Analysis of Insurance Industry in Singapore
Essay by kharn123 • January 4, 2017 • Coursework • 874 Words (4 Pages) • 1,090 Views
Industry background
The insurance industry has shown a positive growth across most countries, in both life and non-life insurance sectors as of 1st April 2016. For life insurance, the United States, Japan and United Kingdom, the largest life insurance markets outside the euro area, experienced positive growth, with Japan experiencing as much as a 7% growth in gross life premiums. The larger euro life insurance markets such as France also experienced a growth of more than 8%.
Figure 1. Annual real gross premium growth in direct insurance: Life sector (2014)
[pic 1]
As for non-life insurance, it had a lower rate of growth as compared to the life sector. However, there was positive growth across almost most countries, much like the life sector, with a greater level of divergence.
Figure 2. Annual real gross premium growth in direct insurance: Non-life sector (2014)
[pic 2]
For both sectors, Singapore had a fairly impressive growth, with more than 14% growth in the life sector and more than 12% growth in the non-life sector. As the leading insurance center in Asia, with 16 of the top 25 reinsurers in the world having a regional hub located here, Singapore is well-placed to serve the increasing insurance needs of the region. Furthermore, there are several factors that gives us good reason to expect further growth of the insurance industry.
[pic 3]
Firstly, Asia continues to have high growth, with the developing Asian countries consistently showing more than twice the growth in GDP compared to other major industrialized economies (consisting of the United States, Euro area and Japan)
Secondly, Asia is particularly prone to natural disasters. Asia accounted for 41% of global economic losses from disasters between 2000 and 2009, and 81% in 2011 alone. Of the losses in 2011, only about 35% were insured, resulting in a heavy economic burden for affected countries.
A growing risk awareness, coupled with rising asset values, will lead to greater demand for catastrophe insurance and reinsurance, including alternative risk transfer solutions. Following the 2011 catastrophes, several Asian countries have already established insurance pools for key catastrophe risks.
Thirdly, Asia is facing a rapidly ageing population, having 62% of the world’s elderly population by 2050, with every one in four persons aged 60 and above.
With all these factors combined, we expect to see a great increase in demand for health insurance, annuity and other retirement security protocols.
Reinsurance and normal insurance – What are the similarities and differences?
Reinsurance | Insurance | |
Similarities | Helps companies to manage risks | Helps individuals to manage risks |
Limits the loss of original insurer by spreading the cost amongst participating entities | Limits the loss of one individual by spreading the cost amongst participants | |
Differences | Allows original insurer to take on more businesses than would be possible without significant increase in capital and risk | No such benefit? (does investment policies match the description <-) |
For the purpose of our project, we will not be discussing normal insurance such as health insurance, but will instead be focusing on reinsurance.
Reinsurance are a form of insurance that allows multiple insurance companies to share risk by purchasing insurance policies from other insurers so as to limit the total loss the original insurer would experience in case of disaster. The reinsurer(s) would then have a share in the premiums and profits of the coverage.
Regulators mandate that an insurance company must only issue policies with a cap of 10% of its value, unless it is reinsured. Therefore, reinsurance also provides the added benefit of allowing insurance companies to be more aggressive in winning market share, as they can transfer risks.
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