1. Non-Life Insurance Valuation Issues in Asia Sam Gutterman, FCAS, FSA

2. 2 Topics Covered Some statistics General Asian valuation issues Asian non-life market Japan Other countries

3. 3 Population (billions) South and East Asia3.1450.5% Africa0.7712.4% Central/East Europe0.6510.5% Latin America0.50 8.0% Western Europe0.45 7.2% North America 0.30 4.8% Middle East0.26 4.1% Japan0.13 2.0% Oceania0.03 0.5% 1998

4. 4 GDP ($trillion) North America9.131.2% Western Europe9.031.0% Japan3.913.2% South/East Asia2.8 9.6% Latin America2.0 6.7% Central/Eastern Europe0.7 2.4% Middle East0.7 2.2% Africa0.6 2.0% Oceania0.4 1.5% 1998

5. 5 Non-Life Premium ($billions) North America411 46.2% Western Europe286 32.1% Japan 92 10.3% South/East Asia 33 3.7% Latin America 27 3.1% Oceania 15 1.7% Central/Eastern Europe 11 1.2% Middle East 7 0.8% Africa 7 0.8% 1998

6. 6 Percent of Asian Non-Life Market Japan74% South Korea10% Taiwan 4% China 4% India 2% Hong Kong 2% Singapore 1% Other SE Asia 4%

7. 7 Non-Life Premium per Capita ($US) U.S.1,431 Japan 726 Hong Kong 275 South Korea 265 Singapore 236 Taiwan 228 Malaysia 70 1997 Thailand 20 Philippines 7 China 5 Indonesia 3 India 2 Vietnam 2

8. 8 Asian Valuation Issues Each country different Language Culture Data Products Regulatory constraints

9. 9 Each Country Different Economy Demography Market Regulatory regime Politics Approach to business

10. 10 The Asian Non-life Market Products –Biggest by far -- auto –High savings in some Government protection changing Companies consolidating New entrants in some countries

11. 11 Economy Asian financial crisis -- severe impact –South East Asian slump –China, Taiwan, South Asia unaffected –Few new autos –Infrastructure projects cancelled Recent recovery Different penetration of insurance

12. 12 Culture Family-based Lack of trust of others –Reluctance to let others in –Joint ventures -- don’t underestimate Asians Changing Growing middle-class Islamic law -- takaful (Allah & misfortunes) Desire for local champions, financial center

13. 13 Structural Shifts Deregulation –Rates –Companies Privatization in places Joint ventures, alliances Marketing Direct selling -- phone, mail, internet Bancassurance -- Hong Kong, Vietnam

14. 14 Data Not used to casualty actuaries Generally not in Western form Validate anything they aren’t used to Be clear in questions

15. 15 Japan -- Companies Concentrated -- 31 companies & merging –Mitsui and Sumitomo --$54 billion of assets –Chiyoda and Dai-Tokyo –Koa and Nippon? Importance of keiretsu system Varied financial condition New competitors –Inside Japan -- life insurers, non-insurers –Foreign insurers

16. 16 Japan -- Products General p&c products Combination savings products –Guaranteed return with no claims Pricing more competitive Required earthquake reserve Mandatory 3 year auto liability product Mortgage guaranty in multi-line company

17. 17 Japan -- Regulation “Big-bang” Loosening of rate regulation –Risk classes in auto introduced in 1997 New financial guaranty system Holding companies New regulator

18. 18 Japan -- Other Growth -- sluggish or none Marketing –New brokerage system –Direct selling –Banks Formula IBNR –4 lines Asset problems

19. 19 Vietnam GDP per capita -- $320 One privatized insurer –Owned by banks Several recent joint ventures –Very slow getting started No insurance law

20. 20 Australia Approach western Four large purchases in last two years Recent appraisals –Discounted cash flows –Depended heavily on cost reductions –Bids dependent on competition –Assessment of value of new business very different