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7 February, 2012 • Issue 6 Asia-Pacific Insurers Seek Overseas Expansion To Drive Growth and Strategic Diversification By Iris Lai AustraliaAfter spending decades building their regional busi- Insurance Penetration Rates as % of GDP 100,000 nesses, a host of Asia-Pacific insurers have set their sights 80,000 outside of the region and have launched aggressive 11.46 60,000 Republic of 11.27 global expansion strategies. Several prominent Asia-Pacific 10.75 40,000 Korea 11.12 20,000 insurers have spent upwards of $10 billion since 2008 10.50 0 for acquisitions that advance their business interests 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 within the region and on three continents. Those include: 7.90 Written Premiums (mn) Japan* 7.23 • Tokio Marine Holdings Inc., one of Japan’s largest 6.99 nonlife insurers, said in December it would buy U.S.- 7.17 based Delphi Financial Group Inc. for about $2.7 billion 3.65 3.27 in cash. It follows the 2008 acquisition of U.S. property/ China 3.12 China 2.65 casualty insurer Philadelphia Consolidated Holding Corp. 2.54 250,000 for $4.7 billion and Bermuda-based Kiln Ltd., a Lloyd’s 200,000 6.19 150,000 insurer, for US$574 million in cash. 6.46 100,000 Australia 6.58 • Mitsui Sumitomo Insurance Co. Ltd., a subsidiary of 7.65 50,000 Japan’s MS&AD Insurance Group Holding Inc., acquired 6.88 0 2001a 50%2002 stake2003 in2004 Indonesian2005 2006 life2007 insurer2008 2009 PT Asuransi2010 Jiwa Sinarmas for $800 million as part of its expansion strategy 2010 2009 2008 2007 2006 Written Premiums (mn) Source: AXCO Global Statistics in Asia. *Note: 2010 Penetration Rates for Japan not available ■ Continued: GROWTH, page 5 Japan 500,000 Best’s Lee: Strong Domestic Base Aids International Growth 400,000 Asia-Pacific insurers and reinsur- growth,” said Lee. Overseas business offers companies 300,000 ers have room to grow in overseas extra revenue prospects, he said. 200,000 100,000 markets, as they have the capital and Lee noted these companies usually have a large 0 strong domestic bases from which amount of accumulated risk in their domestic market 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 to build, according to MM Lee, gen- based on a strong home presence. Any additional local eralWritten manager Premiums of (mn) analytics at A.M. Best premium leads to higher risk concentration. Asia Pacific Ltd. As their accumulated overseas premium risk trends “Asian companies venturing out to be relatively small, Lee said “additional overseas risk Lee Republicfor overseasof Korea business have already can be underwritten without adding much accumu- a good foothold in their domestic market but it’s not lated risk.” 140,000 120,000 easy for these players to grow further beyond market ■ Continued: ASIA-PACIFIC INSURERS, page 9 100,000 80,000 60,000 Japan South Australia China 40,000 20,000 2 Domestic Korea 10 Market 12 China 0 economy 8 IPOs leaders adopt Re’s stake 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 drives provide divergent in London insurersWritten Premiums (mn) money for strategies. Market. abroad. acquisitions.

Copyright © 2012 by A.M. Best Company, Inc. ALL RIGHTS RESERVED. No part of this report or document may be distributed in any electronic form or by any means, or stored in a database or retrieval system, without the prior written permission of the A.M. Best Company. Refer to our Terms of Use for additional details. BESTWEEK Asia/PacificJAPAN Domestic Economic Concerns Drive Japanese Insurers Into Overseas Markets Japanese insurers have accelerated their international expansion by seeking to acquire foreign life insurers in Nipponkoa Insurance Co. Ltd. emerging markets, while major nonlife deals have emerged AMB# 084413 in the United States over the past year. ($ million) Gross Premiums Total Admitted Best’s Financial The country’s three major nonlife Period Ending Written Assets Strength Rating insurance groups are “pursuing global 2006 7,104.8 29,582.1 A expansion and expansion of life sub- 2007 7,045.7 28,776.5 A sidiaries by utilizing their sales channel 2008 8,163.5 29,980.2 A and innovative products,” said Naoyuki 2009 7,773.6 27,465.2 A 2010 7,869.1 27,972.7 A Shibata, executive partner of financial Source: services at consultancy Accenture. Japan’s aging population and shrink- Shibata ing automobile market “is really serious for them and it Sompo Japan Insurance Inc. means their main business line is struggling,” said Shibata. AMB# 085258 ($ million) The three largest groups, which control a majority of the Gross Premiums Total Admitted Best’s Financial nonlife market share in Japan, aim to boost their interna- Period Ending Written Assets Strength Rating tional presence after setting up holding companies in 2010. 2006 14,213.7 50,481.1 A+ The March 11, 2011, earthquake and tsunami in Japan did 2007 14,013.5 51,138.6 A+ not adversely impair their financial positions as they have 2008 16,289.4 54,316.8 A+ huge liability reserves, noted Shibata. They continue their 2009 15,623.5 49,924.2 A+ 2010 15,986.6 54,265.4 A+ expansion strategies in emerging and mature markets. Source: The biggest recent deal was Tokio Marine Holdings Inc.’s US$2.7 billion acquisition of U.S.-based Delphi Financial Group Inc. Shibata said the company “looks likely to make Dai-ichi Life Insurance acquisitions in the developed country’s niche market, which Co. Ltd. had already generated high profitability,” given its earlier non- AMB# 085255 life acquisitions in the United States and United Kingdom. ($ million) Gross Premiums Total Admitted Best’s Financial If Delphi were included in Tokio Marine’s 2011 earnings, Period Ending Written Assets Strength Rating international business would represent 46% of the group’s 2006 28,923.7 276,331.2 NR total adjusted earnings. Acquired in 2008, Philadelphia Con- 2007 27,933.9 284,776.7 NR solidated Holding Corp. contributed nearly 47% of total net 2008 31,233.1 320,885.8 NR written premiums to the group’s overseas primary nonlife 2009 29,856.6 308,628.7 NR business in the fiscal year ended March 31, 2011. 2010 30,613.9 332,574.4 NR Source: Conversely, MS&AD Insurance Group Holdings Inc. and NKSJ Holding Inc. have focused on developing countries, offset an aging population and falling cars sales at home. especially in Asia, according to Shibata. NKSJ is accelerating MS&AD has purchased overseas life businesses to diver- overseas mergers and acquisitions, particularly smaller ones. sify portfolios, “We aim our life insurance business to work That entry into major markets such as Europe is a strategy cooperatively with our nonlife business which has solid to sustain global growth. Accumulation of market knowl- foundation,” said MS&AD in a financial presentation. The edge through acquisition and equity participation in Europe group has life operations in China, Malaysia and Indonesia, assists the company’s penetration into local markets. where it sees potential life insurance growth. Nipponkoa Insurance Co. Ltd., a subsidiary of NKSJ, Mitsui Sumitomo Insurance Co. Ltd., an MS&AD sub- acquired Dutch underwriting agency Nateus Nederland B.V. sidiary, acquired a 50% stake in Indonesian life insurer PT in October 2011. With a “full-fledged” entry into the Euro- Asuransi Jiwa Sinarmas for about US$800 million as part of pean market, Nipponkoa said it “will construct a stable over- its expansion strategic in Asia last year. seas business base and strengthen its earning ability.” MS&AD set up MS Financial Reinsurance Ltd. in Ber- “They’ve done overseas expansion through merger and muda in November 2011 to provide reinsurance cover for acquisition with not only Asian insurers but also other variable annuities sold by Mitsui Sumitomo Primary Life regions’ insurers,” said KyongSun Kong, an analyst with con- Insurance Co. Ltd. MS&AD said the group “has positioned sultancy Celent. Japanese nonlife insurers developed a mid- its life insurance business as an important growth area.” term plan to lift their profit ratio in overseas markets and ■ Continued: OVERSEAS MARKETS, page 14

2 BestWeek Asia/Pacific • 7 February, 2012 Australia Insurance Penetration Rates as % of GDP 100,000 80,000 11.46 60,000 Republic of 11.27 10.75 40,000 Korea 11.12 20,000 10.50 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 7.90 Written Premiums (mn) Japan* 7.23 6.99 7.17

3.65 3.27 China 3.12 China 2.65 250,000 2.54 200,000 6.19 150,000 6.46 100,000 Australia 6.58 7.65 50,000 6.88 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 JAPAN BESTWEEK Asia/Pacific2010 2009 2008 2007 2006 Written Premiums (mn) Source: AXCO Global Statistics Japan May Ease Overseas Expansion Rules *Note: 2010 Penetration Rates for Japan not available The proposed relaxation of regulation that curtails Japanese insurers’ ability to expand abroad and ham- Japan pers long-term growth are under review by the Finan- 500,000 cial Services Agency. 400,000 300,000 The March 11, 2011 earthquake and tsunami alerted 200,000 the regulator to the problem of concentration of assets 100,000 and risks in Japan. In view of a sluggish domestic econo- 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 my and high risk of natural perils, the regulator realizes the need to enable insurers to further strengthen their Written Premiums (mn) diversification strategies, according to legal consultants. Proposed changes would enable Japanese insurers to insurance industry. more easily acquire foreign insurers, said Masahiko Todo, RepublicJapanese of insurance Korea companies partner of Tokyo-based law firm Ushijima & Partners. have actively acquired foreign 140,000 Changes are proposed in two areas: the business insurers120,000 “to expand its profit-earn- 100,000 scope of a foreign acquisition and foreign credit share ing80,000 opportunities in recent years,” 60,000 of Japanese insurers’ total assets, according to the given40,000 the mature domestic market report filed with the FSA. and20,000 strong yen, said Todo. “FSA is 0 “The restriction on the acquisition of shares exceed- apparently2001 assisting2002 2003 2004 the 2005 Japanese2006 2007 2008 2009 2010 Kong ing 10% of its total assets has effectively precluded insurance industry.”Written Premiums (mn) Japanese insurers from the acquisition of a large-scale This acquisition trend “will continue for the time foreign insurer,” said Todo. being,” said Todo. There were 11 overseas merger Under current regulation, Japanese insurers and sub- and acquisition deals by Japanese nonlife insurers sidiaries are only allowed to engage in acquisitions on since 2004. Japanese insurers’ investments in the for- “admitted businesses.” The foreign insurer is required eign life insurance sector reached about ¥300 billion to divest non-admitted business before the completion (US$3.9 billion) in 2011, three times larger than the of an acquisition. amount in 2010. In the bidding process for the acquisition of a The proposed new rules would enhance Japanese foreign insurer, Todo said Japanese insurers must insurers’ flexibility and service in overseas markets determine whether any subsidiary of the target has so that they could do business “in a more efficient nonadmitted business. If that is the case, the Japanese manner,” contributing to an expected rise in profit, insurer’s offer must be contingent on those opera- said Kong. tions being excluded from the deal. The United States, Large Japanese insurers are mainly active in interna- United Kingdom, Germany and France do not have tional merger and acquisition activities, said Kong. This such restrictions. regulatory change might make overseas expansion This restriction makes foreign acquisitions difficult attractive to small and medium-size companies. and adversely affects Japanese insurers’ competitive In December, a working group of the Financial Sys- position in international markets, said Shinichi Taka- tem Council, an advisory body for the government, hashi, partner of law firm Nishimura & Asahi in Tokyo. submitted a report for regulatory review, with sug- However, Takahashi said “the pro- gestions to amend the rules by the end of the 2012 posed new regulation will grant Jap- fiscal year. anese insurers a certain grace period “It appears that the proposed changes to the rules after the completion of an acquisi- were requested by the industry,” said Todo. Represen- tion during which the non-admitted tatives from Tokio Marine & Nichido Fire and Nippon businesses will be divested.” Life played an important role in leading the discussion Kyong Sun Kong, an analyst with based on the working group’s minutes. consultancy Celent Japan, said Japa- In the past, Kong noted the restrictions were nese insurers mainly engage in cor- Takahashi meant to promote sound business practices rather porate business in foreign markets but recently they than restrict their overseas mergers and acquisitions, are becoming interested in retail business as well. said Todo. “As the domestic market is stagnant in Japan, the Stricter requirements for risk management and sol- relaxation is inevitable,” said MM Lee, general manager vency, have enhanced insurer supervision, including of analytics at A.M. Best Asia Pacific Ltd. The proposed group-level activities, according to the report. change may not have an immediate impact on Japan’s — Iris Lai

7 February, 2012 • BestWeek Asia/Pacific 3 BESTWEEK Asia/PacificASIA-PACIFIC Overseas Expansion Challenged by Cultural, Regulatory and Management Differences Wide diversity across Asia-Pacific insurance and rein- well and this can significantly impair deal success,” said surance markets makes mergers and acquisitions a com- David Simmons, national leader of insurance M&A ser- plex affair for insurers given the differences in regula- vices at consultancy Deloitte and director of Deloitte tory development, culture and operating environments. Tax LLP. There are many regulatory obstacles, and while Some are extending their inter- some are easy to navigate, such as restrictions on for- national underwriting platforms by eign ownership, others are more difficult. establishing representative offices, “It’s very different operating an insurance com- branches or subsidiaries and acquir- pany in a highly regulated market than a lightly regu- ing local firms. Entry strategies in lated or developing regulatory market,” said Simmons. new markets differ by jurisdiction, Foreign insurers entered the United States through said Andrew Holderness, global acquisitions in the 1990s but they withdrew later head of corporate insurance at law because of the difficulty of operating in a highly Holderness firm Clyde & Co. regulated environment. Major insurance and reinsurance companies with Insurers face entrenched competitors in mature mar- strong positions in local markets are looking outside kets, while they find more open conditions in emerging their borders because there is little opportunity to grow markets with fewer competitors, noted Simmons. further at home. “This may be either due to competition Lack of experienced management talent in local issues, which would prevent them from merging with markets is another obstacle. Simmons said expansion one or more of their competitors, or due to ownership into mature markets of Europe and the United States is structures within that jurisdiction that would make any also “a means of acquiring management talent that they such mergers unlikely,” said Holderness. can deploy elsewhere.” Local regulation determines both inward investment Despite the obstacles, mature markets appear to be of foreign companies and outward expansion of local expansion targets for companies due to familiarity with firms, and some regulators are reviewing rules govern- the operating environment and know-how of acquisi- ing expansion. Japan’s Financial Services Agency, for tion. For instance, Australia’s sophisticated and affluent instance, is now reviewing regulatory restrictions on environment, western business practices and developed Japanese insurance companies’ international merger regulatory framework make it an attractive market. and acquisition activities. Japan’s Dai-ichi Life Insurance Co. Ltd. completed Bank Negara Malaysia, the central bank and regula- the acquisition of Tower Australia Group Ltd. which tor of Malaysia, lifted the cap on foreign equity hold- was renamed TAL Ltd. in 2011. Dai-ichi Life said the ings for operators of conventional insurance and group aims to “expand its overseas business through takaful companies from 49% to 70% in 2009, in a bid enhancement of Tower Australia’s core capabilities to allow more foreign participation to fuel growth and core value.” Japanese insurers are among the most (Best’s News Service, May 5, 2011) . active Asia-based companies to enter the U.S. market, India and China are among the hot targets for Asia- beginning in the 1990s. Tokio Marine Holdings Inc. Pacific companies to expand their footprints, but both bought U.S. property/casualty insurer Philadelphia closely regulate foreign acquisitions. In China, foreign Consolidated Holding Corp. for US$4.7 billion in 2008. insurers are restricted in extending their operations as The U.S. unit contributed nearly 47% of total net writ- insurance licenses are awarded on a provincial or city ten premiums for the group’s overseas primary nonlife basis. In India, foreign investment in local insurers is business in the fiscal year ended March 31, 2011. The capped at a 26% stake. Japanese insurer established Tokio Marine North Amer- Over the past decade, China and India have both lib- ica to hold the group’s U.S. operations with the aim to eralized the insurance market for foreign players with a drive the market’s growth strategy. common goal to boost development. However, foreign Tokio Marine recently agreed to acquire Delphi insurers still have a way to go to gain an equal footing Financial Group Inc. for about US$2.7 billion in cash. through their investments. Foreign insurers must partici- If Delphi were included in Tokio Marine’s fiscal 2011 pate in joint venture partnerships in both countries. The earnings, international insurance business would repre- relationship with local partners has influenced the suc- sent 46% of the group’s total adjusted earnings, accord- cess of expansion into foreign markets. ing to Tokio Marine. Differences in country and company cultures are In the long term, Simmons said “the principles of a critical. Some company cultures “just don’t integrate ■ Continued: EXPANSION CHALLENGES, page 11

4 BestWeek Asia/Pacific • 7 February, 2012 ASIA-PACIFIC BESTWEEK Asia/Pacific

■ GROWTH A strong yen, experience operating in a low-interest- From page 1 rate environment and mature market conditions and a • Australia-based IAG sealed three acquisition deals long history of business experience in Japan “move the within the region with a strategic focus on motor insur- needle” for Japanese insurers to seek overseas expan- ance in the second half of 2011. Valued at about $400 sion, said Saunders. million, the deals included AMI Insurance Ltd., enhancing Indonesia is one of the hot places for acquisitions given the Australia-based insurers position as leading nonlife with its low insurance penetration, large demographics insurer in New Zealand. and rising economy, said Saunders. Indonesian companies • QBE’s recent U.S. acquisitions include crop insurer are also attracted by cash injections from foreign investors. NAU Country Insurance, Renaissance Re and Puerto Rico- Mitsui Sumitomo Insurance Co. Ltd., said, regarding its based Optima General. In South America, the Australian half-ownership in Indonesian life insurer PT Asuransi Jiwa insurer acquired CNA Aseguradora de Riesgos del Trabajo, Sinarmas that it “aims to actively invest in overseas nonlife a leading insurer in the Argentinean and life insurance” as part of its strat- workers’ compensation market, and egy to achieve sustainable growth. Seguros Colonial, the largest non-life Changing market and regulatory insurer in Ecuador. conditions also contribute to the Some initiated forays into the Lon- need for overseas expansion. Sim- don market: mons said some insurers have to • China Re entered into a strate- realign their business portfolios in gic partnership with Catlin Group anticipation of, or response to, regula- to form a Lloyd’s syndicate in Simmons Troy tory and accounting changes. “Others November 2011. are seeking to diversify their business and geographical • Samsung Fire & Marine Insurance Ltd. expanded its loss exposure risk,” added Simmons. Insurers based in low- London office into a subsidiary in 2011. growth countries such as Japan and Australia are eyeing In mature markets such as Japan and Australia, some the high-growth prospects in Asian emerging markets. insurers “are seeking faster top-line premium growth “This is a natural expansion as they are familiar with through expansion in emerging markets,” said David Sim- these markets, having had trading relationships in the mons, national leader of insurance mergers & acquisitions region for many years,” said Simmons. services at consultancy Deloitte. Some Asian insurers are making inroads into the more Insurers with balance sheet strength are considering mature markets of Europe and the United States. “The his- overseas expansion for basic diversification and to off- torically low insurance company valuations for insurance set considerable uncertainties associated with specific companies in the U.S. coupled with a weaker dollar rela- markets, said Clark Troy, research director at consultancy tive to currencies such as yen, make the current U.S. mar- Aite Group. ket very attractive for foreign entry,” said Simmons. Japanese and Australian companies appear to be active Tokio Marine established Tokio Marine North America buyers in global insurance acquisitions. The most recent in May to manage all of the group’s U.S. businesses with deals came from Australia’s leading nonlife insurers QBE an aim to achieve further growth. If the Delphi Financial Insurance Group Ltd. and Insurance Australia Group Ltd., Group were included in its fiscal 2011 earnings, inter- which are both opting to pursue overseas acquisitions to national insurance business would represent 46% of the diversify portfolios and revenue. group’s total adjusted earnings, excluding losses from the Globally, QBE has grown its business through acquisi- Thailand floods, according to the Japanese insurer. tions that contributed about 85% of gross written pre- As the demographic and economic dynamics of the miums in the past five years. The acquisition strategy United States, Europe and emerging Asia differ consider- focuses on further product diversification and geographic ably, Troy said making investments in mature economies spread of risks. offers diversification benefits while taking stakes in enter- In the past half year, IAG sealed three acquisitions with- prises in emerging markets offers growth prospects. in the region with a strategic focus on motor insurance. Its The trend would see more Asia-based companies buying agreement to acquire AMI Insurance Ltd. will enhance its into mature western markets. Troy noted Western consum- position as New Zealand’s leading nonlife insurer. ers, who were uneasy about the prospect of ceding leader- Japanese insurers are also active players in recent ship in the world economy, “may well be reticent about global mergers and acquisitions, according to Mark purchasing insurance from branded Asian insurers over the Saunders, risk consulting practice leader in the Asia- next few years.” The difficulties Aegon and ING had emerg- Pacific region and managing director of Hong Kong at ing from the credit crisis give American consumers “some consultancy Towers Watson. pause looking at even European carriers,” he added.

7 February, 2012 • BestWeek Asia/Pacific 5 BESTWEEK Asia/PacificEXPANSION STRATEGIES

Arctic O c e a n

Kara Sea Laptev Sea Greenland Sea Greenland B e a u f o r t S e a Barents Sea East Siberian Sea Baffin Bay

Chukchi Sea

Norwegian Sea Sweden Iceland Finland Russia Norway Canada Estonia Hudson Bay Labrador Sea North Sea Bering Gulf of Latvia Alaska Denmark Lithuania Sea of Okhotsk Sea

Neth. Belarus Ireland U. K. Bel. Germany Poland Lux. Czech Rep Slovakia Ukraine Kazakhstan Austria Switz. Liech. Hungary Moldova Slovenia Italy Croatia Romania France Bosnia & Mongolia Serbia Herzg. Black Sea Uzbekistan United States Andorra Kos. Bulgaria Mont. Georgia Mac. Kyrgyzstan Armenia Sea of Japan North P a c i f i c Albania Turkey Azerbaijan Turkmenistan North (East Sea) North Spain Greece Korea Portugal Tajikistan Japan O c e a n South A t l a n t i c Yellow Malta Korea Cyprus Syria Sea Iraq Mediterranean Sea Lebanon China O c e a n Tunisia Iran Afghanistan Israel Morocco Jordan Kuwait Pakistan East China Nepal Sea Algeria Bhutan Libya Bahrain Mexico Gulf of Mexico Western Sahara Egypt Qatar The Bahamas (Occupied by Morocco) India Bangladesh U. A. E. Oman Myanmar Saudi Arabia Arabian Bay of Cuba (Burma) Laos Dom. Rep. Mauritania Red Bengal Puerto Rico Sea Jamaica Niger Sea Antigua & Barbuda Mali Yemen Belize Haiti St Kitts & Nevis Thailand Honduras Cape Verde Chad Eritrea Vietnam Philippines Caribbean Sea Dominica Senegal Sudan Gambia St Lucia Cambodia Guatemala Nicaragua St Vincent & the Grenadines El Salvador Grenada Guinea Bissau Burkina Faso Djibouti South China Guinea Australia Japan (continued) Benin Sea Panama Trinidad & Tobago Togo Nigeria Costa Rica Cote Central African South Sudan Ethiopia Venezuela Sierra Leone d'Ivoire Ghana Republic IAG Nippon Life Sri Lanka Guyana Liberia Cameroon Brunei French Guiana Suriname Equatorial Guinea Somalia Malaysia Dec. 2011: Kurnia Insurans Bhd., Malaysia Uganda March 2011: Reliance Life Insurance Co. Ltd., India Sao Tome & Principe Singapore Ecuador Colombia Congo Gabon Dec. 2011: AMI Insurance Ltd., New ZealandDemocratic Republic Rwanda Kenya Sompo Japan Insurance Inc. Papua of the Congo Burundi New Guinea Aug. 2011: Bohai Property Insurance Pty Ltd., China Tanzania June 2011: Berjaya Sompo Insurance Bhd, Malaysia Indonesia Solomon Islands Peru Brazil QBE Timor Leste (East Timor) April 2011:Comoros Established branch in Beijing, China Angola Mozambique Dec. 2011: Optima Insurance Group, Puerto RicoZambia Malawi Oct. 2010: Established new reinsurance unit in Malaysia Coral Sea NAU Country Insurance, Ramsey, Minn. Vanuatu Fiji Bolivia Zimbabwe Nipponkoa Insurance Co. Ltd.I n d i a n O c e a n Mauritius Namibia Renaissance Re, Bermuda Paraguay Botswana Jan. 2011: PT Asuransi Permata Nipponkoa Indonesia, Madagascar Chile CNA AseguradoraSouth de Riesgos del Trabajo, Argentina Indonesia Australia Swaziland SegurosA t l Colonial,a n t i Ecuador.c Aioi Nissay Dowa Insurance Co. Ltd. Argentina Lesotho O c e a n South Africa China A unit of MS&AD Insurance Group Holding Inc. South P a c i f i c O c e a n Uruguay China Reinsurance Corp. July 2011: Established branch in Zhejiang, China Tasman Sea Nov. 2011: Strategic partnership with Catlin Group Ltd. Dai-ichi Life Insurance Co. Ltd. to form Lloyd’s syndicate,UK Nov. 2011: Permit to establish joint venture life New Zealand Japan insurance company in China Mitsui Sumitomo Insurance Co. Ltd. South Korea A subsidiary of Japan’s MS&AD Insurance Group Korean Reinsurance Co. Holding Inc. 2011: Established branch in Beijing, China May 2011: PT Asuransi Jiwa Sinarmas, Indonesia Samsung Life Insurance Co. Ltd. April 2011: Hong Leong Tokio Marine Takaful Bhd., 2011:Established branch in Beijing, China Malaysia 2011: Became largest stockholder of Siam Samsung Tokio Marine Life Insurance, Thailand Dec. 2011: Delphi Financial Group Inc., US Samsung Fire & Marine Insurance Ltd. Aug. 2011: First Insurance Co. of Hawaii, US 2011: Expanded its London office into a subsidiary, 2008: Philadelphia Consolidated Holding Corp., US. Samsung Fire & Marine Insurance Company of Europe 2008: Kiln Ltd., a Lloyd’s insurer, Bermuda 2011: Established reinsurance subsidiary in Singapore Antarctica

6 BestWeek Asia/Pacific • 7 February, 2012 EXPANSION STRATEGIES BESTWEEK Asia/Pacific

Arctic O c e a n

Kara Sea Laptev Sea Greenland Sea Greenland B e a u f o r t S e a Barents Sea East Siberian Sea Baffin Bay

Chukchi Sea

Norwegian Sea Sweden Iceland Finland Russia Norway Canada Estonia Hudson Bay Labrador Sea North Sea Bering Gulf of Latvia Alaska Denmark Lithuania Sea of Okhotsk Sea

Neth. Belarus Ireland U. K. Bel. Germany Poland Lux. Czech Rep Slovakia Ukraine Kazakhstan Austria Switz. Liech. Hungary Moldova Slovenia Italy Croatia Romania France Bosnia & Mongolia Serbia Herzg. Black Sea Uzbekistan United States Andorra Kos. Bulgaria Mont. Georgia Mac. Kyrgyzstan Armenia Sea of Japan North P a c i f i c Albania Turkey Azerbaijan Turkmenistan North (East Sea) North Spain Greece Korea Portugal Tajikistan Japan O c e a n South A t l a n t i c Yellow Malta Korea Cyprus Syria Sea Iraq Mediterranean Sea Lebanon China O c e a n Tunisia Iran Afghanistan Israel Morocco Jordan Kuwait Pakistan East China Nepal Sea Algeria Bhutan Libya Bahrain Mexico Gulf of Mexico Western Sahara Egypt Qatar The Bahamas (Occupied by Morocco) India Bangladesh U. A. E. Oman Myanmar Saudi Arabia Arabian Bay of Cuba (Burma) Laos Dom. Rep. Mauritania Red Bengal Puerto Rico Sea Jamaica Niger Sea Antigua & Barbuda Mali Yemen Belize Haiti St Kitts & Nevis Thailand Honduras Cape Verde Chad Eritrea Vietnam Philippines Caribbean Sea Dominica Senegal Sudan Gambia St Lucia Cambodia Guatemala Nicaragua St Vincent & the Grenadines El Salvador Grenada Guinea Bissau Burkina Faso Djibouti South China Guinea Benin Sea Panama Trinidad & Tobago Togo Nigeria Costa Rica Cote Central African South Sudan Ethiopia Venezuela Sierra Leone d'Ivoire Ghana Republic Sri Lanka Guyana Liberia Cameroon Brunei French Guiana Suriname Equatorial Guinea Somalia Malaysia Uganda Sao Tome & Principe Singapore Ecuador Colombia Congo Gabon Democratic Republic Rwanda Kenya Papua of the Congo Burundi New Guinea Tanzania Indonesia Solomon Islands Peru Brazil Timor Leste (East Timor) Comoros Angola Mozambique Zambia Malawi Coral Sea

Vanuatu Fiji Bolivia Zimbabwe I n d i a n O c e a n Mauritius Namibia Paraguay Botswana Madagascar Chile South Australia Swaziland A t l a n t i c Argentina Lesotho O c e a n South Africa South P a c i f i c O c e a n Uruguay

Tasman Sea

New Zealand

Antarctica

7 February, 2012 • BestWeek Asia/Pacific 7 Australia Insurance Penetration Rates as % of GDP 100,000 80,000 11.46 60,000 Republic of 11.27 10.75 40,000 Korea 11.12 20,000 10.50 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 7.90 Written Premiums (mn) Japan* 7.23 6.99 7.17

3.65 3.27 China 3.12 China 2.65 250,000 2.54 200,000 6.19 150,000 6.46 100,000 Australia 6.58 7.65 50,000 6.88 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2010 2009 2008 2007 2006 Written Premiums (mn) Source: AXCO Global Statistics *Note: 2010 Penetration Rates for Japan not available

Japan 500,000 400,000 300,000 200,000 BESTWEEK Asia/PacificSOUTH KOREA 100,000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 South Korean Insurers PushedWritten Premiums to (mn)Expand To Outrun Intense Domestic Competition Following a series of initial public offerings, the next move for South Korea-based insurers and the national Republic of Korea reinsurer is to grow overseas and deepen their roots in 140,000 120,000 the insurance markets of newly emerging economies, 100,000 80,000 as a balance to the escalating competition and declin- 60,000 40,000 ing profitability in the saturated domestic market, 20,000 according to industry watchers. 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 South Korea’s insurance penetration in terms of pre- miums to gross domestic product in 2010 was 11.2%, Written Premiums (mn) overtaking Japan’s 10.1% and ranking third in Asia, after Taiwan’s 18.4% and Hong Kong’s 11.4%, according the “adverse” consequences of market concentration to Swiss Re’s sigma study. “reduce the room for financial institutions to grow “The insurance penetration rate their market power through M&As,” which motivates of South Korea is one of the high- insurers to shift out of the South Korean market and est in the world, implying that into overseas markets. customer base expansion will be The drivers for international expansion include a challenging task,” said Bosung “spreading local country market risks and balancing Shin, a researcher at Seoul-based business cycles, managing costs more efficiently and Korea Capital Market Institute, in taking advantage of attractive stock prices,” said Rob a report. Shin Hetherington and Michael Neale, analysts at consul- The domestic insurance sector in South Korea is tancy Accenture, in a report. more sophisticated, but with limited organic growth The ideal destination for overseas expansion should opportunities, compared with growth markets in the be a nation with a fast-growing economy, but without region such as China and India, with respective insur- an advanced financial industry; “a nation where high ance market penetration of 3.8% and 5.1% in 2010. growth is pushing up demand for capital, but where In those countries, insurers remain focused on their that demand is not sufficiently being met,” said Shin. home market growth, where large populations and Such a country would provide abundant business favorable demographic factors continue to support opportunities to South Korean financial firms. developing markets. “Fortunately, neighboring Asian nations satisfy the South Korea’s insurance market needs a “break- criteria,” he said, adding “economic and cultural prox- through,” through one of two options: One is to find imity makes Asian nations attractive targets for over- a solution within South Korea, and the other is to go seas expansion.” abroad and look for new markets, trying to ease the Prior to South Korean insurers’ foreign growth strat- problem of “market saturation under fierce competi- egy, many life insurers from developed markets such tion where returns on equity are in the downward as the United States, Japan and Europe have looked to trend,” noted Shin. expand in the emerging markets of Asia. They recog- Although increasing market concentration through nize the rapid growth in wealth and demand for secure mergers and acquisitions can help eliminate domestic investment propositions. “The recent deregulation and competition and overcome the sluggish growth of opening of markets in both China and India has been a the market, Shin said the growing concerns about particular attraction,” said Charlotte Raut and Russell E. Ford, also of Accenture. Korean Reinsurance Company Last November, the country’s second-largest life AMB# 085225 insurer, Korea Life Insurance, said it won Chinese regu- ($ million) latory approval to set up a 50-50 joint venture in China Gross Premiums Total Admitted Best’s Financial with Zhejiang International Business Group, a Chinese Period Ending Written Assets Strength Rating state-owned asset management company, with a total 2006 2,974.5 3,443.7 A- 2007 3,413.3 4,029.3 A- investment capital of 500 million yuan (US$79 million). 2008 3,749.3 4,355.5 A- “With the insurance market potential and domestic 2009 2,907.4 3,606.2 A- economic growth in China, the joint venture is expected 2010 3,770.1 4,656.5 A- to begin its business in the Yangtze Delta region,” said Source: ■ Continued: SOUTH KOREA, page 9

8 BestWeek Asia/Pacific • 7 February, 2012 ASIA-PACIFIC BESTWEEK Asia/Pacific

■ SOUTH KOREA Samsung Life Insurance Co. Ltd. From page 8 AMB# 085849 Seoul-based Korea Life, which will be responsible for ($ million) the overall management of the venture, with a strat- Gross Premiums Total Admitted Best’s Financial Period Ending Written Assets Strength Rating egy of localizing the operation. The new company is 2006 16,205.4 103,720.4 NR expected to start operations in 2012, based in Hang- 2007 16,632.3 116,303.3 NR zhou, the capital of Zhejiang province in eastern China 2008 15,713.4 118,836.4 NR (Best’s News Service, Nov. 16, 2011). 2009 10,572.3 87,538.2 NR Korea Life is a subsidiary of the conglomerate 2010 12,860.0 117,757.7 NR Hanwha Group. It was listed on the South Korea Source: Stock Exchange in March 2010, raising capital to fund further development in the domestic life insurance Samsung Fire & Marine Ins. Ltd. sector. The insurer’s global network includes offices AMB# 085850 ($ million) in Tokyo and London, as well as an investment subsid- Gross Premiums Total Admitted Best’s Financial iary in New York. Period Ending Written Assets Strength Rating In the nonlife sector, Samsung Fire & Marine, the 2006 7,494.2 17,434.7 A+ largest nonlife insurer in South Korea, said organic 2007 8,795.5 20,297.9 A+ expansion and entry into Asian emerging markets are 2008 9,288.3 21,684.0 A+ 2009 7,004.9 17,021.0 A+ among the long-term strategies of the company; while 2010 9,667.3 24,181.6 A+ “risk management at the highest possible level” is the Source: insurer’s most important criteria to achieve its planned overseas expansion. with projected gross premiums from overseas markets The insurer intends to become the second-largest reaching 50% in its portfolio by 2020, compared to 17% nonlife player in Asia and reach the global top 10 by in 2010. “Korean Re intends to become a truly global 2020, with sales reaching US$30 billion and assets reinsurer, from a regional reinsurer,” said the reinsurer’s amounting to US$100 billion. To achieve its overseas chief executive, Jong-won Park, in a statement. expansion goal, Samsung Fire & Marine earlier said it To diversity the business portfolio, Park noted is in the process of building a base and infrastructure Korean Re is moving to acquire equity stakes in local to “expand organically” to foreign markets, while it insurers and in countries with growth potential. He studies other global insurers to benchmark successful said with its strong credit rating, the reinsurer’s over- cases of overseas expansion. It plans to set up a rein- seas business focus “will shift from Asia to the Middle surance subsidiary in Singapore to support the com- East, East Europe and South America during the initial pany’s Asia expansion. phase; while expanding to Europe and the U.S. in the Korean Re, the country’s reinsurer, is looking to second phase.” become one of the top five reinsurers in the world, — Rebecca Ng

■ ASIA-PACIFIC INSURERS catastrophe risk.” The sole domestic reinsurer in South From page 1 Korea has put an emphasis on Asian business during the past few years and overseas premiums from emerg- “As you generate more revenue with less accumu- ing markets in Asia and Eastern Europe has increased, lated risk, your cost base is also geographically better according to BestLink. diversified. Ultimately, you could become more competi- The present seems to be a favorable time for Asia- tive in your own domestic market,” said Lee. based companies to expand overseas as their Western Acquisition targets depend on the companies’ risk counterparts in Europe and the United States become appetite and strategic time line, said Lee. Japan’s Tokio less competitive under current global economic condi- Marine Holdings Inc. has expanded globally, not only in tions. However, Lee said instead of guessing the right the United States and Europe. The Japanese group cur- timing, companies should be prepared to take on new rently has more than 220 subsidiaries and 30 associated and additional risk to their portfolio. companies with a presence in about 40 countries and “As long as companies keep in mind flexibility and regions, according to BestLink. compatibility, the benefits will overweigh the risks,” said As Korean Re’s main market is South Korea with Lee. Companies have to be compatible in offering risk relatively low catastrophe risk, Lee noted “they went solutions to the markets, along with flexibility in adapt- into Asian markets first due to familiarity as well as low ing local culture.

7 February, 2012 • BestWeek Asia/Pacific 9 BESTWEEK Asia/PacificAUSTRALIA Acquisitions Boost Profits for QBE, IAG Strategic acquisitions by Australia’s two largest non- life insurers over the past three years are expected to Australia Insurance Penetration Rates as % of GDP contribute significantly to their bottom lines. 100,000 • Insurance Australia Group intends to boost its Asian 80,000 11.46 60,000 Republic of 11.27 footprint to a point where it contributes 10% of gross 10.75 40,000 Korea 11.12 written premiums by 2016. 20,000 10.50 • Acquisitions contributed to QBE’s earnings with a 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 30% growth in gross written premiums for the first half of 7.90 Written Premiums (mn) Japan* 7.23 2011. Furthermore, acquisitions contributed to more than 6.99 90% of QBE’s premium growth from more than 50 trans- 7.17 actions since 2005 (Best’s News Service, Aug. 23, 2011). One of the group’s focuses is to continue its acquisi- 3.65 3.27 For IAG, the boost will be achieved through new mar- tion strategy targeted at bolt-on portfolios and under- China 3.12 China 2.65 ket entry such as in Indonesia and Vietnam, increased writers to enhance existing business, said QBE in a finan- 2.54 ownership in existing markets, bolt-on acquisitions in cial250,000 presentation. In the longer term, QBE said it focuses 200,000 6.19 established markets and organic growth, said IAG in a on150,000 acquisitions which do not rely on investment income 6.46 100,000 Australia 6.58 financial presentation. IAG already has nonlife joint ven- to support insurance margins. 7.65 tures and wholly-owned units in Thailand, Malaysia, India 50,000“Given past experiences of Australian insurers and 6.88 0 and China. banks with2001 overseas2002 2003 expansion,2004 2005 2006 it’s 2007 2008 2009 2010 To that end, IAG sealed three acquisition deals in the surprising that Australian insurers are 2010 2009 2008 2007 2006 Written Premiums (mn) Source: AXCO Global Statistics region in 2011, with a strategic focus on motor insur- so keen to do this in recent times,” *Note: 2010 Penetration Rates for Japan not available ance.The insurer agreed to pay US$288.7 million to said Michael Sherris, professor of acquire AMI Insurance Ltd. to enhance its position as actuarial studies at the University of New Zealand’s leading nonlife insurer. IAG’s Malaysian NewJapan South Wales. joint venture, AmG Insurance Bhd., sought regulatory 500,000Increasingly, deals “may be driven review for the proposed acquisition of Kurnia Insurans by400,000 the relative strength of the Aus- 300,000 Sherris Bhd., which has most of its business in motor insurance. tralian200,000 dollar or a view that diversifi - In August, IAG entered China’s nonlife market with an cation100,000 of risks would be beneficial given the size of the agreement to pay US$108 million to acquire 20% of Australian0 market,” said Sherris. 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Bohai Property Insurance Pty Ltd., which is also pre- Australia’s nonlife insurance sector is led by six dominantly a motor insurer. companiesWritten that Premiums write (mn)more than A$35 billion of com- For QBE, its acquisition targets have been mostly bined premiums, representing some 85% of the market in the Americas markets. Most recently, QBE agreed to total. The larger companies often write through mul- acquire Puerto Rico-based Optima Insurance Group in tipleRepublic brands ofand Korea licensed insurers, according to consul- late 2011. tancy KPMG’s 2011 general insurance report. QBE, IAG 140,000 QBE’s other U.S. acquisitions include crop insurer and120,000 Suncorp are the three largest in terms of net pre- 100,000 NAU Country Insurance, Renaissance Re and Balboa. miums80,000 in Australia. Mergers and acquisitions reduced 60,000 In South America, the Australian insurer acquired CNA the40,000 total number of nonlife companies from 172 in Aseguradora de Riesgos del Trabajo, a leading insurer in the20,000 mid-1980s to 128 last year, some of them with the 0 Argentina’s workers’ compensation market, and Seguros same parents.2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Colonial, the largest nonlife insurer in Ecuador. QBE also The levelWritten of competition Premiums (mn) remains strong with increas- acquired the Australian operations of U.S.-owned CUNA ing transparency of pricing and policy features due to Mutual Group. financial services reform and greater information avail- ability, said KPMG. With limited expansion and competi- QBE Insurance Group Ltd. tion in the home market, Australian insurers are seeking AMB# 085434 growth in overseas markets armed with established ($ million) products, distribution and underwriting experiences. Gross Premiums Total Admitted Best’s Financial QBE Insurance Group Ltd. said in a financial presen- Period Ending Written Assets Strength Rating tation that acquisition is a strategic driver for premium 2006 8,186.6 25,065.8 NA and profit growth for the group. With a presence in more 2007 10,876.3 34,728.7 NA 2008 9,077.2 33,418.1 NA than 49 countries, QBE said it builds on its “disciplined 2009 11,239.0 36,723.0 NA long-term strategy of growth through product diversifi- 2010 13,629.0 42,188.0 NA cation and geographic spread.” Acquisitions contributed Source: ■ Continued: AUSTRALIA ACQUISITIONS, page 11

10 BestWeek Asia/Pacific • 7 February, 2012 ASIA-PACIFIC BESTWEEK Asia/Pacific

■ AUSTRALIA ACQUISITIONS Insurance Australia Group Ltd. From page 10 AMB# 086837 to more than 90% of QBE’s premium growth from more ($ million) than 50 transactions since 2005. Gross Premiums Total Admitted Best’s Financial The Americas were QBE’s biggest growth region, Period Ending Written Assets Strength Rating 2006 4,698.2 12,391.3 NR generating US$5.2 billion of gross written premiums for 2007 6,265.0 18,365.5 NR 2010, according to the company’s annual report. With 2008 7,493.0 18,633.9 NR diversified portfolios, QBE’s Europe and Australia opera- 2009 6,311.2 15,580.9 NR tions and its reinsurance unit Equator Re earned gross 2010 6,666.8 17,516.1 NR premiums of US$4.2 billion, US$3.7 billion and US$2.5 Source: billion, respectively. Overseas expansion modes of Australian insurers “may Australia is prone to natural perils with an increas- also be influenced by recent increased reinsurance pre- ing frequency of severe weather events over the past miums,” said Sherris. “It will be interesting to see if there decade. KPMG said any long-term impact of climate are any significant long-term benefits from such activity, change on Australia may be significant for insurers, con- especially given the structure of the Australian market.” sidering the large concentration of properties in coastal Reinsurance costs are reflected by global reinsurers’ cities and towns. re-evaluation of Australia and New Zealand risks, and con- In 2011, a series of natural catastrophes brought sequently affecting insurance premium rates. “Skillfully US$4.5 billion in claims to nonlife insurers, according managing these increased costs will be an important com- to the Insurance Council of Australia. Increasing reinsur- petitive factor over the next one to two years,” said Mike ance costs exerted pressure on insurer balance sheets Wilkins, CEO and managing director of IAG, in a speech and premiums Three years ago, QBE attempted to acquire IAG, but IAG has increased its catastrophes reinsurance cover IAG had rejected QBE’s A$8.7 billion (US$8.9 billion) 15% to A$4.7 billion in the January 2012 renewal season. acquisition bid, citing an “inadequate and incomplete Total reinsurance cost is expected to increase to as much proposal by QBE.” as A$720 million this year from A$620 million in 2011 — Iris Lai

■ EXPANSION CHALLENGES progressively pursued with a 29.7% stake purchase From page 4 from British investment company Guinness Peat Group in 2008, and then full acquisition in 2010. The solid strategic rationale for doing a deal, proper deal two entities had jointly built business alliances in valuation, flawless transaction execution and risk-based various operations including sales of group insurance integration” are essential for a successful approach. for Japanese companies and reinsurance. However, Simmons said “one should never underesti- Japanese companies are more comfortable buying mate cultural differences and the impact this minority shares or forming joint ventures as can have on the success of a transaction.” an entry into new business instead of acquir- Company culture and the reasons for geo- ing the whole company in a single deal, said graphic expansion influence an insurer’s stra- Saunders. The Japanese companies are big tegic approach in mergers and acquisitions. and well-capitalized with sound financial risk “Some companies like to develop a toehold management, contributing to a strong posi- in the market and observe and learn for a tion going aboard. number of years; others jump in,” said Sim- Insurers have to evaluate execution risks mons. It also depends on the target markets Saunders after a transaction, with a consideration of as some markets prevent majority stakeholdings by issues such as management change, adequacy of local foreign companies. resources and the acquired company’s existing culture While local regulation is a determinant factor for and structure, according to Saunders. acquisitions, an insurer’s strategic focus also affects the In terms of difference among Asia-based life and approach. Japanese insurers tend to take on “a more nonlife insurers in seeking overseas expansion, the humble” approach, with a more progressive acquisition variations are more due to the mode of distribution. strategy, according to Mark Saunders, risk consulting For reinsurance, the business is already global in nature practice leader in the Asia-Pacific and managing direc- these days, said MM Lee, general manager of analytics tor of Hong Kong at consultancy Towers Watson. at A.M. Best Asia Pacific Ltd. Dai-ichi Life’s acquisition of Tower Australia was — Iris Lai

7 February, 2012 • BestWeek Asia/Pacific 11 Australia Insurance Penetration Rates as % of GDP 100,000 80,000 11.46 60,000 Republic of 11.27 10.75 40,000 Korea 11.12 BESTWEEK Asia/PacificCHINA 20,000 10.50 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 7.90 Written Premiums (mn) Japan* 7.23 China Re’s London Foray Heralds Global Plans 6.99 China and India’s state-owned reinsurers adopt divergent strategies 7.17 3.65 The state-owned reinsurers of China and India have 3.27 China 3.12 traveled different paths to expansion. With its recent China 2.65 investment in a Lloyd’s syndicate, China Reinsurance 250,000 2.54 Group is mapping an international course that leads to 200,000 6.19 150,000 6.46 Europe, the Americas and Africa. 100,000 Australia 6.58 7.65 In the year ahead, market observers expect the Chi- 50,000 6.88 nese reinsurer to be more competitive and to “look out- 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 ward” more than its Indian counterpart, with sufficient 2010 2009 2008 2007 2006 capital reserves and regulatory supports following its Written Premiums (mn) Source: AXCO Global Statistics *Note: 2010 Penetration Rates for Japan not available first overseas strategic partnership. China Reinsurance (Group) Corp. started operating a To further expand in the international market, Li special-purpose Lloyd’s syndicate this year by forming saidJapan China Re can either increase the ceding of part of a strategic partnership with U.K.-based Catlin Group its500,000 own reinsurance business to foreign reinsurers, or Ltd. to write reinsurance cover for an existing Catlin underwrite400,000 part of the ceded reinsurance business from syndicate. The Chinese state-owned reinsurer earlier said overseas300,000 reinsurers in addition to establishing its own 200,000 it and Catlin would provide capital for Syndicate 2088, overseas100,000 branches or subsidiaries, or to expand through which will have a stamp capacity of about £50 million mergers0 and acquisitions. (US$78.7 million). Different2000 from2001 2002relying2003 on2004 a foreign2005 2006 partner2007 to2008 tap2009 fur- “As the biggest reinsurance com- ther into theWritten global Premiums market, (mn) India’s state-owned reinsur- pany in China, China Re’s strategy er — General Insurance Corporation of India — entered is to grow both in the home market the overseas market earlier than China Re by opening and abroad, and to have a greater itsRepublic own branch of Korea offices in London, Moscow, and most involvement in international mar- recently, Malaysia. It has also developed as a reinsurance 140,000 kets,” said Chairman Peiyu Li. Set- solutions120,000 partner for the Afro-Asian region, and operated 100,000 ting up Syndicate 2088 and the reinsurance80,000 programs in the South Asian Association alliance with Catlin will be a “mile- Li for60,000 Regional Cooperation countries, Southeast Asia, the 40,000 stone” in China Re’s international strategy, while the Middle20,000 East and Africa. 0 new venture will help the reinsurer to gain a better During2001 the2002 fiscal2003 year2004 ending2005 2006 March2007 2008 31, 2011,2009 2010GIC knowledge of Lloyd’s and benefit from its worldwide Re reportedWritten year-on-year Premiums (mn) premium growth of 20% to network (Best’s News Service, Nov. 8, 2011). 116.81 billion rupees (US$2.29 billion). Among the total, It will also increase the company’s experience of foreign business accounted for approximately 40.3%, international reinsurance operations and management down from 44.7% for the previous year, according to its and help build a foundation for China Re to grow into an annual report. important player in the world reinsurance market, said In 2010, China Re noted premium income of less Li. The company intends to continue its “internationaliza- than 1.5 billion yuan (US$238 million) from overseas tion” growth strategy by gradually setting up overseas ceded reinsurance business, accounting for 6% of the representative offices and branches, and seeks to become group’s total. Its premium income generated from rein- a medium-size international reinsurer by 2015. surance and insurance business during the year totaled China Re’s plan is to “focus on Asian market growth, 38.13 billion yuan, including 13.82 billion yuan from with steady business participation in Europe and Amer- direct insurance and 24.31 billion yuan from reinsur- ica, while gradually developing emerging markets like ance. The group had operating income of $38.8 billion Latin America and Africa by leveraging on its strong cap- in 2010, with total assets and pretax profits of 99.5 bil- ital base and positive international credit ratings,” Li said. lion yuan and 3.06 billion, respectively. Currently, about two-thirds of China Re’s internation- When focused on the primary insurance market, al business is generated from traditional Asian markets, China and India are both growth markets, while the while the remaining one-third comes from mature mar- Chinese players again are better positioned for global kets like Europe and America. This compares with other growth, as limited local insurance business size and regional reinsurers, such as Korean Re’s business ratios smaller domestic market base have curbed the Indian of 43% from Asia and 23% from Europe and America; companies’ expansion ambitions. as well as Japan-based Toa Re’s 24% from Asia and 74% “The Indian insurance market itself is still way from Europe and America, noted the Chinese reinsurer. ■ Continued: CHINA RE, page 13

12 BestWeek Asia/Pacific • 7 February, 2012 CHINA BESTWEEK Asia/Pacific

■ CHINA RE From page 12 Published by A.M. Best Company BESTWEEK ASIA/PACIFIC “The Indian insurance market itself is still way under-penetrated, CHAIRMAN & PRESIDENT Arthur Snyder III more so than China, and there EXECUTIVE VICE PRESIDENT Larry G. Mayewski is still huge room for growth.” EXECUTIVE VICE PRESIDENT Paul C. Tinnirello SENIOR VICE PRESIDENTS Manfred Nowacki, Matthew Mosher, Rita L. Tedesco Sharon Khor Hong Kong-based Partner A.M. BEST COMPANY and Head of Insurance WORLD HEADQUARTERS Ambest Road, Oldwick, N.J. 08858 for Greater China Phone: +1 (908) 439-2200 Accenture NEWS BUREAU 830 National Press Building under-penetrated, more so than China, and there is still 529 14th Street N.W., Washington, D.C. 20045 huge room for growth,” said Sharon Khor, a Hong Kong- Phone: +1 (202) 347-3090 based partner and head of insurance for greater China A.M. BEST EUROPE RATING SERVICES LTD. at Accenture, an international consultant. A.M. BEST EUROPE INFORMATION SERVICES LTD. 12 Arthur Street, 6th Floor, London, UK EC4R 9AB “Unlike China, the number of India’s domestic insur- Phone: +44 (0)20 7626-6264 ers is still rather small, which is dominated by one mega government-owned insurer. Thus the probability of any A.M. BEST ASIA-PACIFIC LTD. Unit 4004 Central Plaza, 18 Harbour Road, Wanchai, Hong Kong local insurer in India looking outward is extremely low,” Phone: +852 2827-3400 noted Khor, who said Indian insurers and the state- owned reinsurer “will likely focus on their domestic Sales & Advertising market, instead of overseas expansion.” VICE PRESIDENT Donna Lagos Low insurance penetration, a vast population and REGIONAL SALES MANAGERS Christine Girandola (East), 609-223-0752 rapid economic development, however, would continue Brian McGoldrick (West), 708-532-2668 to provide a largely untapped potential to be explored SALES INQUIRIES: [email protected] in India, such as traditional property, engineering and NEWS INQUIRIES: [email protected] marine classes, liability, oil and energy, aviation, health and nuclear power, GIC Re’s chairman and managing director Yogesh Lohiya said earlier. Given the economic situation and the expecta- tion of an insurance growth slowdown, particularly BestWeek (ISSN 2156-7646) is published weekly by A.M. Best Co. in 2012, Khor said Chinese insurers “will continue to BestWeek, now available exclusively through a subscription to Best’s Insurance News & Analysis, features analysis, data, research, rating actions and select news stay focused on their core business in China in the of financial significance to the insurance industry. It is published weekly in three near term,” in addition to finding ways to sustain the region-focused editions: US/Canada (print and online); Europe (online) and Asia- Pacific (online) as well as Regulatory Week. A one-year subscription to Best’s growth momentum and improve operational produc- Insurance News & Analysis that includes full online access to all editions plus the print edition of BestWeek US/Canada costs $870. A one-year subscription tivity and efficiency. to Best’s Insurance News & Analysis that includes full online-only access to all editions costs $770. Discounts apply to five or more subscriptions. Subscribers The domestic Chinese market still has growth oppor- also receive unrestricted access to A.M. Best’s real-time news service, news archive, Best’s Credit Rating actions, Best’s Special Reports, Best’s Statistical tunities, which means overseas expansion is “less com- Studies, Regulatory Week, the BestDay daily online news digest and a 12-month pelling” where the markets may be more saturated and subscription to Best’s Review magazine (print and/or online). Subscribers to many of A.M. Best’s ratings and data products have the option to subscribe to Best’s challenging, especially in the West. “I will not preclude Insurance News & Analysis at a discount (Full News Service level subscription). To order, call (908) 439-2200, ext. 5742, or contact [email protected]. the possibility of Chinese insurers investing in other U.S. and Canada residents can call toll-free: (800) 424-2378. emerging or developing markets, for example, in South- BestWeek is a trademark of A.M. Best Co. All rights reserved and reproduction without permission is expressly forbidden. When presented herein, Best’s Ratings­ east Asia and Africa, or even taking up a minority stake reflect A.M. Best Co.’s opinion as to the relative financial strength and perfor- mance of each insurer in comparison with others, based on analysis of the infor- in a foreign financial institution entity in a matured mar- mation provided to A.M. Best Co. However, these ratings are not a warranty of an ket,” said Khor. in­surer’s current or future ability to meet its contractual obligations. A.M. Best is compensated for its interactive rating services. These rating fees can The China Insurance Regulatory Commission said vary from US$ 5,000 to US$ 500,000. In addition, A.M. Best may receive com- Chinese insurance companies have steadily implement- pensation from rated entities for non-rating related services or products offered. ed a “going global” strategy in the past decade since Want News? China joined the World Trade Organization, which has Stay on top of the news 24/7 by visiting www.ambest.com/ helped them enhance their domestic and international newsroom, where electronic news articles are released competitiveness. throughout the day. You'll also find unlimited access to an — Rebecca Ng archive of news stories dating back to 1992.

7 February, 2012 • BestWeek Asia/Pacific 13 BESTWEEK Asia/PacificJAPAN

■ OVERSEAS MARKETS Nippon Life Insurance Co. Ltd. From page 2 AMB# 085457 NKSJ wants to acquire business in emerging Asian mar- ($ million) kets. Nipponkoa raised its stake in PT. Asuransi Permata Gross Premiums Total Admitted Best’s Financial Nipponkoa Indonesia to 80%, converting it into a subsidiary Period Ending Written Assets Strength Rating 2006 41,188.4 429,915.1 A+ last year. Its other subsidiary, Sompo Japan, invested about 2007 41,169.3 439,671.2 A+ US$173 million to raise its stake in Malaysia’s Berjaya Sompo 2008 49,292.1 485,203.7 A+ Insurance Bhd. to 70% to make it a subsidiary in June 2011. 2009 51,778.0 471,090.0 A+ “Merger and acquisition plans will be maintained 2010 51,980.6 525,309.5 A+ because the [March 11] earthquake had only a limited Source: impact on capital,” said NKSJ in a financial presentation. The Aioi Nissay Dowa Insurance group planned to invest ¥200 billion on overseas acquisi- tions for the three years ending with the 2012 fiscal year. Co. Ltd. AMB# 085028 Apart for primary business, Sompo Japan established a ($ million) new reinsurance unit in Malaysia with an eye on business Gross Premiums Total Admitted Best’s Financial from Southeast Asia and the Middle East. The Kuala Lumpur Period Ending Written Assets Strength Rating branch is its second reinsurance operations outside Japan. 2006 8,596.8 23,486.1 A Tokio Marine opened offices in Switzerland and Austra- 2007 8,736.2 23,618.7 A lia in July 2010 to expand its reinsurance and commercial 2008 10,230.2 26,597.0 A 2009 9,787.9 24,875.1 A property business. Tokio Marine said the company is “work- 2010 9,953.6 26,147.3 A ing towards profitable international growth on all fronts.” Source: The group’s international reinsurance cover is grouped under Bermuda-based Tokio Millennium Re. Mitsui Sumitomo Insurance In addition to geographic diversification, the three non- Co. Ltd. life groups are seeking to build a more balanced business AMB# 084422 portfolio. Tokio Marine said the group aims to develop a ($ million) wide spectrum of businesses including life and takaful Gross Premiums Total Admitted Best’s Financial Period Ending Written Assets Strength Rating (Islam-compliant insurance), together with nonlife business 2006 13,535.9 64,113.5 A+ in emerging markets such as Asia, Brazil and the Middle 2007 13,464.6 65,683.5 A+ East in driving medium and long-term profit growth. 2008 15,809.9 70,243.2 A+ Mitsui Sumitomo completed its acquisition of a 35% 2009 14,936.5 61,447.1 A+ stake in Hong Leong Group’s takaful unit, Hong Leong 2010 15,278.1 64,437.7 A+ Tokio Marine Takaful, for US$11 million in Malaysia. The buy Source: cemented Mitsui Sumitomo’s strategic alliance with Hong to seek expansion in Europe. Leong, through which it aims to boost life, nonlife and taka- Recently, Meiji Yasuda and Talanx jointly reached an agree- ful businesses in Malaysia, supported by cross-selling. ment to acquire Polish insurer Europa Group. In Asia, Meiji Despite the merger and acquisition activity, Kong said Yasuda entered the China market with the acquisition of a Japanese life insurers lag behind their nonlife counterparts. 25% stake in Haier New York Life Insurance Co. Ltd. from Many Japanese life insurers are mutual companies, and New York Life Insurance Co. in January 2011. The mutual Shibata said “there is a difficulty for financing arrange- insurer also invested US$11 million in Indonesian life insur- ments. As a result, overseas expansion is really limited for ance company PT Avrist Assurance as part of its overseas life insurance companies.” expansion plan. Dai-ichi Life Insurance Co. Ltd. demutualized in April Nippon Life purchased a 26% stake in Reliance Life 2010 with a US$11 billion public offering on the Tokyo Insurance Co. Ltd. for US$592 million in India and invested Stock Exchange as part of its long-term growth strategy of US$250 million in Northwestern Mutual Life Insurance Co. domestic and international expansion. After that, Dai-ichi to enhance ties with the U.S. life insurer and share U.S. invest- Life acquired Sydney-based Tower Australia Ltd. now TAL Ltd. ment opportunities. It also purchased a Prudential Insurance Shibata noted “other mutual companies have potentially the Co. of America surplus note as well. same aspiration.” Kong noted many Japanese life insurers “face severe Japan’s largest mutual life insurer, Nippon Life Insurance competition with foreign insurers” in new markets. Strategic Co. Ltd., invested US$632 million in Allianz SE commercial alliances with foreign life insurers for investment and busi- paper as part of its overseas strategic investments. Similarly, ness opportunities is a more progressive approach for big mutual insurer Meiji Yasuda Life Insurance Co. Ltd. formed life mutual insurers like Nippon Life. a capital and business alliance with Germany’s Talanx AG —Iris Lai

14 BestWeek Asia/Pacific • 7 February, 2012