Non-Life Insurance
Valuation Issues in Asia
Sam Gutterman, FCAS, FSA
Topics Covered
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Some statistics
General Asian valuation issues
Asian non-life market
Japan
Other countries
2
Population (billions)
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South and East Asia
Africa
Central/East Europe
Latin America
Western Europe
North America
Middle East
Japan
Oceania
3.14
0.77
0.65
0.50
0.45
0.30
0.26
0.13
0.03
50.5%
12.4%
10.5%
8.0%
7.2%
4.8%
4.1%
2.0%
0.5%
1998
3
GDP ($trillion)
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North America
Western Europe
Japan
South/East Asia
Latin America
Central/Eastern Europe
Middle East
Africa
Oceania
9.1
9.0
3.9
2.8
2.0
0.7
0.7
0.6
0.4
31.2%
31.0%
13.2%
9.6%
6.7%
2.4%
2.2%
2.0%
1.5%
1998
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Non-Life Premium ($billions)
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North America
Western Europe
Japan
South/East Asia
Latin America
Oceania
Central/Eastern Europe
Middle East
Africa
411
286
92
33
27
15
11
7
7
46.2%
32.1%
10.3%
3.7%
3.1%
1.7%
1.2%
0.8%
0.8%
1998
5
Percent of Asian Non-Life
Market
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Japan
South Korea
Taiwan
China
India
Hong Kong
Singapore
Other SE Asia
74%
10%
4%
4%
2%
2%
1%
4%
6
Non-Life Premium per Capita
($US)
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U.S.
Japan
Hong Kong
South Korea
Singapore
Taiwan
Malaysia
1,431
726
275
265
236
228
70
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Thailand
Philippines
China
Indonesia
India
Vietnam
20
7
5
3
2
2
1997
7
Asian Valuation Issues
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Each country different
Language
Culture
Data
Products
Regulatory constraints
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Each Country Different
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Economy
Demography
Market
Regulatory regime
Politics
Approach to business
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The Asian Non-life Market
• Products
– Biggest by far -- auto
– High savings in some
• Government protection changing
• Companies consolidating
• New entrants in some countries
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Economy
• Asian financial crisis -- severe impact
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South East Asian slump
China, Taiwan, South Asia unaffected
Few new autos
Infrastructure projects cancelled
• Recent recovery
• Different penetration of insurance
11
Culture
• Family-based
• Lack of trust of others
– Reluctance to let others in
– Joint ventures -- don’t underestimate Asians
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Changing
Growing middle-class
Islamic law -- takaful (Allah & misfortunes)
Desire for local champions, financial center12
Structural Shifts
• Deregulation
– Rates
– Companies
• Privatization in places
• Joint ventures, alliances
• Marketing
• Direct selling -- phone, mail, internet
• Bancassurance -- Hong Kong, Vietnam
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Data
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Not used to casualty actuaries
Generally not in Western form
Validate anything they aren’t used to
Be clear in questions
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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
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Japan -- Products
• General p&c products
• Combination savings products
– Guaranteed return with no claims
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Pricing more competitive
Required earthquake reserve
Mandatory 3 year auto liability product
Mortgage guaranty in multi-line company
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Japan -- Regulation
• “Big-bang”
• Loosening of rate regulation
– Risk classes in auto introduced in 1997
• New financial guaranty system
• Holding companies
• New regulator
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Japan -- Other
• Growth -- sluggish or none
• Marketing
– New brokerage system
– Direct selling
– Banks
• Formula IBNR
– 4 lines
• Asset problems
18
Vietnam
• GDP per capita -- $320
• One privatized insurer
– Owned by banks
• Several recent joint ventures
– Very slow getting started
• No insurance law
19
Australia
• Approach western
• Four large purchases in last two years
• Recent appraisals
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Discounted cash flows
Depended heavily on cost reductions
Bids dependent on competition
Assessment of value of new business very
different
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