Aon report examines regulatory developments in Asia-Pacific insurance markets

Insurance market liberalisation continues to accelerate across Asia-Pacific, with cross-jurisdiction collaboration further developing and solvency requirements being enhanced across the region. This is according to a new report from Aon, which summarises the key global ratings agency criteria developments and regulatory changes across Asia-Pacific during the past 12 months.

Aon said that as the insurance and reinsurance industry continues to change rapidly, both ratings agencies and regulators continue to evolve in response. The aim of its report, Evolving Criteria: Asia Pacific, is to help insurers understand the impact of these changes and take practical steps to maintaining a healthy and compliant business, said Aon.

The report notes that the trend of enhancing solvency requirements continues across Asia-Pacific with initiatives in several major markets making substantial progress, including China’s C-ROSS Phase II, Hong Kong’s RBC, India’s RBC, Singapore’s RBC 2 and Korea’s K-ICS. At the same time, market liberalisation has accelerated together with cross-jurisdiction collaboration. It notes that constraints on foreign insurers or foreign investment in insurance were abolished or relaxed in China, India and Myanmar, and cross-jurisdiction cooperation enhanced inside Greater China and among ASEAN countries.

The report states: “High premium growth is expected in the Asia-Pacific region due to current low insurance penetration, government policy push on investment in infrastructure, and market liberalisation. All of these will help support the Asia-Pacific insurance markets to maintain a stable position. Offsetting these strengths, protectionist rhetoric has turned into action. Trade tensions between China and the US have continued and despite recent positive signs, substantial uncertainty remains. Natural catastrophes have been active in 2019 to date.”

It continues: “These factors create uncertainty for the markets and increase the difficulty of current operating conditions. On top of these, the evolving regulations and ratings criteria pose additional challenges. Regulators across the region are upgrading their solvency regimes. New reporting standards are to be implemented in certain markets and ratings agencies also are refining criteria. All these may affect insurers’ capital considerations and reinsurance arrangements.”

The report highlights a number of regulatory developments in the region in the last 12 months. For example, in Nepal, a new tariff for property insurance came into effect on 15 January 2019, which includes a requirement that a property policy must include a wide range of fire and special perils as standard cover, from which deviation is not allowed.

It also notes that Singapore is setting up the world’s first commercial cyber risk pool as part of efforts to develop the region’s capacity to deal with threats from cyberattacks. According to Aon, the pool will commit up to $1bn in capacity and bring together both traditional insurance and insurance-linked securities markets to provide bespoke cyber coverage. The report notes that, to date, 20 insurance firms have indicated their interest to participate in this pool, which would allow corporates in ASEAN and Asia to be protected against cyber-related losses.

On insurance market liberalisation, the report highlights China’s State Council announcement of 15 October 2019, on the revision of regulations on foreign banks and insurers. “China relaxed market access rules for foreign insurance companies, such as removing requirements that companies applying to establish foreign-invested insurers in China have a track record in the business of over 30 years and have a representative office in the country longer than two years. The updated regulations allow foreign insurance groups to set up foreign-invested insurers in China, and allow overseas financial institutions to hold stakes in foreign-invested insurers,” the report states.

It also highlights that in India, in the Union Budget of 2019, the finance minister of India proposed a 100% foreign direct investment for insurance intermediaries, which was previously 49%, adding that the government is also looking for an increase in the foreign direct investment limit for insurance companies as well.

The report also examine IFRS17, noting that implementation dates vary among Asia-Pacific markets. Regulators in the Philippines and Taiwan announced implementation dates behind the global schedule, with insurers in several other markets demanding similar moves.

Finally, the report looks at ratings agencies and their methodologies concerning insurers in the region. “Ratings agencies fine-tuned their methodology to better evaluate insurers’ credit profile. S&P simplified and consolidated its previous criteria, while AM Best proposed to formally include innovation in its rating analysis,” notes the report.

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