UK insurers are investing heavily to extend their influence in insurance markets across the globe. James Dean reports
UK insurance companies have tightened their grip on the globe in the opening weeks of 2008. Benfield opened an office in Beijing while Lloyd’s applied for admitted reinsurer status in Brazil.
The so-called emerging markets accounted for 5.1% of global non-life insurance premiums in 2006 – a number that has more than doubled over the past 10 years.
It is not only UK companies that seek world domination. Ambitious moves from Japan have brought big investments into the Lloyd’s market, and Chinese companies, which recently had restrictions on foreign investment loosened, are looking to splash the cash.
Global expansion by UK insurance companies looks likely to continue throughout 2008. But the need to diversify one’s business portfolio in a hardening market is shared by other nations, hence the investment beginning to flow in from Japan and China. As Lloyd’s remains the keystone in gaining access to global markets, Lloyd’s insurers will continue to be acquired from overseas – although moves on company market insurers cannot be ruled out.
China is forecast to become the world's largest economy by 2040, having grown in 2006 by 10.5% â€“ twice as fast as the world average, and ahead of the other large emerging nations. In 2006, China's annual insurance premium grew by 18.8% to Â£12.2bn.
Michelle Zhou, a vice president of Marshâ€™s China global client practice, says: A platform in Asia gives you access to 1.3 billion
customers who are becoming increasingly rich, and access to a skilled and low cost labour force.
The Chinese government has opened up the market since China joined the World Trade Organisation, and it is an investor-friendly market.
But Zhou warns that companies seeking to enter the market should be aware of cultural differences between Chinese regions, as well as potential staffing problems. She says: Recruiting and keeping quality staff is a problem. We would therefore advise that companies design attractive benefit packages for employees.
Chinaâ€™s insurance regulator, the China Insurance Regulatory Commission (CIRC), requires foreign insurers to go through an approval process every time they wish to open a new office in the country. At present, foreign insurers cannot gain a licence to write third party liability for motor, but discussions with the Chinese authorities are ongoing.
Richard Fricker, director of overseas offices at Markel International, says market conditions in Asia are tough. People here tend to say, leave your London pricing guides behind when you come to Asia. There is arguably an over-supply of capital to the Asian market, with pricing generally lower, and competition is very aggressive.â€
In November last year, a Lloydâ€™s report found that the Chinese non-life market
suffered from a lack of expertise, and highlighted a huge opportunity for brokers to set up in what is a rapidly expanding broker
market. The report also highlighted a growth in domestic reinsurance capacity, and found that the market in general was beginning to develop new products and expand.
Just this week, Benfield announced the opening of its second Chinese office in Beijing. Lloydâ€™s operation China Re continues to grow, housing 11 managing agents. It expects to confirm four more in the near future as well as an increase in the number of insurers from four to six.
Royal & SunAlliance (R&SA) established a non-life subsidiary in China last autumn,
following approval from the CIRC. R&SA
says it will use the platform to develop a nationwide network of branches.