Creating a more robust capital solvency framework

20 November 2017

Over the next few months one of the key issues dominating the (re)insurance market in Asia will be the evolving regulations around risk-based capital (RBC) frameworks in the region.

Stuart Beatty, CEO, Asia Pacific, JLT Re

Asia Pacific is unique because there is no common regulator like there is in the US or Europe. Each country has its own regulator who has its own view on solvency standards and minimum capital loss.

They each have distinct market trading conditions and challenges, as well as language and cultural idiosyncrasies.

Most countries have a nationalistic view on insurance/(re)insurance advisory and risk transfer. They are increasingly vocal about developing local talent and retaining risk and capital onshore.

Each country in Asia Pacific is heading towards a more robust capital solvency framework, but they are at different points on the curve and have varying targets for where they want to be by 2019.

For example, India, Brunei and Macau are at the start of the journey with a basic solvency formula.

The Philippines, Indonesia and Thailand are applying RBC rules, while China, Japan and Singapore are implementing a sophisticated enterprise risk management (ERM) rel="noopener noreferrer" framework.

These regulations are putting a disproportionate burden on smaller and less well resourced (re)insurers.

This could lead to a whole range of outputs – from M&A to new capital to companies deciding to stop being an insurance company and become a managing general agent (MGA) instead.

These decisions need to be taken at every single country level because what is relevant in Indonesia might not be the same as what is relevant in the Philippines.

Extra rigor around RBC rules and minimum solvency requirements are likely to lead to market consolidation and an increased reliance on (re)insurance capital, which is deemed to be one of the most efficient forms of capital available.

It is an extremely dynamic time for the region. 

Please contact Stuart Beatty on +61 (0)292 908 106 or stuart.beatty@jltre.com

Download button