Chinese and Indian sectors set for significant growth

The insurance sectors in China and Indian are set for significant growth over the next two years, law firm Norton Rose has predicted.

The Norton Rose Asia Pacific Insurance Survey 2011, based on a sample of 92 professionals from the insurance sector, predicts that the insurance sector in Asia Pacific will see dramatic growth in business over the next two years.

China and India predicted to experience significant or very significant growth by 97% and 90% of respondents respectively. Indonesia came third with 80%, Seventy seven per cent of respondants predicted significant or very significant growth in both Vietnam and Malaysia.

The survey also showed that in countries with strict regulations governing foreign investment, like the countries listed above, growth is anticipated to be through joint ventures.

It said that in more open economies, such as Australia, Hong Kong, Japan, Singapore and Taiwan, growth will happen through mergers and acquisitions.

Norton Rose head of financial institutions James Bateson said: "That Asia is ripe for growth in the insurance sector is a given; just how and when that will occur is more uncertain. Political and regulatory uncertainty together with protectionist regimes are a barrier, but the pure scale of opportunity means that new entrants and existing players wishing to expand have to take strategic risks with those factors. Additionally, the desire and regulatory necessity for global players to maintain minimum standards and group capital, which for most European and US headquartered operations means standards higher than those imposed by local regulation, risks making these operations less competitive than their local peers and when investment opportunities arise, allows local acquirers / investors to offer considerably higher prices."

The survey also showed that 42% of respondents believe that Solvency II, which will come into force in Europe at the end of next year, will have a significant impact on Asia Pacific.

Whilst Europe has made great strides in regulating the insurance industry regionally, an analysis of the respondents indicates that Asia Pacific regulators should consider aligning regulatory regimes, regionally and with Solvency II.

Anna Tipping, head of Norton Rose’s insurance practice in Asia in Singapore, said: “Asia Pacific regulators have a stark choice: implement a Solvency II type regime that is viewed as equivalent and in line with the Western world or go for light touch regulation and be exposed to the risk of regulatory arbitrage and a division of the market as Western insurers will not be able to compete profitably in the region.”