Asian crisis seen shifting insurance rules
Asian crisis seen shifting insurance rules
SINGAPORE (Reuters): Asia's economic crisis has triggered a
shift towards a more Western-style supervision of insurance
solvency and capital levels, industry experts say.
Although insurers face at least two years of painful recovery
from the fallout of a financial crisis that has rocked Asian
economies, the systems that have crumbled would be replaced with
more robust regulatory regimes.
While investment income and premiums were expected to fall in
the wake of the financial crisis, losses would result from
exposure to depreciating currencies and claims costs would rise.
Changing the regulatory focus to financial strength would see
Asian insurers consolidate to compete on the international stage.
"The crisis has set Asia moving towards the Western model of
building an industry that is strong in terms of solvency and
capital," said Philip Moore, partner for financial institutions
consulting with accountancy firm Coopers & Lybrand in Hong Kong.
The turmoil, entering its sixth month, has highlighted the
relative weakness of some domestic Asian insurers with high
exposure to plunges in stock and currency values.
The position of some smaller insurers has become tenuous as
slower premium flows hit, the result of falling incomes and the
suspension of investment in key infrastructure projects.
The potential of a number of insurance failures has sparked a
review of the need for more regulation of solvency and capital
and less supervision of premium rates and product lines, the more
typical regulatory style in Asia, Moore said.
"The one over-riding thing that a regulator hates is an
insolvent company. It's the sort of thing that gets an insurance
commissioner hauled up before his minister and sacked," Moore
told Reuters in a telephone interview.
"You can hear regulators around Asia saying they want
consolidation. They want bigger companies, better capitalized,"
Moore said.
Prudential governance, strong solvency, high capitalization
and good transparency are key elements of the Western system.
They are getting higher on Asia's agenda as the influence of
the International Monetary Fund grows through the billions of
dollars it is pumping into the region to resolve the crisis.
"I think transparency is very important," said Henning
Schulte-Noelle, Allianz AG chief executive, in a written response
to questions.
Schulte-Noelle, on a regional tour, said "transparency will
benefit not only foreign investors but also the individual
countries within Asia".
Asian insurers have fallen under increasing scrutiny since the
200 billion yen (US$1.6 billion) collapse of Japan's Nissan
Mutual Life in April.
Concern has been exacerbated by a financial crisis that has
erased billions from stock values and sent currencies plunging
against the U.S. dollar, two principal investment instruments.
Regulators in Indonesia, Malaysia, Singapore, South Korea and
Thailand want to see their financial institutions strengthen to
better compete in the face of international competition.
Competition is guaranteed to come as Asian markets liberalize
and its arrival could be speeded by active searches for foreign
funds to prop-up flagging domestic insurers.
Singapore made the latest move last week, bumping up the
minimum paid-up capital requirements for insurers and reinsurers
to Singapore $25 million (US$15.8 million) from the previous S$5
million and S$10 million respectively.
This followed Indonesia's announcement in October of tough new
insurance rules to take effect from January 1, 1998 to bolster
the financial security of domestic insurers.
"We want to ensure better stability for our insurance
companies. Our concern is the financial strength behind the
companies," M.A. Suyoto, head of the insurance directorate at
Indonesia's Directorate General of Financial Institutions, said.