Singapore - A hub of activity

Despite suffering under the effects of the Sars virus and the war in Iraq, reinsurers are looking forward to calmer days in the Singapore market

The Singapore economy, like most of the Asia region and the general global economy, has been hit hard by the Sars virus and the Iraq war.

The Monetary Authority of Singapore (MAS) reports that the economy in general contracted by 4.2% on a year-on-year basis in Q2 2003, compared to growth of 1.7% in Q1. However it considers that if there are no external shocks, or a second wave of Sars, the Singapore economy is expected to resume a modest recovery in the latter half of the year.

The (re)insurance sector has shared similarly varied fortunes. MAS finds that growth for the insurance industry is likely to be sluggish in 2003, because of the geopolitical situation and Sars. Indeed single premium life insurance business decreased by 50.9% to $0.8bn in the first quarter of 2003, compared to the same period in 2002. However the reinsurance sector is registering cautious optimism about its prospects in 2003.This is as a result of two themes that have come to dominate the Singapore reinsurance landscape: consolidation and increasing premium rates.

Singapore has enjoyed considerable success in establishing itself as the regional reinsurance centre for Asia. A Standard & Poor's report finds that, as of June 2003, there were 37 professional reinsurers in Singapore, of which 26 write non-life reinsurance business, one writes life reinsurance and 10 write both life and non-life reinsurance. However this represents a somewhat painful consolidation that has dominated the past few years.

Reinsurers such as American Re and M&G Re, have been bought by other groups, while others, such as Alea Re and Danish Re, have closed their Singapore offices.

David Battman, managing director, Lloyd's Asia, says: "Withdrawals from, and consolidation in, the Singapore market has had an impact in two ways. First, there has been a significant increase in the volume of business coming to other international markets. This is has been noticeable at Lloyd's and is, in my view, very positive. Second, there has been some repatriation of underwriting control to head offices outside the region, and in particular to Europe and the US.

"The fact that fewer decisions are being taken locally is perhaps unwelcome in the short term, however the resultant focus on regional, sustainable underwriting profitability is more positive news. If the sector appears to have come out of the other side of this process it is also looking to see the advantage of higher rates. MAS reports that reinsurance premiums written in the Singapore Insurance Fund (SIF) representing the primary domestic sector grew by 19% in 2002. Premiums written in the Offshore Insurance Fund (OIF) grew by 10% in 2002. The retention ratio for offshore business written in the SIF fell to 62.7% in 2002, from 70.6% in 1998. The retention rate for offshore direct business also fell to 52.7%.

Mr Battman says: "Generally, Lloyd's has experienced price increases across the Asian market, making many lines of business more attractive to underwrite, where previously they were, frankly, unprofitable. However, this is no time to relax market discipline. There is still ample capacity around in the global reinsurance market and, after such a long and deep cycle of underwriting loss, firm rating must be preserved if insurance industry investors are to achieve adequate returns in the medium to long term."

Standard & Poor's also voices caution about being overly optimistic on ratings: "Rates appear to be softening already and the cycle of hardening has been short."

Mr Battman concludes: "It seems today that everywhere wants to become an international financial centre. However, in the face of rising competition, Singapore does have the advantage of a sophisticated and mature commercial and regulatory infrastructure, characterised most recently by the move to risk-based supervision. These key features cannot be replicated overnight by new, aspiring markets. The challenge for Singapore regulators now will be to maintain the high standards demanded of market entrants despite recent withdrawals."

PREMIUMS OF OFFSHORE INSURANCE FUND BUSINESS (DIRECT INSURERS)Quarter Gross Premiums Net Premiums $m % Change Over $m % Change Over Corr Qtr Corr Qtr1Q 2001 50.3 14.1 29.1 1.22Q 2001 38.4 30.6 24.8 20.73Q 2001 32.5 14.4 26.0 17.04Q 2001 39.2 (9.4) 30.5 2.11Q 2002 81.3 61.8 35.8 22.92Q 2002 43.5 13.5 19.7 (20.6)3Q 2002 31.7 (2.3) 9.9 (61.8)4Q 2002 52.8 34.7 23.2 (24.1)1Q 2003 80.3 (1.2) 36.6 2.12Q 2003 53.9 23.9 31.3 58.8Source MAS.UNDERWRITING AND OPERATING RESULTS OF SINGAPORE INSURANCE FUND BUSINESS(DIRECT INSURERS)Quarter Earned Net Claims Net($ million) Premiums Incurred Commissions1Q 2001 278.1 179.6 26.52Q 2001 295.7 192.8 25.33Q 2001 289.0 180.4 30.14Q 2001 288.5 177.5 24.81Q 2002 289.5 188.2 30.22Q 2002 298.7 198.0 31.23Q 2002 313.8 237.8 28.64Q 2002 334.3 194.7 22.21Q 2003 322.5 212.9 36.22Q 2003 357.3 203.5 32.2Quarter Management Underwriting Operating($ million) Expenses Profit/(Loss) Profit/(Loss)1Q 2001 64.6 7.4 38.22Q 2001 67.3 10.3 49.23Q 2001 66.2 12.3 (10.6)4Q 2001 78.2 8.0 73.81Q 2002 63.4 7.7 31.32Q 2002 68.1 1.4 30.23Q 2002 70.4 (22.8) (48.1)4Q 2002 78.4 39.0 73.51Q 2003 66.4 7.0 27.52Q 2003 67.9 53.7 113.8Source MAS.

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