Filipino catastrophe excess of loss clients have tended toward increased event cover in 2011 as a result of continually increasing exposures and the jump in loss reserves from 2009 typhoons Ondoy and Pepeng. Furthermore, reinsurers felt that 2010 pricing did not reflect true experience as clients were still gathering information on the typhoons, putting upward pressure on pricing. That said, to combat upward pressure on pricing, cedents offered private layers to leaders that reduced pricing on the main programs.
As a result of these factors, the loss-affected catastrophe market ended up. Treaties unaffected by losses were renewed as expiring.
Competition in the primary market remains very strong. Vietnamese non-life insurance premiums grew 14.9 percent to USD 767 million (Sigma No 2/2010). There are around 30 insurers in the Vietnamese market. Market concentration of the top five companies is around 73.5 percent. Market concentration of the top 10 companies is 85.7 percent. There is little merger and acquisition activity at the current time.
There has been no significant change to industry loss ratios in 2010. There were some reported losses from flooding, but the impact to the insurance industry appears minimal. In 2009, Vietnam was hit by typhoons Ketsana and Mirinae, but the impact to the insurance industry was relatively low as the typhoons hit the central region of Vietnam. The most heavily concentrated exposures are in the north (Hanoi) and south (Ho Chi Minh City).
Given limited to exposure to catastrophe, most reinsurance programs are purchased on a risk/cat basis. Rate on line reductions continue for loss-free programs, both on a nominal and risk adjusted basis. Given the level and location of exposures, increases in sum insured aggregates may not translate proportionally into increases in catastrophe exposures. As such, the exposure adjusted rate on line reductions would be approximately 10 percent to 15 percent. Loss-affected programs have seen rate on line increased by 20 percent on nominal basis. However on an exposure adjusted basis, rate on line has decreased by about 5 percent to 10 percent.
For proportional programs, commissions have increased by 2.5 percent to 5.0 percent for profitable treaties. For loss-affected programs, commission rates have decreased between 2 percent to 4.5 percent. Proportional structures are largely unchanged.
New reinsurers have shown a keen interest to enter the Vietnam markets this year compared to 2010. Reinsurers with an established presence have maintained position or indicate willingness to provide additional capacity provided acceptable terms and good treaty results.
The Padang earthquake in 2009 is showing its effects at the 2011 renewal, as the market loss reserve has increased over 50 percent. Exposures have increased between 20 and 50 percent.
These dynamics result in price changes for loss-free programs in the range of down 5 percent to up 10 percent. Loss-affected catastrophe rate on line has increased in the range of up 5 percent to up 30 percent.
Proportional and non-proportional structures are generally unchanged, although there is growing appetite for non-proportional treaties as proportional results have been weak in recent years.
We expect consolidation in a few Asian markets in 2011, including Indonesia, as a result of tightening capital requirements squeezing out smaller players.
Despite two major flood events in the central and southern regions of Thailand, the reinsurance market is still soft. There has been no significant change in price in both proportional and nonproportional classes. Furthermore, flood activity does not encourage Thai companies to buy higher limits as they view the loss severity of this flood as still far below the 2004 tsunami loss.
International sanctions against Myanmar are of particular concern due to Thailand’s proximity to the nation, although cedents prefer to confirm that they will not do business with sanction countries rather than incorporate a sanction clause into reinsurance arrangements.
The new Risk-Based Capital regime commences in 2011. Many small and medium size companies have to either inject more capital or buy more reinsurance. The major motor-dominated companies, in particular, have to work harder in order to meet minimum solvency margins. However, Thai companies are in favor of changing ownership rather than consolidation, so we do not foresee merger activity to happen in the near future.