FCMI, ACII, AIII, Chairman, SENARATNE INSURANCE BROKERS (PVT) LTD. SRI LANKA
Southeast Asia, on which this presentation will largely focus, consists of countries south of China, east of India and north of Australia, and is broken up into two main regions i.e., Indo China and the Malay Archipelago, which refers to what could be described as Mainland Southeast Asia and Maritime Southeast Asia respectively. The former includes Cambodia, Laos, Burma, Thailand and Vietnam, whereas, the latter covers largely, Brunei, East Timor, Indonesia, Malaysia, Philippines and Singapore. This geographical area is generally subject to high seismic and volcanic activity, as it lies at the intersection of geological plates, with several volcanic Islands, particularly Indonesia and Philippines, which are prone to frequent earthquakes and volcanic eruptions, as they stand on what is generally described as the Pacific “Ring of Fire” – that encircle the basin of the Pacific Ocean.
Generally speaking, with reduced loss levels, reinsurance rates for Southeast Asia have displayed a reducing curve since 2003. The capacity for non-proportional business is generally available without much restriction, although the same cannot be said of proportional business as, by and large, Reinsurers are maintaining a tighter rein, with Natural Perils, being either excluded or, combined with event limits, typically varying between 7% and 20% of key zone aggregates. Minimum rates prevailing for Earthquake and Typhoon / Flood are 0.15% and 0.05% respectively, although some Treaties are known to carry a lower rate of 0.08% for a combination of both these perils. A country, where such natural hazards are a marked feature is Thailand, where, for instance, in the 10 years prior to 2010, there have been 33 recorded events of heavy flooding. These occurrences accounted for 55% of all natural disasters in Thailand resulting in damage, costing USD 4.5 Billion, as well as 2682 deaths, together with 30 Million people otherwise affected.
The city state of Singapore, maintains its momentum as a reinsurance hub for Asia, with many Lloyds syndicates actively participating. It could be said that, the major capacity by far of that available in Singapore is A-rated, and it is therefore not surprising that, Singapore provides most of the capacity in Southeast Asia.
In Indonesia and the Philippines, there is a marked reliance on national reinsurers that provide significant proportional treaty capacity to the majority of the smaller companies. Larger companies are inclined to rely on global capacity. It is of interest to add that, London and Bermuda continue to be small players in the region, due to the relatively small size of the non-proportional programs and their unwillingness to provide proportional capacity.
In Sri Lanka, it is compulsory for 30% of all proposed overseas reinsurance cessions to be offered, in the first instance, to the Government owned National Insurance Trust Fund. The issue of concern here is of course, the high risk exposure of this Fund, particularly to natural disasters. Apart from the widespread loss of life and extensive damages sustained, following the Tsunami experienced in December 2004, Sri Lanka has not generally been prone to natural catastrophes, but this is no reason for complacency particularly as, Sri Lanka is now known to be Earthquake prone, unlike the previous belief that, the country was outside the seismic zone.
It is generally believed that, natural catastrophe coverage has a high growth potential due to extensive underinsurance and/or non-insurance, in emerging markets, particularly so in Southeast Asia. The increased catastrophe losses in the Asia/Pacific region has understandably led more to reliance on catastrophe models. Such losses had led cedents and reinsurers to better define and control not only the perils but the types of policies being issued. Continued investment and attention to modeling is evident throughout the region. Early in 2010, Guy Carpenter released an Asian model, focusing on one of the main flood areas i.e., Thailand’s Chao Phraya region and, provides clients with the information necessary to improve flood exposure management. The flood model, which allows for analysis from five-year to 1,000-year return periods, provides an opportunity for clients to better estimate their PMLs at different return periods based on their commercial and industrial exposures.
Commerce and Industry in Asia is experiencing what could be best described as a rapid and continuing growth, which is naturally enhancing substantially global reinsurance cessions. However, it must be borne in mind that, the growth in General Insurance business is driven largely by lines such as Motor Insurance, which of course, is less intensive, when it comes to reinsurance. A classic example in this respect is Sri Lanka, where in 2014, over 50% of non-life GWP related to Motor Insurance.
Price competition, of course, remains a key factor influencing reinsurance rates in emerging markets, as clearly, the capacity available exceeds demand for reinsurance. As stated by Mr. T Prakash Rao, Chief Executive and Managing Director for Singapore based JB Boda, at a seminar titled “The Road Ahead on Reinsurance in Asia’s Emerging Markets “held in July 2010, “there is surplus capital in the market and it has resulted in capacity for almost all classes of business. Property facultative business is getting absorbed locally and a few risks are being shown to overseas reinsurers due to competitive pricing, Speciality classes such as terrorism, financial and liability risks look attractive in terms of demand in the short to medium term. Local capacities have grown, especially in the case of direct players, who are now better equipped and more keen to write inward reinsurance business. This is not really helping the pricing, especially the deductibles being offered. Markets are growing and reinsurance capacity is growing even faster and competition more than ever.”
Clarence Wong, Chief Economist at Swiss Re described emerging Asia’s Reinsurance markets as “highly competitive” with National Regional and International Reinsurance, as well as, Lloyds and some International and Regional direct Insurers seeking opportunities in these markets.
Since opening up the reinsurance market in 2003, China has attracted foreign reinsurers, six in all, i.e., in addition to China Re, which has two subsidiaries, China Property and Casualty Reinsurance Co. Ltd. and China Life Reinsurance Co. Ltd. The six foreign reinsurers include Beijing-based Swiss Re, Munich Re and Scor Re, and Shanghai-based General Re, Hannover Re and Lloyd’s Reinsurance Co. (China). It could be said that, most specialized risks in China are covered by foreign players.
“Although foreign insurers outnumbered domestic players, this has barely displaced China Re’s market share in China, particularly in the life sector,” said Sharon Khor, partner and head of insurance for Greater China at Accenture, an international consultant. China Re captures about 80% market share of life business.
“China has its lure for foreign players as the largest and fastest growing reinsurance market, but the challenge is to grow market share by leveraging their global experience and knowledge to raise sophistication and risk management discipline in China”, said Khor, who went on to say that, “overseas reinsurers should focus more on areas where local players have relatively less experience, such as Health, Engineering and Catastrophe lines”. Value-added services such as disaster management, product development, pricing and more importantly, risk management open windows of opportunity for overseas based players in China.
Reinsurance arrangements vary substantially among emerging markets. In Southeast Asia, lack of capacity or proper underwriting experience leads to high cessions in the non-life sector. Here again, a classic example is Sri Lanka, where a little under 80% of the Property GWP is ceded to Reinsurers largely overseas, thus acquiring profitability (if at all!) merely on reinsurance commissions in a comfort zone of a minimal risk environment. Of course, in the case of China and India, the retention rates are higher, but clearly, the absence of adequate diversification of high value risks, particularly, the natural catastrophe risks, should be properly addressed by these two countries, with a view to encouraging higher cessions to international markets.
Teed off: As COVID fuels S. Africa’s housing crisis, golf courses feel the heat
By Kim Harrisberg
JOHANNESBURG (Thomson Reuters Foundation) – It sounds like a developer’s dream: A greenfield site in the heart of Cape Town, close to the best schools, hospitals and transport links and big enough to build more than 1,400 affordable new homes. The only hitch – it’s a golf course.
The 46-hectare (114-acre) Rondebosch Golf Club is one of hundreds of golf courses in South Africa facing scrutiny by land rights campaigners as a surge in evictions during the COVID-19 pandemic exposes an acute shortage of low-cost housing.
Rondebosch had its lease renewed by the city government late last year despite the presentation of some 1,830 objections by local housing rights group Ndifuna Ukwazi, which says turning golf courses over for homes is a way to tackle deep inequality.
“Using this land for the benefit of a few wealthy individuals at the expense of those in dire need of affordable housing is inefficient, unequal and unjust,” said Michael Clark, head of research and advocacy at Ndifuna Ukwazi.
Warnings by city officials that eviction is on the cards for occupiers of abandoned buildings, just months after Rondebosch’s lease was extended, have roused activists and sparked calls for cities to prioritise land use according to need.
“Golf courses occupy expansive tracts of land in well-located areas across cities,” said Edward Molopi, a researcher with the Socio-Economic Rights Institute of South Africa (SERI), which uses litigation and advocacy to support human rights.
“South African cities face an acute need for affordable housing and this land can be used to address the problem,” Molopi told the Thomson Reuters Foundation, adding that he knows of hundreds of housing evictions since lockdown began.
Nearly three decades after the end of white minority rule, South Africa remains one of the most unequal countries in the world, according to the World Bank, with urban areas still starkly divided along racial and class lines.
In other countries too, from South Korea to the United States, the swathes of green space needed for a round of golf have stirred debate around alternative uses for the land, whether apartment blocks, public parks or even vineyards.
‘NOT THE ONLY LAND’
But in South Africa, where tracts of land, including golf courses, were used as physical barriers to separate different racial groups during the apartheid regime, campaigners say repurposing such areas is key to achieving a fairer society.
Golf lovers have a choice of about 450 courses in South Africa, according to independent golf course ranking platform Top 100 Golf Courses.
They are easy to spot on a Google Maps view of the nation’s cities, many in close proximity to other golf courses, and also poorer neighbourhoods or townships.
But officials say finding space for affordable homes is more complex than repurposing golf courses.
Not all of the courses are publicly owned or suitable for residential use, said officials from the cities of Cape Town, Johannesburg and Durban. The sport also draws tourists and creates jobs, they added.
“Densification, diversification and inclusionary housing requirements in well-located parts of our cities is a more realistic approach,” said Nthatisi Modingoane, a spokesman for the city of Johannesburg.
Johannesburg’s Observatory golf course lies less than five kilometres (three miles) from Hillbrow, an inner-city suburb notorious for derelict, overcrowded buildings and crime.
People unable to afford rent end up there in “dark buildings” – properties seized by rogue landlords that offer crowded but cheap rooms, often without electricity.
“Since COVID, people need cheap rent, but if you don’t pay the landlords you get kicked out or … they kill you,” said Ethel Musonza, a housing activist who used to live in a dark building.
“There is a big need for people to be resettled in a safe place they can afford,” she added.
But the Observatory course sits on the site of an old ash dump, making it a poor site for residential construction, said club captain Simon Leventhorp.
“There is need for affordable houses but golf courses aren’t the only land available,” he said, adding that the club had a lower membership fee that other courses, making it a more inclusive space.
Some courses – like Rondebosch in Cape Town – do fit the bill for affordable housing, said Clark.
Golfers at the course can still enjoy views of the city’s famous Table Mountain from the greens, but authorities did add a two-year cancellation clause to the club’s lease if an alternative use of the land is identified.
Land used for community and recreational use, including golf courses, is currently being reviewed for possible residential sites, the city added.
In the meantime, land campaigners will continue to put pressure on state and city governments to “proactively intervene in housing markets”, said Molopi from SERI.
“This will be central to dismantling the ‘apartheid city’ and moving towards urban spatial justice,” Molopi said.
(Reporting by Kim Harrisberg @KimHarrisberg; Editing by Helen Popper. Please credit the Thomson Reuters Foundation, the charitable arm of Thomson Reuters, that covers the lives of people around the world who struggle to live freely or fairly. Visit http://news.trust.org)
UK might need negative rates if recovery disappoints – BoE’s Vlieghe
By David Milliken and William Schomberg
LONDON (Reuters) – The Bank of England might need to cut interest rates below zero later this year or in 2022 if a recovery in the economy disappoints, especially if there is persistent unemployment, policymaker Gertjan Vlieghe said on Friday.
Vlieghe said he thought the likeliest scenario was that the economy would recover strongly as forecast by the central bank earlier this month, meaning a further loosening of monetary policy would not be needed.
Data published on Friday suggested the economy had stabilised after a new COVID-19 lockdown hit retailers last month, while businesses and consumers are hopeful a fast vaccination campaign will spur a recovery.
Vlieghe said in a speech published by the BoE that there was a risk of lasting job market weakness hurting wages and prices.
“In such a scenario, I judge more monetary stimulus would be appropriate, and I would favour a negative Bank Rate as the tool to implement the stimulus,” he said.
“The time to implement it would be whenever the data, or the balance of risks around it, suggest that the recovery is falling short of fully eliminating economic slack, which might be later this year or into next year,” he added.
Vlieghe’s comments are similar to those of fellow policymaker Michael Saunders, who said on Thursday negative rates could be the BoE’s best tool in future.
Earlier this month the BoE gave British financial institutions six months to get ready for the possible introduction of negative interest rates, though it stressed that no decision had been taken on whether to implement them.
Investors saw the move as reducing the likelihood of the BoE following other central banks and adopting negative rates.
Some senior BoE policymakers, such as Deputy Governor Dave Ramsden, believe that adding to the central bank’s 875 billion pounds ($1.22 trillion) of government bond purchases remains the best way of boosting the economy if needed.
Vlieghe underscored the scale of the hit to Britain’s economy and said it was clear the country was not experiencing a V-shaped recovery, adding it was more like “something between a swoosh-shaped recovery and a W-shaped recovery.”
“I want to emphasise how far we still have to travel in this recovery,” he said, adding that it was “highly uncertain” how much of the pent-up savings amassed by households during the lockdowns would be spent.
By contrast, last week the BoE’s chief economist, Andy Haldane, likened the economy to a “coiled spring.”
Vlieghe also warned against raising interest rates if the economy appeared to be outperforming expectations.
“It is perfectly possible that we have a short period of pent up demand, after which demand eases back again,” he said.
Higher interest rates were unlikely to be appropriate until 2023 or 2024, he said.
($1 = 0.7146 pounds)
(Reporting by David Milliken; Editing by William Schomberg)
UK economy shows signs of stabilisation after new lockdown hit
By William Schomberg and David Milliken
LONDON (Reuters) – Britain’s economy has stabilised after a new COVID-19 lockdown last month hit retailers, and business and consumers are hopeful the vaccination campaign will spur a recovery, data showed on Friday.
The IHS Markit/CIPS flash composite Purchasing Managers’ Index, a survey of businesses, suggested the economy was barely shrinking in the first half of February as companies adjusted to the latest restrictions.
A separate survey of households showed consumers at their most confident since the pandemic began.
Britain’s economy had its biggest slump in 300 years in 2020, when it contracted by 10%, and will shrink by 4% in the first three months of 2021, the Bank of England predicts.
The central bank expects a strong subsequent recovery because of the COVID-19 vaccination programme – though policymaker Gertjan Vlieghe said in a speech on Friday that the BoE could need to cut interest rates below zero later this year if unemployment stayed high.
Prime Minister Boris Johnson is due on Monday to announce the next steps in England’s lockdown but has said any easing of restrictions will be gradual.
Official data for January underscored the impact of the latest lockdown on retailers.
Retail sales volumes slumped by 8.2% from December, a much bigger fall than the 2.5% decrease forecast in a Reuters poll of economists, and the second largest on record.
“The only good thing about the current lockdown is that it’s no way near as bad for the economy as the first one,” Paul Dales, an economist at Capital Economics, said.
The smaller fall in retail sales than last April’s 18% plunge reflected growth in online shopping.
BORROWING SURGE SLOWED IN JANUARY
There was some better news for finance minister Rishi Sunak as he prepares to announce Britain’s next annual budget on March 3.
Though public sector borrowing of 8.8 billion pounds ($12.3 billion) was the first January deficit in a decade, it was much less than the 24.5 billion pounds forecast in a Reuters poll.
That took borrowing since the start of the financial year in April to 270.6 billion pounds, reflecting a surge in spending and tax cuts ordered by Sunak.
The figure does not count losses on government-backed loans which could add 30 billion pounds to the shortfall this year, but the deficit is likely to be smaller than official forecasts, the Institute for Fiscal Studies think tank said.
Sunak is expected to extend a costly wage subsidy programme, at least for the hardest-hit sectors, but he said the time for a reckoning would come.
“It’s right that once our economy begins to recover, we should look to return the public finances to a more sustainable footing and I’ll always be honest with the British people about how we will do this,” he said.
Some economists expect higher taxes sooner rather than later.
“Big tax rises eventually will have to be announced, with 2022 likely to be the worst year, so that they will be far from voters’ minds by the time of the next general election in May 2024,” Samuel Tombs, at Pantheon Macroeconomics, said.
Public debt rose to 2.115 trillion pounds, or 97.9% of gross domestic product – a percentage not seen since the early 1960s.
The PMI survey and a separate measure of manufacturing from the Confederation of British Industry, showing factory orders suffering the smallest hit in a year, gave Sunak some cause for optimism.
IHS Markit’s chief business economist, Chris Williamson, said the improvement in business expectations suggested the economy was “poised for recovery.”
However the PMI survey showed factory output in February grew at its slowest rate in nine months. Many firms reported extra costs and disruption to supply chains from new post-Brexit barriers to trade with the European Union since Jan. 1.
Vlieghe warned against over-interpreting any early signs of growth. “It is perfectly possible that we have a short period of pent up demand, after which demand eases back again,” he said.
“We are experiencing something between a swoosh-shaped recovery and a W-shaped recovery. We are clearly not experiencing a V-shaped recovery.”
($1 = 0.7160 pounds)
(Editing by Angus MacSwan and Timothy Heritage)
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