Tightening the regulation rulebook

26 November 2018

Jeremy Fox, CEO, Asia Pacific, JLT Re

Australia is facing the biggest upheavals in the Asia Pacific region with the Royal Commission on banking and financial services, and increasing class action activity, turning insurers off D&O and professional indemnity cover for financial institutions.

It is becoming a tale of woe for the sector as the Commission’s year-long inquiry has unearthed a series of scandals and widespread bad practice.

This has forced D&O rates up across the board and prompted several insurers to restrict capacity, impose exclusions or even pull out of the market. There is potential for others to follow.

In Australia, professional indemnity capacity for large construction projects is already tightening due to rising litigation in this sector and, for all classes, those providing coverage for sandwich panel building techniques are also showing signs of strain and rate adjustments.

Japan, Philippines and China

Elsewhere in this very diverse region, insurers and reinsurers will be watching the outcomes of recent wind driven events in Japan, Philippines and the Greater China region as to the effect on the primary market and consequent impact on the reinsurance market. Early indications still point towards an earnings rather than a capital event.

Strengthening regulation

Regulation is the dominant theme with new regimes tightening up on risk-based capital slowly coming on stream.

Hong Kong is leading the way with the new rules due to impact in 2020. Malaysia and Singapore are also strengthening their rulebooks, while in Thailand, Indonesia and the Philippines enforcement of the new regulations is at a steadier pace.

IFRS 17 in South Korea

In South Korea IFRS 17 is driving regulatory change. All of this is potentially good news for reinsurers as it will bring greater clarity to the relative strengths of different players in the primary market.

One of the key challenges for the primary market is to boost insurance penetration, long seen as a potential source of growth for insurers and reinsurers in the region, but this is proving tough. With GDP growth slowing down, this will become harder.

On a brighter growth note, as governments continue to focus on food security, especially in the large markets of China and India, we see the increasing penetration of agriculture insurance/ reinsurance, and there is even some evidence that rates might be hardening.

The Philippines, Indonesia and Vietnam

Despite the political pressures in some countries to channel business to indigenous insurers and reinsurers, the global players are still in the dominant position because they have the benefit of diversification and stronger capital.

In many countries, notably Thailand, the Philippines, Indonesia and Vietnam, there are many smaller indigenous insurers and we will no doubt see M&A activity gathering momentum.


Jeremy Fox
+65 6411 9049