The insurance landscape in Hong Kong remains extremely competitive, with a significant amount of capacity continuing to flow into the market. In general, and consistent with other Asian markets, insurance buyers have benefited from this competition with lower premiums, broader coverage and more choice in terms of underwriters.
The Indonesian marketplace continues to be highly competitive, driven by increased capacity and a desire to capture business in this revived star performer in Asia. Indonesia, with a stable government, abundant natural resources (especially oil and gas), has become a favored foreign direct investment destination.
The insurance industry continues to thrive with local and international players growing their capacity. In general, this renewed capacity has kept rates favourable for insurance buyers. However, there are pockets where rises can be expected, especially when it comes to off-shore risk.
Singapore enjoys a reputation for being the region’s hub for insurance and reinsurance. The island city-state continues to be a major destination for regional operations of regional and international insurers and reinsurers. The Singapore market is arguably the most advanced in Asia, with a significant increase in capacity flowing into the region via this regional hub.
Like the rest of Asia, insurance buyers in Singapore have benefited from fierce competition between underwriters, with rate reductions occurring at a seemingly unending pace. However, there are some pockets of rate increases in particular lines such as Employers Liability and Workers’ Compensation primarily due to poor loss experience.
The Philippines experienced some of the worst natural catastrophes in its history at the end of 2009, with Typhoon Ketsana causing severe flooding in the heart of Manila, the country’s business and economic centre. As a result, property insurance rates significantly spiked during 2010.
Other lines of insurance remained relatively stable, as capacity, competition and demand for cover continued to be well-balanced.
Vietnam is truly an emerging market when it comes to insurance, offering plenty of opportunity for local and foreign players. The market is still relatively immature, with cover being driven primarily by multinational corporations investing or operating in Vietnam. As with most emerging insurance markets, rates tend to be artificially low as insurers compete for business and this remains the case in Vietnam.
Vietnam is a market to watch, as local insurers gain technical expertise and international insurers expand their operations, benefiting insurance buyers with plenty of capacity at competitive rates.
The China insurance market maintained its fast growth throughout 2010. In the first six months, premium income from the property insurance business rose 33.5 percent from a year earlier, even though the Chinese economy faced some difficulties stemming from the global financial crisis and the fragile global economic recovery.
In many ways, the North American insurance market in 2010 mirrored 2009. Competition among insurers remained intense, capacity was abundant, and there were relatively few insured catastrophe losses. The end result was a generally stable market in 2010—and one that is poised to be so again in 2011. As always, however, an insured’s unique risk management strategy, insurance needs, industry issues, and other factors will dictate its relationship to the markets.
The insurance industry in US, particularly the life insurance industry, is considered a pillar of the economy, with assets of $4.6 trillion in 2010. Tied as it is to the public interest, the life insurance industry has been subject to governmental scrutiny and legislation almost since its inception in the eighteenth century. Life and health insurance accounted for 59 percent of gross premiums for all insurance types in 2010, with the remainder dedicated to property/casualty.
According to the American Council of Life Insurers, Americans bought $3.0 trillion of new life insurance coverage in 2009. The Insurance Information Institute reported that independent agents were responsible for 56 percent of the market, followed by affiliated agents with 36 percent, direct marketers with 3 percent, and others, including stockbrokers, for the remaining 5 percent. By the end of 2009, total life insurance coverage in the United States was worth $19.1 trillion. Thus, despite the financial problems of the late 2000s, the life insurance business was still a viable aspect of the U.S. economy as the country headed into the second decade of the twenty-first century.
As we can see, insurance market all around the world recovering, opening new markets and following new trends. Asia shows the biggest growth since crisis and it will be logical to continue intensive work in countries, where Prudential already has the leading positions widening old and researching the new spheres of insurance business.
Analysis of the investment market and financing of foreign operations
Analyzing the world investments market I compile the world investment trends with the strategies of investment banks. The housing “bubble” brought out several issues and questions, concerning trust to US’ financial system. Nowadays, investors are trying to be more independent looking for new spheres of investments. As common spheres of investments still look attractive, there are new trends, which can be take into account. The main trends in investment markets in 2010 and 2011 are follows:
- Superannuation legislation will force change in the way we look at retirement and how retirement savings are invested
- A weaker global banking system will create opportunities for private credit
Who will fill the credit gaps created by the decline in the number of banks and their capacity and willingness to lend? As global economies recover, businesses are seeking new funding and roll-over financing. Private debt lending rates are already in their low to high teens and at these levels, the supply of credit will be filled by private creditors and investment opportunities in private equity and private credit will grow accordingly.
- Emerging market growth will outstrip developed markets, but equity markets may have priced this in.
The IMF predicted slow growth of 1.3% in advanced countries in 2010 was out-stripped by growth of 5.1% in developing countries and a very rapid 7.3% in developing Asia. China and India were at the forefront of Asian growth but Korea, Indonesia and Vietnam also grew fast. Looking further ahead, this pattern of faster growth in the Asian region is expected to continue.
However, there has already been a surge in investment in emerging market equities, aided by the availability of ETF funds to retail investors. China’s currency peg to the US dollar has resulted in very low interest rates relative to nominal GDP growth, and there is a risk that some emerging markets could move beyond fair valuations into “bubble” territory.
- Environmental, Social and Governance (ESG) factors will continue to rise on investors’ radar.
As emerging markets become wealthier they will not continue to tolerate current pollution levels. They will also attempt to reduce the energy dependence of their growth and green house gas emissions. A precipitating factor is that investors and their investment managers will need to integrate ESG factors into their process or be at risk of being blindsided. Developing legislation on issues such as climate change will also help to cement ESG into investment agendas.
- Investors will critically examine their investment strategies in the context of evolving deflation/inflation risks
Although the threat of sustained deflation in the US and Europe is diminishing, investors are concerned the accompanying policy response risks a renewed outbreak of inflation. Faced with spiraling public sector debt ratios, and growing long-term budgetary obligations, investors have become sensitive to the possibility some governments may seek to ‘inflate’ their way out of debt. Few governments will risk such a destabilizing option, but will need to quickly begin articulating measures to bring debt down to more manageable levels. In 2010 investors are likely to begin demanding more credible fiscal exit strategies and begin to discriminate more carefully between leaders and laggards. For investors who believe some governments will still need to eventually print money in order to avoid default, it is noted that typical inflation protection strategies are no longer especially cheap. The risk of deflation has not yet been fully eradicated, particularly if governments can no longer guarantee the funding obligations of financial institutions
- Dynamic Asset Allocation (medium-term asset allocation tilts) will be de rigueur to capture market mispricing in the medium-term.
Strategic asset allocation has traditionally been based on an assumption of long-term market equilibrium, but in practice markets rarely reflect ‘fair value’. Dynamic Asset Allocation (DAA) can exploit deviations from long-term averages to deliver improved returns and sound risk management. This approach replaces the ‘set and forget’ school of thought of strategic asset allocation.
- Investors will undertake more due-diligence on hedge fund strategies
Hedge funds took a major battering in the maelstrom of the financial crisis, with estimates of up to a third of the industry winding-up. In 2010 investors re-thought their approach to investing in hedge funds seeking improved transparency of underlying risk exposures, less ‘directionality’ (or sensitivity to market movements) and more equitable fee bases.
- The big “macro” moves may be behind us - time to become “micro”?
Many illiquid investment strategies such as unlisted or direct property, infrastructure, private equity and debt, and a number of other alternative investment strategies can provide access to diversifying - and in some cases unique - sources of return. Such investments can therefore be highly desirable as part of a well-designed investment strategy. However the GFC created significant pressure on those super funds whose heavy reliance on unlisted assets created a liquidity mismatch between their obligation to meet members’ switching or rollover requests and the ability to realise assets for cash at short notice. We expect such funds to reduce their strategic allocations to illiquid assets in the future. At the same time, other funds will continue to look for diversification opportunities including in unlisted assets.
- Super funds will question the role of illiquid assets in their portfolios
Both 2008 and 2009 have been characterised by massive swings in market valuations, as unfolding economic events drove investors to the brink of despair before hope and confidence was restored. In this environment, risky assets (equities and credit) were borne on waves of liquidity flows, and ‘micro’ analysis of individual companies’ prospects seemed at times irrelevant. As the recovery matures it seems likely that investors will become more discriminating, and country, sector and stock picking abilities may once more become pre-eminent.
- Diversification will remain key.
Traditional investment strategy of diversification abjectly failed to protect investors during the Global Financial Crisis. Misunderstanding the underlying - and interconnected - risk exposures saw many investors unprepared for the magnitude of losses experienced in early 2009.
When faced with uncertainty, diversification will continue to be the primary tool available to investors to improve their chances of investment success. The key lesson here however is to seek genuine diversification of underlying return sources through properly identifying the risks involved, and to spread portfolios across as many lowly correlated assets as possible.
We expect to see continued investor interest in a range of alternative assets classes and strategies as a result of this, particularly ones that are less linked to traditional market movements. These include insurance-linked investments such as catastrophe bonds, aircraft leasing investments, agricultural investments and social infrastructure. We also see further interest in non-traditional equity strategies such as low volatility products and structured strategies that use derivatives to limit extreme downside risk.
As we can see from the financial statement of Prudential, company is recovering from 2008 crisis, showing stable growth in 2009 and surpluses in almost all the spheres of its business. Taking into account the fact that the world is still recovering from crisis and there are still lack of trust for short-term investments, it would be logical to assume that the financing of long-term projects and investments is more attractive today. With new trends in “green investments”, especially in developing markets, investments into that sphere look very promising. Creation of international CO2 emission market gives new opportunities for private equity to enter this market.
A Green Investment Scheme (GIS) refers to a plan for achieving environmental benefits from trading ‘hot air’ under the Kyoto Protocol. The Green Investment Scheme (GIS) is a newly developed mechanism in the framework of International Emission Trade (IET). It is designed to achieve greater flexibility in reaching the targets of the Kyoto Protocol while preserving environmental integrity of IET. Under the GIS a Party to the Protocol expecting that the development of its economy will not exhaust its Kyoto quota, can sell the excess of its Kyoto quota units (AAUs) to another Party. The proceeds from the AAU sales should be “greened”, i.e. channeled to the development and implementation of the projects either acquiring the greenhouse gases emission reductions (hard greening) or building up the necessary framework for this process (soft greening)
Offering that scheme, Company can also develop new products on insurance market. As diversification will be the key to success in next years, creation and adoption of new investment and insurance products could be very attractive for company, working on developing markets.
Reference list:
- Prudential public limited company, Annual Report, Laurence Pountney Hill, 2010
-
Mercer. Investment press-release, January 10, 2011, Accessed, May 1, 2011
-
Stern review, 2006. Accessed, April 28, 2011
-
Accessed. April 22, 2011
- Multinational financial management, Shapiro C. Alan, 9th ed., International student version, Hoboken, N.J. : John Wiley, c2010.
