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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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topics covered
Topics Covered
  • Some statistics
  • General Asian valuation issues
  • Asian non-life market
  • Japan
  • Other countries
population billions
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)
gdp trillion
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)
non life premium billions
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)
percent of asian non life market
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
non life premium per capita us
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)
asian valuation issues
Asian Valuation Issues
  • Each country different
  • Language
  • Culture
  • Data
  • Products
  • Regulatory constraints
each country different
Each Country Different
  • Economy
  • Demography
  • Market
  • Regulatory regime
  • Politics
  • Approach to business
the asian non life market
The Asian Non-life Market
  • Products
    • Biggest by far -- auto
    • High savings in some
  • Government protection changing
  • Companies consolidating
  • New entrants in some countries
economy
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
culture
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
structural shifts
Structural Shifts
  • Deregulation
    • Rates
    • Companies
      • Privatization in places
      • Joint ventures, alliances
  • Marketing
      • Direct selling -- phone, mail, internet
      • Bancassurance -- Hong Kong, Vietnam
slide14
Data
  • Not used to casualty actuaries
  • Generally not in Western form
  • Validate anything they aren’t used to
  • Be clear in questions
japan companies
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
japan products
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
japan regulation
Japan -- Regulation
  • “Big-bang”
  • Loosening of rate regulation
    • Risk classes in auto introduced in 1997
  • New financial guaranty system
  • Holding companies
  • New regulator
japan other
Japan -- Other
  • Growth -- sluggish or none
  • Marketing
    • New brokerage system
    • Direct selling
    • Banks
  • Formula IBNR
    • 4 lines
  • Asset problems
vietnam
Vietnam
  • GDP per capita -- $320
  • One privatized insurer
    • Owned by banks
  • Several recent joint ventures
    • Very slow getting started
  • No insurance law
australia
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