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Routes To Growth 28.06.01
1. Routes to growth
An insight into the emerging insurance markets of Asia Pacific
2. Contents
Introduction 1
Where are foreign investors looking? 2
- China 3
- Malaysia 4
- The Philippines 4
- Thailand 4
- Vietnam 5
- Indonesia 5
How fast is the market moving? 6
What makes different countries attractive? 7
Restrictions 8
Regulation 8
Which lines of business are insurers looking to write? 9
Microinsurance 10
Takaful 10
Which business models are insurers considering? 11
Contacts 12
Worldwide offices 13
www.clydeco.com
3. Introduction
The map of the insurance world is changing as rapidly as other industries, with established markets becoming
increasingly saturated, so re/insurance businesses are being forced to look further afield for opportunities.
As we talk to our clients, Asia Pacific is increasingly in their sights – the insurance industry across the region
had the highest average rate of growth over the last decade – as it is in ours too.
2011 has seen Clyde & Co make a significant investment in our Asia Pacific Corporate Insurance Group in
the region, with the appointment of three additional partners dedicated solely to the industry. As part of our
focus on this part of world, we decided to get a better understanding of the views of the London market by
undertaking a “straw poll” of underwriters and brokers based in the UK, and to collate those findings with
some commentary from our regional experts in Asia.
Asia is a rich and diverse region comprising countries with distinct cultural, financial and regulatory
environments, a point sometimes obscured when considering the region from afar. As a result, we have
chosen to focus only on the emerging markets – China, Indonesia, Malaysia, The Philippines, Thailand
and Vietnam – to provide some interesting comparisons between the view of both east and west.
However, one thing is crystal clear: insurers are operating in a complex environment. As they look to the
developing economies to expand their businesses they are encountering a range of challenges – legal,
regulatory and commercial – which require both local knowledge and industry expertise to capitalise on
opportunities in Asia, and beyond.
Andrew Holderness
Global Head of the Corporate Insurance Group
www.clydeco.com 1
4. Where are foreign investors looking?
Respondents who were operating in Asia were asked where they were undertaking business. Unsurprisingly, given its
rate of growth in recent years, China topped the list at just over 67% of respondents. There was then a significant gap,
with Malaysia and Thailand in second and third place respectively.
Survey results – Respondents already in Asia:
China 67.2%
Malaysia 50.0%
Thailand 42.2%
Indonesia 35.9%
Philippines 31.3%
Vietnam 26.6%
The ranking barely changes when respondents who are looking to create a presence in the region were asked their
preferences. However, there was less enthusiasm for countries other than China, reinforcing the message that foreign
investors see that market as the key first step to expanding in Asia.
Survey results – Respondents looking to create/expand presence in Asia:
China 63.0%
Malaysia 42.0%
Thailand 39.0%
Indonesia 38.0%
Vietnam 33.0%
Philippines 30.0%
The fact that China topped the list by some margin is to be expected. However, more surprising was that Indonesia was not
higher. With a population of around 240 million, the perspective on the ground in Asia is that Indonesia is a country on which
local businesses are focussing. One of the key drivers is that the local regulator has increased solvency requirements in order
to deal with the issue of insurers being under-reserved. This will come into effect in 2012, and is likely to result in a trend towards
consolidation and run-off opportunities, especially since it is a very fragmented market with the largest player only accounting
for 5% of market share.
Survey respondents ranked Malaysia second, recognising the sophistication of its regulatory environment and the fact
that the government has recently relaxed its shareholding rule to encourage foreign direct investment and particularly to
create a takaful centre of excellence.
Anecdotal evidence also suggests that there is a lot of interest in Vietnam. A number of large multi-national players have
been establishing a presence there over the last couple of years – licenses are relatively easy to obtain – however there
is clearly over-capacity in the market.
The Philippines has a large population but concerns about the country’s stability are impacting its attractiveness to
insurers looking to expand in the region. However, despite regulatory hurdles that need to be overcome, insurers in Asia
are looking to outsource their back office functions either to The Philippines or Malaysia, due to the quality of education
and the level of spoken English of the population.
The sophistication of the Malaysian regulatory environment, and the recent relaxation of its
foreign direct investment rules, explain its popularity with our survey respondents. The fact that
Indonesia ranked fourth on the list was more surprising given its size and opportunities likely to
be thrown up as a result of recent changes to solvency requirements.
2 www.clydeco.com
5. China
The attractions of the Chinese market are well understood by foreign insurers looking to expand their business
internationally. As well as being the world’s largest trading nation and second largest economy, it is already the seventh
largest insurance market. In 2010, total premium income totalled Yuan 1.47 trillion (US$ 222 billion) – an increase of
33% from the previous year. Demand for insurance products is also forecast to increase by 2013, and projections for
premium growth are optimistic.
However, there are a number of issues that concern foreign insurers who are either already present, or are looking to
establish operations in the country.
Existing operations
Foreign firms account for around 5% of the life market and a smaller share of the general insurance market. Before the
financial crisis hit the west, predictions for growth in China had suggested that market share would be taken closer to
10%, however there is no doubt that foreign insurance companies continue to find this a tough market to operate in, gain
traction and increase their market share. Established domestic insurers, and the aggressive geographic expansion of the
smaller insurers, are giving the foreign players a run for their money. This, combined with the highly regulated nature of
the market, is forcing foreign insurers to review their business models and re-examine their positions.
With a number of foreign players, who have been in the market some time, failing to generate satisfactory profits, many
are taking a long, hard look at the future feasibility of their relationships with the local partners. Despite the challenges,
foreign insurers are not about to quit the Chinese market. They see China as an underinsured market with huge upside
potential. One area of optimism for existing insurers is the motor market. China’s insurance regulator is considering
whether to open the market for compulsory motor insurance to foreign firms, allowing overseas insurers to boost their
business in the world’s largest car market.
Businesses looking to expand
When talking to foreign insurers about their Chinese strategy, a number have found a mismatch between intention and
action. The credit crunch and resulting economic slowdown has meant that some were distracted by domestic issues –
boards were concentrating on dealing with problems elsewhere and their eye was off the Chinese ball. In the interim,
local insurers have been cementing their positions and growing their businesses – market share that it may be hard for
newcomers to win from them.
Understanding the culture is frequently cited by those talking of moving into new markets, but China is a destination
where this really matters. It is not simply about understanding the language but also the way in which people think.
There is a real need for foreign expertise to help develop the market — and to enhance client understanding of risk
management. With its history of communism, the Chinese population largely expects the state to look after it. If a building
collapses, is burnt down or destroyed by an earthquake, the state will rebuild it — why would anyone need insurance?
Change this culture and the rewards could be substantial.
Another concern that was expressed was the issue of finding the right experience and talent to build a successful
business in China. The relative immaturity of the industry means that there is a not a huge pool of local talent, and
language issues will always be a barrier for staff looking to move to the country. As well as internal demand, a number
of recent circulars have either imposed regulations concerning required roles, appropriate qualifications or new boards
and committees that will drastically increase the need for experienced staff, and further fuel the battle for talent in the
Chinese market.
Foreign players are taking a long, hard look at their business models in China. However, despite
the challenges they face, they see it as an underinsured market with huge upside potential.
Understanding the culture when moving into new markets is particularly vital in China – it is not just
about the language but also understanding how people think.
www.clydeco.com 3
6. Malaysia
Although everyone is talking about China at the moment, it is by no means the whole story in Asia Pacific. Malaysia
is a key economy at the heart of the region. Projections foresee growth in 2011 topping 12% across the Malaysian
insurance industry.
The appeal of Malaysia is twofold. First, as with many other emerging market economies, there is a low insurance
penetration rate in the country coupled with increasing consumer knowledge. This is in addition to growing
bancassurance and takaful businesses.
Secondly, in 2009 the limit on foreign equity participation in conventional Malaysian insurers and takaful operators was
lifted from 49% to 70%. This enabled foreign insurers with an existing minority interest to increase their equity interest in,
and gain majority control of, them. In addition, more operational flexibility for locally incorporated subsidiaries of foreign
insurers and takaful operators has been introduced, with the aim of strengthening the resilience and competitiveness of
the Malaysian conventional insurance and takaful industries.
The Philippines
The Philippines is the world’s twelfth most populous country – home to almost 95 million people. With such a significant
population it is surprising that it often seems to be overlooked – certainly by our survey respondents, but also by
insurance companies already operating in the region. Part of the reason for this may be that it is considered to be less
stable than some of its neighbours. However, like other countries in the region, The Philippines potentially offers insurers
significant increases in written premiums as improvements in wealth levels within a growing middle class population take
place. The country has suffered little impact from the global recession in GDP terms with growth of 6.0% in 2010.
Insurance premium growth rates for last year are estimated to have been 14% for non-life and 20% for life, assisted by
economic growth in 2010 of over 6%.
There are an usually large number of insurance companies operating in The Philippines and the non-life market in
particular has been saturated for some years with too many under-capitalised companies chasing too little business –
another factor that is likely to make foreign insurers considering the market a little wary.
The Philippines Insurance Commission has introduced new capital requirements that may begin a major rationalisation
within the extremely fragmented non-life segment. Over the long-term, such a rationalisation will be essential if the
industry is to grow. At the moment, the lack of local companies with the capital and scale and therefore the ability to
develop new and innovative products is a significant constraint on the development of the entire market.
Thailand
The appeal of Thailand may have been muted by the recent political turmoil and the impact of the world financial crisis
on foreign investment. Nevertheless, Thailand’s insurance industry continues to demonstrate strong growth. Thailand’s
Office of Insurance Commission revealed that insurance business in the first quarter of 2011 grew by 13.52% on last
year’s quarterly figures, with total direct premium in the country now worth Baht 111.783 billion (US$ 3.7 billion). The
country now hosts 72 licensed property and casualty insurers and 25 licensed life insurers registered with the OIC.
Foreign investors are looking for markets in which general economic prosperity will maximise the potential development
of the insurance industry. Maintaining Thailand’s 4% per annual average growth rate – achieved between 2000 and 2008
– will be challenging, but the actions being taken by the Thai government are aimed at providing economic stimulation
with this target in mind. It is implementing further financial stimulus schemes, increasing exports and rapidly developing
industrial activity, in order to boost the national economy. This in turn would be expected to drive up further demand and
the purchasing power of insurance products in Thailand.
Thailand’s insurance sector, though small, when compared to some of its Asian neighbours, boasts many possible
avenues for growth. Much of the country, particularly in the rural regions outside the capital Bangkok, remains relatively
untapped in terms of insurance penetration. This represents an opportunity for insurers to develop niche market
products, such as micro-insurance and takaful coverage options.
The appeal of Thailand has undoubtedly been muted by recent political turmoil. However, its
insurance industry continues to demonstrate strong growth.
4 www.clydeco.com
7. Vietnam
In comparison to other Southeast Asian countries, Vietnam was impacted by three ‘lost decades’ of economic
development due to war, but is now gaining ground on its fellow ASEAN members. Since the 1997 Asian economic crisis,
the Vietnamese economy has boomed due to the Communist Party of Vietnam (CPV) changing its communist policies
and central planning approach, adopted in the late 1980’s, and applying its ‘doi moi’ (renovation) policy. The economic
reforms have enabled the country to become one the fastest-growing economies in Asia, leaving it with the potential to
rival the four “Asian Tigers” of Hong Kong, Singapore, South Korea and Taiwan.
Despite the global economic downturn of 2007 – 2009, the insurance market in Vietnam has been resilient; prompting
many leading multinational insurance companies to increase their presence in this growth market. They will be further
aided in this effort as the Law on Insurance Business has recently been amended (to take effect on 1 July 2011) to align
current insurance legislation with international practices and to codify some of the commitments Vietnam made before
its accession to the World Trade Organisation in 2007. The amended Law is expected to impose more rigorous
regulation of foreign-invested companies and brokers that offer cross-border insurance services.
In the short-term, the growth in the life insurance market is expected to continue and generate significant profits for life
insurers currently active in the Vietnamese market. The medium/long-term prospects are less clear, as a result of
Vietnam’s GDP deficit and possible implementation of austerity measures. However, insurance companies still remain
focused on increasing business levels by taking advantage of the emerging growth in the economy.
There is also significant competition between insurance companies for increased market penetration in Vietnam and
friction between the competitors as they seek consolidation of their presence in the fledgling insurance industry.
Indonesia
Indonesia has a population of 240 million people, achieved an average economic growth rate of 5.6% per year between
2007 and 2009 and has emerged from the economic downturn relatively unscathed. Reforms in the regulation of the
Indonesian financial services industry, expansion of insurance distribution and a broader range of protection products
are forecast to have a positive effect on the Indonesian insurance sector in the coming years to meet the demands of
a population experiencing an improvement in individual wealth.
Nevertheless, a number of concerns have been expressed by foreign investors about the marketplace. The first is that
the industry is relatively fragmented and, while the majority of the market is held by well established local firms, none
has a dominant position in the life or non-life sectors. The market is also small, with product density per capita of US$15
in non-life and US$27 in life products.
Issues such as high levels of unemployment, the very real threat of terrorist attacks and a lack of institutional
transparency create concerns for businesses considering operations in Indonesia.
The outlook for Indonesia is positive. GDP is forecast to grow 6% in 2011, while Life premiums
are expected to grow 10.9% and non-Life 8.9%. However, a number of concerns remain for
potential investors including the fragmented nature of the insurance market, a lack of
institutional transparency and the very real threat of terrorism.
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8. How fast is the market moving?
Survey results – Time horizon for creating/expanding in Asia
Next one to two years Three to five years Six to ten years
China 57.7% 35.0% 7.5%
Malaysia 63.0% 30.0% 7.0%
Indonesia 54.0% 33.5% 12.5%
Philippines 42.0% 47.5% 10.5%
Thailand 52.0% 28.2% 20.0%
Vietnam 47.5% 33.5% 19.0%
Our respondents were in no doubt that they were looking to move into or expand their Asia Pacific operations sooner
rather than later. The vast majority felt that they would be active in all the Asian countries about which they were asked
within the next five years.
The desire now to take some strategic steps forward is coming from a number of different drivers:
• Ongoing economic issues in mature markets – with growth still sluggish in many major economies, the available
spend for insurance (both at an individual and corporate level) remains under pressure and pricing shows little
sign of hardening. As a result, it is only by seeking out new markets that businesses can continue to grow their
overall income.
• Increasing sophistication in emerging markets – as well as the potential offered by the Asian markets, and the
growth in both population and economic activity, there is also a growing understanding of and desire for risk transfer
products. Individuals are increasingly seeking insurance protection for their lives, property and possessions, as well
as having the disposable income to save for the future. In the business community, there is growing investment in
the natural resource sector – as well as in significant infrastructure projects – all of which require both property and
casualty insurance covers.
• Easing of regulatory controls – overall insurance is one of the most regulated industries in the world. Unlike other
regions of the world, there is no alignment of regulation within the Asia Pacific region, which makes it more complex
to understand each local regulatory environment. There is no doubt that a move towards a more uniform approach
would remove arbitrage between countries and facilitate growth because of the certainty that it would bring.
Governments walk the line between the need to keep regulation light to facilitate growth and protect the market.
Regulators still need to ensure that growth happens in a controlled and sustainable manner, which in itself is likely
to lead to the revision of existing regulation and the implementation of further regulation.
Individuals are increasingly seeking insurance protection for their lives, property and possessions,
as well as having the disposable income to save for the future. In the business community, there is
growing investment in the natural resource sector – as well as in significant infrastructure projects
– all of which require both property and casualty insurance covers.
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9. What makes different countries attractive?
Survey results – What’s attracting respondents to Asia
(1 - most attractive, 6 - least attractive)
China Malaysia Indonesia Philippines Thailand Vietnam
Part of international
strategy to grow 1 1 1 1 1 1=
premium income
Ability to develop
direct insurance
2 2 2 2= 2= 1=
business in the
local market
Ability to develop
reinsurance business 3 3 3 2= 2= 3=
in the local market
Regulatory
4 4 4 4= 4 3=
environment
Tax
5 5= 5 6 5= 6
environment
Creation of ASEAN
Free Trade Area 6 5= 6 4= 5= 5
in 2015
Survey results – Ranking of concerns from respondents about entering / operating in Asian markets:
1. Competition from existing companies
2. Restrictions on foreign investment
3. Ability to find local partner
4. Difficulties in local distribution
5. Political unrest
6. Operating in a different environment
7. Set up process
8. Cost of doing business
9. Lack of acquisition targets
Unsurprisingly, the top factors attracting survey respondents to countries across Asia are the opportunities to grow
their business and develop income. The opportunities in the region are significant but there are a range of issues that
companies need to contend with.
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10. Restrictions
Competition from existing companies and restrictions on foreign investment are the top two concerns for survey
respondents looking towards Asia. In the case of China, despite many years of operations, foreign insurers have
managed to capture only 1.8% of the Chinese non-life insurance market and 4.8% of the life and health markets.
These low percentages are partly a consequence of the restrictions to which foreign-invested insurers are subject.
In Indonesia, under prevailing insurance regulations, foreign ownership of an insurance company must not exceed 80%.
Foreign insurance companies may only invest in a company that operates in the same area of business and any proposed
transfer of shares in an unlisted Indonesian insurance company requires the prior approval of the Minister of Finance.
Insurers looking towards Malaysia encounter fewer restrictions, a significant factor which goes a long way to explain the
country’s more favourable ranking in our survey results. There has been a recent liberalisation of foreign investment
restrictions in Malaysia. In 2009 foreign ownership restrictions on insurance companies were relaxed and the maximum
threshold increased from 49% to 70%. However, investors must still approach Bank Negara Malaysia for in-principle
approval prior to commencing preliminary negotiations or due diligence in connection with a proposed acquisition of an
insurance business.
Insurance companies looking at the Thai market have been encouraged by the fact that the government has approved
an increase in maximum foreign shareholding limits for both life and non-life insurers from a 25% limit up to 49%.
Some of the leading multinational insurance companies are now represented in Thailand, including ACE, Allianz, AXA,
Generali, Manulife, New York Life and Prudential. Several local Thai insurers have also established affiliations with
foreign insurers. However, insurance companies in Thailand are required to be public companies and are subject to
substantial restrictions. At least three quarters of an insurance company’s directors must be Thai nationals and the
number of shares held by Thai nationals and Thai companies must be at least 75% of the total voting shares.
In The Philippines and Vietnam, several insurers are 100% owned by foreigners and Vietnam in particular has made
considerable progress in recent years to make the country a more attractive investment destination.
Regulation
Foreign insurers are following with interest the growing involvement of Asian regulators in global initiatives and their
wider role in affecting insurance regulations. They are very much aware of the need to stay abreast of proposed changes
to local or regional regulations and that they must be able to quickly identify the potential business impact and alter their
strategies accordingly.
Regulatory frameworks across Asia are at different stages of development, and are subject to rapid change. In the near
term, widespread adoption of Solvency II (SII) is unlikely in the region because of the long lead time involved in preparing
the necessary resources and calibrating the risk factors for local countries. Nevertheless, all Asia Pacific regulators will
look towards the SII framework to guide their thinking in areas like Enterprise Risk Management and internal models.
Many foreign insurers have already established an Asian presence and expect their SII experience will bring benefits to
their operations in the region.
Several countries in Asia have implemented risk-based capital (RBC) frameworks, and others are following suit.
Indonesia continues to scale up the levels of RBC that insurers must meet, following delays to the original timetable,
and now will require all insurers to have a minimum of US$11.2 million capital to meet standards being imposed by the
regulatory authority by 2014.
Vietnam is considering amendments and supplements to its Business Insurance Law to heighten the supervisory power
of regulators, and regulators in other countries continue to review regulations concerning the percentage of foreign
ownership of local insurers.
Foreign insurers are following with interest the growing involvement of Asian regulators in global
initiatives and their wider role in affecting insurance regulations. They are very much aware of the
need to stay abreast of proposed changes to local or regional regulations and that they must be
able to quickly identify the potential business impact and alter their strategies accordingly.
8 www.clydeco.com
11. Which lines of business are insurers looking to write?
Survey results – Lines of business respondents interested in writing:
Marine 63.0%
Property 58.0%
Health 50.0%
Liability 46.0%
Aviation 33.0%
Life 29.0%
Motor 29.0%
Microinsurance 25.0%
The ranking of classes of business reflects the fact that the respondents were primarily based in the London market, and
are most likely to begin with the lines with which they are most comfortable – and expand from there. This means interest
from the London market is most likely to remain, in the near-term at least, in major areas of the Property market.
Marine was the line of business most respondents are interested in writing, perhaps predictably given the thriving
import/export market – especially in China – and the fact that the region is home to a number of sizeable marine hubs. Last
year, Shanghai saw a 31% increase in marine insurance premiums written in the city. Insurance companies incorporated in
Shanghai are exempt from business tax on marine business prompting a swathe of interest from international players as
well as growing engagement from domestic firms.
The high levels of ongoing construction explain why property ranked second in the survey and the increasing size of the
population indicates opportunities to provide additional health cover.
In most Asian countries, many liability lines of business are not compulsory – thus limiting the ability of insurers and
borers to develop an interest in them. However, as businesses expand beyond their domestic markets into the
international arena, they may find that these types of cover are demanded by their trading and financing partners.
However, local sentiment suggests that there are opportunities across all lines of business. Beyond those lines
mentioned above; motor, in China in particular, is a growing market. Aviation is another line with significant potential,
with a low-cost airline boom in the region being marked by a number of new entrants.
The ranking of classes of business reflects the fact that the respondents were primarily based in
the London market, and are most likely to begin with the lines with which they are most
comfortable – and expand from there. This means interest from the London market is most likely
to remain, in the near-term at least, in major areas of the Property market.
www.clydeco.com 9
12. Microinsurance
The global microinsurance market is estimated to be worth US$40 billion to the insurance industry according to a report by
Swiss Re. Although Asian countries are keen to take advantage of the microinsurance sector, and the issue was raised
specially at the East Asian Insurance Congress held in Bali in October 2010, it does not appear to be an area into which the
London market is looking to expand.
Microinsurance provides significant opportunities across Asia, notably in Vietnam. Distribution is usually through a
microfinance institution, charity or other non-governmental organisation that has relatively easy access to a large swathe
of the population, often located in remote areas. The sector has been innovative in its use of ‘alternative’ channels such
as scratch cards and mobile phones. However, large multinational insurers will struggle to generate significant premium
income in the short-term; this is a business that is all about volume.
Takaful
The worldwide takaful insurance market is projected to grow by 31% in 2011, up to a possible value of US$12 billion.
This represents an important market for multinational insurance companies searching for new sectors and continued
opportunities for growth. Malaysia and Indonesia, countries with prominent Muslim populations, are strong takaful
jurisdictions and each is currently experiencing significant growth in both business volume and customer acceptance of
takaful products, suggesting that this model is poised to grow further.
In the light of this it is somewhat surprising then that only 41.7% of survey respondents said they were interested in
entering the takaful and retakaful markets in Asia.
Although takaful as a business model has been widely accepted by foreign insurers, and a number are exploring
securing licenses in the region, there are several challenges that remain to be addressed. Foremost of these is the
people issue: overcoming a chronic skills shortage, given the limited number of Islamic scholars experienced in finance
and insurance coupled with stiff competition from conventional insurance for limited skilled resources.
A growing band of western insurers – from Allianz and Aviva to Munich Re and Swiss Re – have been establishing UK
Sharia-compliant operations in recent years. Similar to general insurers, the Islamic insurance sector moves in direct
alignment with the performance of the broader economy; so the positive economic outlook for the Asian economy
suggests others may soon join them.
Takaful presents an enormous potential opportunity for the insurance industry – 23% of the world’s population is Muslim.
A lot of sovereign wealth investment is coming out of the gulf states, which is significant for Malaysia and Indonesia.
However, unless you are actually based in these countries this is a very challenging market to operate in and many
multi-national insurers remain a little wary.
The worldwide takaful insurance market is projected to grow by 31% in 2011, up to a possible
value of US$12 billion. This represents an important market for multinational insurance
companies searching for new sectors and continued opportunities for growth.
10 www.clydeco.com
13. Which business models are insurers considering?
Survey results – Business models respondents use / would consider using in Asia
Establishment of a branch 70.8%
Reinsurance via local front 58.3%
Establishment of a subsidiary 54.2%
Joint venture with local insurer 50.0%
Binding authority via local entity 20.8%
The survey shows that in terms of a business model for operating in Asia, foreign insurers view the option of opening a
local branch as the most attractive. It is understandable that companies want to go down this route as it offers clear
benefits, not least that there is no need to source additional capital. However, in many instances companies will find that
– while this is a nice idea in principle – this path is blocked by regulatory restrictions and they will need to reconsider their
vehicle for investment.
Reinsurance via a local front is an attractive alternative and is a model that has been adopted by a number of large foreign
insurers entering markets across Asia. The attraction lies in the fact that this is simple to set up and easy to withdraw from –
effectively allowing a third party insurer to test the market before making a decision on whether to invest further. However, by
piggy-backing on an established player, it still leaves a foreign insurer a long way to go to become truly local. The model does
not allow for the acquisition and development of underwriting talent, nor does it allow a foreign insurer to establish and build
its brand in the market.
Regulators are also taking a closer interest in the overall risks being written by the insurers for whom they have oversight
– irrespective of any reinsurance that might sit behind it. The result may be higher capital requirements, the cost of which
will be passed along through higher charges.
Establishing a subsidiary or entering into a joint venture (JV) with a local insurer, while having their attractions for our
survey respondents, also pose challenges.
While forming a local company can bring certain tax breaks, it requires the sourcing of local capital and the acquisition of
licences. The latter are vital but often difficult and time-consuming to obtain.
Most multi-nationals are less inclined to take a minority stake or enter into a JV; they expect ownership if they are
required to provide both financial and intellectual capital. While foreign insurers find it difficult to justify a minority position
as a strategic decision – it throws up a range of questions in the minds of investors – they are used to accepting a
minority position where they have to, recognising that they will expand the holding when the regulatory environment
allows. To get the best from this is often as much about mentality as structure – it’s about being an active and equal
partner in spirit, if not in equity.
Setting up a JV also poses well-established challenges such as finding the right partner, negotiating the complexities of the deal
and monitoring business performance. While a JV with a local bank or insurer can see a marriage of foreign expertise and local
capital, restrictions mean there is often a limited pool of partners to work with.
Foreign insurers looking to Asia often consider an acquisition as a way round some of these challenges but this may
again be hampered by restrictions on foreign ownership as well as a lack of suitable targets. Despite survey respondents
remaining seemingly unperturbed by a possible lack of companies suitable for acquisition, experience on the ground
suggests a different picture. In reality there are now very few viable targets, making this an expensive proposition as
acquirers will be required to pay a premium.
Setting up a binding authority via a local entity is the least attractive business model, according to the survey results.
This is unsurprising as any insurer selecting this route to market will need to address issues relating to Solvency II, control
and, in the case of the UK, the Bribery Act. A binding authority will still necessitate a local agent to generate business and the
insurer will not actually be in a position to build the relationships in the market so essential for success in the long term.
Foreign insurers find it difficult to justify a minority position as a strategic decision – it throws up a
range of questions in the minds of investors. To get the best from this is often as much about
mentality as structure – it’s about being an active and equal partner in spirit, if not in equity.
www.clydeco.com 11
14. Contacts
Andrew Holderness Michael Cripps
Global Head of Corporate Insurance Group Regional Partner
Tel: +44(0)20 7623 1244 Tel: +86 21 5877 5128
andrew.holderness@clydeco.com michael.cripps@clydeco.com.cn
John Champion Tom Palmer
Partner Counsel
Tel: +65 6544 6516 Tel: +852 2287 2807
john.champion@clyde.com.sg tom.palmer@clyde.com.hk
Ik Wei Chong Kendall Evans
Partner Associate
Tel: +86 21 5877 5128 Tel: +852 2287 2860
ikwei.chong@clydeco.com.cn kendall.evans@clyde.com.hk
Gloria Jones Amanda Li
Partner Associate
Tel: +852 2287 2814 Tel: +86 21 5877 5128
gloria.jones@clyde.com.hk amanda.li@clydeco.com.cn
William Tsang Jennifer Wei
Partner Associate
Tel: +852 2287 2830 Tel: +86 21 5877 5128
william.tsang@clyde.com.hk jennifer.wei@clydeco.com.cn
Carrie Yang
Partner
Tel: +86 21 5877 5128
carrie.yang@clydeco.com.cn
Hong Kong Shanghai Singapore
58th Floor 23rd Floor 21st Floor
Central Plaza Two International Finance Centre Springleaf Tower
18 Harbour Road 8 Century Avenue 3 Anson Road
Hong Kong Shanghai 200120 Singapore 079909
T: +852 2878 8600 T: +86 21 5877 5128 T: +65 6544 6500
F: +852 2522 5907 F: +86 21 5877 9128 F: +65 6544 6501
E: clyde@clyde.com.hk E: clyde@clydeco.com.cn E: post@clyde.com.sg
12 www.clydeco.com
16. www.clydeco.com
Clyde & Co LLP offices and associated* offices: Abu Dhabi Belgrade* Caracas Dar es Salaam* Doha Dubai Guildford Hong Kong London Moscow
Mumbai* Nantes New Delhi* New Jersey New York Paris Piraeus Rio de Janeiro Riyadh* San Francisco Shanghai Singapore St Petersburg*
