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Non-Life Insurance Valuation Issues in Asia

Non-Life Insurance Valuation Issues in Asia. Sam Gutterman, FCAS, FSA. Topics Covered. Some statistics General Asian valuation issues Asian non-life market Japan Other countries. South and East Asia 3.14 50.5% Africa 0.77 12.4% Central/East Europe 0.65 10.5%

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Non-Life Insurance Valuation Issues in Asia

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  1. Non-Life Insurance Valuation Issues in Asia Sam Gutterman, FCAS, FSA

  2. Topics Covered • Some statistics • General Asian valuation issues • Asian non-life market • Japan • Other countries

  3. South and East Asia 3.14 50.5% Africa 0.77 12.4% Central/East Europe 0.65 10.5% Latin America 0.50 8.0% Western Europe 0.45 7.2% North America 0.30 4.8% Middle East 0.26 4.1% Japan 0.13 2.0% Oceania 0.03 0.5% 1998 Population (billions)

  4. North America 9.1 31.2% Western Europe 9.0 31.0% Japan 3.9 13.2% South/East Asia 2.8 9.6% Latin America 2.0 6.7% Central/Eastern Europe 0.7 2.4% Middle East 0.7 2.2% Africa 0.6 2.0% Oceania 0.4 1.5% 1998 GDP ($trillion)

  5. North America 411 46.2% Western Europe 286 32.1% Japan 92 10.3% South/East Asia 33 3.7% Latin America 27 3.1% Oceania 15 1.7% Central/Eastern Europe 11 1.2% Middle East 7 0.8% Africa 7 0.8% 1998 Non-Life Premium ($billions)

  6. Japan 74% South Korea 10% Taiwan 4% China 4% India 2% Hong Kong 2% Singapore 1% Other SE Asia 4% Percent of Asian Non-Life Market

  7. U.S. 1,431 Japan 726 Hong Kong 275 South Korea 265 Singapore 236 Taiwan 228 Malaysia 70 1997 Thailand 20 Philippines 7 China 5 Indonesia 3 India 2 Vietnam 2 Non-Life Premium per Capita($US)

  8. Asian Valuation Issues • Each country different • Language • Culture • Data • Products • Regulatory constraints

  9. Each Country Different • Economy • Demography • Market • Regulatory regime • Politics • Approach to business

  10. The Asian Non-life Market • Products • Biggest by far -- auto • High savings in some • Government protection changing • Companies consolidating • New entrants in some countries

  11. Economy • Asian financial crisis -- severe impact • South East Asian slump • China, Taiwan, South Asia unaffected • Few new autos • Infrastructure projects cancelled • Recent recovery • Different penetration of insurance

  12. Culture • Family-based • Lack of trust of others • Reluctance to let others in • Joint ventures -- don’t underestimate Asians • Changing • Growing middle-class • Islamic law -- takaful (Allah & misfortunes) • Desire for local champions, financial center

  13. Structural Shifts • Deregulation • Rates • Companies • Privatization in places • Joint ventures, alliances • Marketing • Direct selling -- phone, mail, internet • Bancassurance -- Hong Kong, Vietnam

  14. Data • Not used to casualty actuaries • Generally not in Western form • Validate anything they aren’t used to • Be clear in questions

  15. Japan -- Companies • Concentrated -- 31 companies & merging • Mitsui and Sumitomo --$54 billion of assets • Chiyoda and Dai-Tokyo • Koa and Nippon? • Importance of keiretsu system • Varied financial condition • New competitors • Inside Japan -- life insurers, non-insurers • Foreign insurers

  16. Japan -- Products • General p&c products • Combination savings products • Guaranteed return with no claims • Pricing more competitive • Required earthquake reserve • Mandatory 3 year auto liability product • Mortgage guaranty in multi-line company

  17. Japan -- Regulation • “Big-bang” • Loosening of rate regulation • Risk classes in auto introduced in 1997 • New financial guaranty system • Holding companies • New regulator

  18. Japan -- Other • Growth -- sluggish or none • Marketing • New brokerage system • Direct selling • Banks • Formula IBNR • 4 lines • Asset problems

  19. Vietnam • GDP per capita -- $320 • One privatized insurer • Owned by banks • Several recent joint ventures • Very slow getting started • No insurance law

  20. Australia • Approach western • Four large purchases in last two years • Recent appraisals • Discounted cash flows • Depended heavily on cost reductions • Bids dependent on competition • Assessment of value of new business very different

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