
times, depending on project specifics. the norm. reinsurers, with underwriting
The construction market has become discipline somewhat relaxed
extremely competitive, and for projects in order to drive growth. If this
attitude changes, pricing in
below this value, the market was Loss Experience – 2017
Vietnam could increase sharply.
becoming uneconomic. The introduction In 2016, loss ratios were 24 percent However, this is considered to be
of the tariff is intended to level the and 32 percent in General Insurance relatively unlikely in the short-term.

playing field and ensure market rates are and Health & Benefits, respectively. In
In the past five years, the H&B
the first half of 2017, losses across the
sustainable for these projects. Above market has been very competitive,
market continued to fair favourably at
this project value, insurers continue with new entrants continually
a total of 33.98 percent, as reported by
driving prices down. However, we
to compete aggressively for business, the Ministry of Finance (July 2017). In
do not foresee any new entrants
the third quarter of 2017, major tropical
offering low rates and broad coverage. to the market in 2018, and expect
storms and floods across the northern
incumbent insurers to push for
and central region were suffered, with
premium increases on existing
insured losses yet to be determined at
programmes with loss ratios in
the time of writing. This could impact
excess of 65 percent.
insurers’ loss records for the 2017 period.
Insurance buyers should develop
medium- and long-term strategies
to ensure costs can be adequately
budgeted for in the future. Whilst
downward spikes in pricing are
always welcome, upward increases
can be difficult to manage, and
proactive management of health
insurance programmes is essential
to driving long-term success.

Asia Market Review 2018 71


Contributors

Specialty Broking, Asia Default Risk – Power


Trade Credit
Geoffrey Lambrou Nicki Tilney
+65 6512 0279 Helen Clark +65 6239 8735
geoffrey.lambrou@aon.com +65 6239 7604 nicki.tilney@aon.com
helen.m.clark@aon.com

Murray Wood
Aviation Property
+65 6645 0116
Gary Moran murray.wood@aon.com Jiunn Woei Lee
+65 6239 7645 +65 6231 6397
gary.moran@aon.com jiunnwoei.lee@aon.com
Energy
Paul O’Keefe
Reinsurance
Captives +65 6239 7654
paul.o’keefe@aon.com Jeremy Fox
George Ong
+65 6239 7600
+65 6239 7690
jeremy.fox@aon.com
george.ong@aon.com
Financial Lines
Murray Wood
Terrorism and War
Casualty +65 6645 0116
murray.wood@aon.com Julian Taylor
Niloy Majmudar +65 6231 6402
+65 6512 7362 julian.taylor@aon.com
niloy.majmudar@aon.com Health & Benefits
Dan Bould
Terry Stephens +65 6239 8844
+603 2773 7057 daniel.bould@aon.com
Construction
terry.stephens@aon.com
Nicki Tilney
+65 6239 8735 Transaction Liability
nicki.tilney@aon.com Marine
Sandra Lee
Nicholas Bain Venn Peter Hulyer +852 2862 4121
+65 6645 0113 +65 6239 7698 sandra.s.lee@aon.com
nic.bainvenn@aon.com peter.hulyer@aon.com

Nick Wolfe
Innovation and Technology
+ 65 6645 0191
Default Risk – Johnny Shaw
nick.wolfe@aon.com
Structured Credit +65 6239 7549
& Political Risk Jan Steven Kelder
johnny.shaw@aon.com
+65 6239 8789
Miles Johnstone
jan.steven.kelder@aon.com
+65 6512 0226
miles.johnstone@aon.com

Murray Wood Mining


+65 6645 0116
Boon Yan Lee
murray.wood@aon.com
+65 6231 6337
boonyan.lee@aon.com

Melissa Shepherdson
+65 6231 6309
melissa.shepherdson@aon.com

Asia Market Review 2018 72


Cyber South Korea Thailand
Andrew Mahony Paul Choi Paul Frankland
+65 6313 7080 +82 2226 02706 +662 305 4577
andrew.mahony@aon.com paul.choi@aon.com paul.frankland@aon.com

Murray Wood
+65 6645 0116
Malaysia Vietnam
murray.wood@aon.com
Jasminder Kaur Tim Dempsey
+603 2773 7057 +84 28 3822 4884
Macroeconomics jasminder.kaur@aon.com tim.dempsey@aon.com

Andrew Hare
+65 6512 0263
Pakistan
andrew.hare@aon.com
Khurram Alikhan
+92 213 561 5339
China khurram.alikhan@aon.com

Jia Dai
+86 21 3865 8358
Philippines
jia.dai@aon-cofco.com.cn
Andrew Minnitt
+63 2908 1201
Hong Kong andrew.minnitt@aon.com

Paul Young
+852 2862 4249
Singapore
paul.young@aon.com
Wee Teck Tea
+65 6239 8711
Indonesia wee.teck.tea@aon.com

Jon Pipe
+62 21 2985 8503
Taiwan
jon.pipe@aon.com
Ernest Leung
+886 2 6639 0375
Japan ernest.leung@aon.com

Cameron Sheild Brian Wang


+81 3 4589 4190 +886 2 6639 0318
cameron.sheild@aon.com brian.wang@aon.com

Asia Market Review 2018 73


About Aon
Aon plc (NYSE:AON) is a leading global
professional services firm providing a broad
range of risk, retirement and health solutions.
Our 50,000 colleagues in 120 countries empower
results for clients by using proprietary data and
analytics to deliver insights that reduce volatility
and improve performance.

© Aon plc 2018. All rights reserved.


The information provided in this document is made available on an
“as is” basis for general information only, without warranty of any
kind. The information was compiled from sources that Aon considers
to be reliable. Unless stated otherwise in this document, any rates,
charts, figures, calculations and plans in this document are indicative
only. All views expressed are matters of opinion only and not facts.
Aon does not warrant the accuracy, completeness, adequacy or fitness
for purpose of any information herein. The information in this docu-
ment does not have regard to your specific objectives, risk profile,
financial situation or particular needs and shall not be construed as an
offer or solicitation to buy, sell or subscribe for any product or service
or be treated as advice of any nature or recommendation as to any
appropriate course(s) of action.
You should neither act, nor refrain from action, on the basis of the
information in this document. Any reliance on the information by
you is strictly at your own risk. To the extent permitted by law, Aon
disclaims all liability and responsibility for any loss, damage, cost or
expenses incurred or suffered by you caused by any such reliance
and/or from any errors or omissions in the information. This document
may not be copied, reproduced, distributed or communicated to any
party, either in whole or in part, without Aon’s specific written prior
consent. This document is not intended for distribution to, or use by,
any person or entity in any jurisdiction or country where such distri-
bution or use will be contrary to local law or regulation. All intellectual
property rights in this document and the information contained in
this document shall remain our property and/or where relevant, our
contributors or relevant third parties.
Aon and its affiliates, directors, associates, connected parties,
employees and/or representatives may own or have an interest in the
products or services mentioned or referred to in this document. All
insurance products mentioned in this document (if any) are under-
written by the respective insurers identified in the insurance policy
and not by Aon. Aon is not an insurer.

aon.com