MSIG Asia CEO hails 2024 as a year of growth for insurers, but cautions on varying regulatory and socioeconomic impacts.
The complex regulatory environment the region of Asia holds stirs the insurance industry all in one motion in this 2024 mixing bowl. For insurers, the pressure mounts as expectations for better offerings are rising, socio-economic factors are gaining strength, and the wealthy population is growing.
Anna Tipping, partner at Norton Rose Fulbright (NRF) Singapore, wrote in a recent publication that requirements vary among jurisdictions regarding the establishment of branches by foreign insurance firms, with some parts of the region permitting only locally incorporated entities.
Foreign direct investment and control regimes — including shareholders and management — may also require regulatory approval for changes in control, whether direct or indirect.
Companies need a strong grasp of regulatory capital frameworks and mandatory policyholder protection regimes. They must also consider group supervision and regulatory oversight on outsourcing.
Spoke with Insurance Asia, MSIG Asia CEO Clemens Philippi said he sees potential room for the industry to grow even as various regulatory changes dampen expectations.
“In 2024, we will see a continued high demand for insurance solutions, which therefore means continuous (but impacted) growth. [The impact] from new insurance regulations from each market can be positive or negative. This could mean growth opportunities,” Philippi said.
In his view, there are three catalysts the industry will see in 2024: higher demand to close the insurance gap, increase in health coverage, and adoption of new technology. Whilst these factors present an opportune time for sprucing up insurance offerings, a hurdle that varies in size for insurers is regulation-related.
“On the regulatory side, it can be a positive influence but it can be a small hurdle for growth. If you look at the population-rich countries like Vietnam, Thailand, Indonesia and our region, they’ve all issued new regulations in the recent past,” MSIG’s top man said.
Vietnam’s new Insurance Business Law
“In Vietnam, you have in 2023, a new insurance law which talks about technical reserves being strengths, foreign ownership, kept risk management information, disclosure being increased and dispute resolution strictly defined,” Philippi said.
Vietnam’s National Assembly passed the new Insurance Business Law on 16 June 2022, bringing significant changes to the law and impacting insurance market development. The new law took effect on 1 January 2023, with certain provisions taking effect on 1 January 2028.
Baker McKenzie firm listed among the changes: the removal of certain compulsory insurance products; the prohibition of insurers denying sales upon qualified policyholder requests; and clearer delineation of fundamental insurance principles.
In addition, it introduced provisions for temporary life insurance, expanded insurer operations and concurrent product sales, and recognised investment from financial and insurance groups.
The law also addressed outsourcing activities, facilitated online sales channels, and enhanced regulations on insurance agency activities, including separate certificates for each product type.
Also, it adjusted the capital adequacy ratio calculation and outlined principles for technical reserves. Other amendments covered foreign ownership, risk management timelines, information disclosure, and dispute resolution mechanisms.
Thailand’s risk-based capital framework
“In Thailand, you have a new risk-based capital framework introduced, which will also have an impact on the company,” Philippi said.
Thailand’s regulatory environment is viewed “less developed” by Fitch Ratings as governed primarily by the Insurance Act and overseen by the Office of Insurance Commission (OIC). The OIC has implemented a risk-based capital (RBC) regime, transitioning to RBC2 in 2019.
Insurers must assess their internal risk governance frameworks and capital adequacy under Enterprise Risk Management and Own Risk and Solvency Assessment frameworks.
The regulator exercises control over product pricing, premiums, marketing, and selling practices.
In cases of insurer insolvency, the OIC intervenes by prohibiting new policy issuance and asset transfers. The regulator also promotes stability and sustainability through a five-year development plan, focusing on fostering competition in the digital economy and enhancing product accessibility to meet consumer needs.
Indonesia raises minimum cap
Indonesia has also introduced new laws regarding various aspects of the insurance industry, including insurance products, distribution channels, reinsurance arrangements, and Sharia-compliant insurance.
“Most importantly, in Indonesia, which is a very fragmented market, there’s also an increase in the minimum capital requirements going over the coming years until 2028, up to $1t,” Philippi told Insurance Asia. “And that, of course, is possibly a catalyst for consolidation over the coming years. So I think this is our outlook for 2024. We will closely follow these developments.”
Fitch Ratings anticipates tougher minimum equity requirements for Indonesian insurers will lead to a more consolidated market, enhancing competitiveness.
It believes new credit insurance regulations could impact micro and consumer lending by banks, as they will now retain 25% of insured default risk, previously borne entirely by insurers. With a fragmented insurance market and numerous insurers, Indonesia may be looking at intense competition that weakens pricing power and profitability.
The Financial Services Authority (OJK) plans to significantly increase minimum equity requirements by end-2026, followed by further raises by end-2028, particularly for insurers offering credit insurance.
Insurers failing to meet these requirements may need to raise capital or explore M&A options. Around 90% of Fitch-rated issuers already meet the 2026 requirement, but 62% may require additional equity by 2028, especially in non-life and reinsurance sectors.
Organic capital generation may suffice for 50% of insurers to meet the 2026 requirement, but meeting 2028 requirements might pose challenges, necessitating other strategies.
The impact of new credit insurance regulations on banks is uncertain; while tightening underwriting standards may improve risk profiles, retaining more risk could have adverse effects. Increased capital requirements for credit insurers may prompt smaller non-life insurers to exit the segment, fostering healthier competition.
The rich are rich in numbers
Philippi said he sees the rich growing in numbers. This is despite an Altrata report saying that the region faced the largest decline in 2022 in its ultra-wealthy population, dropping by 10.9% to 108,370 individuals.
“We see, especially, the continued rise of the middle class to continue to accumulate wealth with a continued demand to close the insurance gap to protect the assets of these young aspiring populations,” the expert said.
Most of the world’s top 10 UHNW countries, except India, saw decreases in their ultra-wealthy populations. The UHNW population in Asia represents a 27% global share, whilst total wealth decreased by 10.6%, reversing gains from the previous year.
Factors contributing to this decline included China’s strict COVID lockdown, lifted in December, and the fallout from the war in Ukraine, which impacted exports, and consumption, and disrupted regional supply chains.
The tech-heavy markets in South Korea and Taiwan were particularly affected. Additionally, the relative strengthening of the US dollar strained wealth portfolios, leading to volatility across Asian asset markets and tighter monetary conditions as regional central banks intervened to support currencies.
Whilst Japanese stocks showed resilience due to the Bank of Japan’s dovish stance, the yen faced pressure. State control measures in China’s real estate and technology sectors also weighed on Asian assets.
Long-term outlook
The MSIG CEO emphasised the importance of closely monitoring external factors such as economic conditions and reinsurance market trends. He noted that the 2022 renewal season witnessed a significant increase in reinsurance prices, driven in part by unforeseen events like a major hurricane in the Florida region, which impacted both American and Asian markets.
Despite these challenges, Philippi expressed confidence in MSIG Asia’s preparedness, attributing their resilience to meticulous risk management practices. The company’s actuarial and claims teams closely track claim developments and inflationary pressures, ensuring that reinsurance partners are kept informed and rates are adjusted accordingly to maintain sustainability.
He is particularly proud of MSIG Asia’s proactive engagement with clients — from SMEs to corporate entities — to address potential risks associated with supply chain disruptions and inflation.
“We work with customers from small and medium enterprises up to large corporates on the sums insured and try to explain what inflation means for that and what under-insurance means if they don’t declare the sum insured, proactively and openly,” he said.
Philippi said the company will maintain its conservative investment approach, which has proven effective in mitigating potential shocks, particularly under new accounting standards such as IFRS 17 and IFRS 19.
Still, he underscored the importance of adapting to emerging risks, including climate change and geopolitical uncertainties.
“Another point that we have, of course, on the radar is the weather condition – NatCat events and climate change. We will continuously be focusing on this, and we’re going to have some product innovation there,” Philippi told Insurance Asia.
MSIG Asia has already begun innovating in response to these challenges, exploring parametric offerings for industries like farming and investing in predictive climate change modelling fintech startups to enhance risk assessment capabilities.
“On the inflation piece, honestly, I believe we will see a continued flattening. It was a big hype during the 2020 to 2023 renewal season, for the reinsurancers to talk to us about inflation and the impact of that. But we saw that flattening already last year and we think that will continue,” said Philippi.
“But of course, [that] depends again on the global events that are described at the beginning on what will be the outcome for this,” he added.
