Routes to growthAn insight into the emerging insurance markets of Asia Pacific

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Contents

Introduction 1

Where are foreign investors looking? 2

- China 3

- Malaysia 4

- The Philippines 4

- Thailand 4

- Vietnam 5

- Indonesia 5

How fast is the market moving? 6

What makes different countries attractive? 7

Restrictions 8

Regulation 8

Which lines of business are insurers looking to write? 9

Microinsurance 10

Takaful 10

Which business models are insurers considering? 11

Contacts 12

Worldwide offices 13

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Introduction

The map of the insurance world is changing as rapidly as other industries, with established markets becoming

increasingly saturated, so re/insurance businesses are being forced to look further afield for opportunities.

As we talk to our clients, Asia Pacific is increasingly in their sights – the insurance industry across the region

had the highest average rate of growth over the last decade – as it is in ours too.

2011 has seen Clyde & Co make a significant investment in our Asia Pacific Corporate Insurance Group in

the region, with the appointment of three additional partners dedicated solely to the industry. As part of our

focus on this part of world, we decided to get a better understanding of the views of the London market by

undertaking a “straw poll” of underwriters and brokers based in the UK, and to collate those findings with

some commentary from our regional experts in Asia.

Asia is a rich and diverse region comprising countries with distinct cultural, financial and regulatory

environments, a point sometimes obscured when considering the region from afar. As a result, we have

chosen to focus only on the emerging markets – China, Indonesia, Malaysia, The Philippines, Thailand

and Vietnam – to provide some interesting comparisons between the view of both east and west.

However, one thing is crystal clear: insurers are operating in a complex environment. As they look to the

developing economies to expand their businesses they are encountering a range of challenges – legal,

regulatory and commercial – which require both local knowledge and industry expertise to capitalise on

opportunities in Asia, and beyond.

Andrew Holderness

Global Head of the Corporate Insurance Group

Where are foreign investors looking?

Respondents who were operating in Asia were asked where they were undertaking business. Unsurprisingly, given its

rate of growth in recent years, China topped the list at just over 67% of respondents. There was then a significant gap,

with Malaysia and Thailand in second and third place respectively.

Survey results – Respondents already in Asia:

The ranking barely changes when respondents who are looking to create a presence in the region were asked their

preferences. However, there was less enthusiasm for countries other than China, reinforcing the message that foreign

investors see that market as the key first step to expanding in Asia.

Survey results – Respondents looking to create/expand presence in Asia:

The fact that China topped the list by some margin is to be expected. However, more surprising was that Indonesia was not

higher. With a population of around 240 million, the perspective on the ground in Asia is that Indonesia is a country on which

local businesses are focussing. One of the key drivers is that the local regulator has increased solvency requirements in order

to deal with the issue of insurers being under-reserved. This will come into effect in 2012, and is likely to result in a trend towards

consolidation and run-off opportunities, especially since it is a very fragmented market with the largest player only accounting

for 5% of market share.

Survey respondents ranked Malaysia second, recognising the sophistication of its regulatory environment and the fact

that the government has recently relaxed its shareholding rule to encourage foreign direct investment and particularly to

create a takaful centre of excellence.

Anecdotal evidence also suggests that there is a lot of interest in Vietnam. A number of large multi-national players have

been establishing a presence there over the last couple of years – licenses are relatively easy to obtain – however there

is clearly over-capacity in the market.

The Philippines has a large population but concerns about the country’s stability are impacting its attractiveness to

insurers looking to expand in the region. However, despite regulatory hurdles that need to be overcome, insurers in Asia

are looking to outsource their back office functions either to The Philippines or Malaysia, due to the quality of education

and the level of spoken English of the population.

ChinaMalaysiaThailandIndonesiaPhilippinesVietnam

67.2%

50.0%

42.2%

35.9%31.3%

26.6%

ChinaMalaysiaThailandIndonesiaVietnamPhilippines

63.0%

42.0%

39.0%

38.0%33.0%

30.0%

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The sophistication of the Malaysian regulatory environment, and the recent relaxation of its

foreign direct investment rules, explain its popularity with our survey respondents. The fact that

Indonesia ranked fourth on the list was more surprising given its size and opportunities likely to

be thrown up as a result of recent changes to solvency requirements.

China

The attractions of the Chinese market are well understood by foreign insurers looking to expand their business

internationally. As well as being the world’s largest trading nation and second largest economy, it is already the seventh

largest insurance market. In 2010, total premium income totalled Yuan 1.47 trillion (US$ 222 billion) – an increase of

33% from the previous year. Demand for insurance products is also forecast to increase by 2013, and projections for

premium growth are optimistic.

However, there are a number of issues that concern foreign insurers who are either already present, or are looking to

establish operations in the country.

Existing operations

Foreign firms account for around 5% of the life market and a smaller share of the general insurance market. Before the

financial crisis hit the west, predictions for growth in China had suggested that market share would be taken closer to

10%, however there is no doubt that foreign insurance companies continue to find this a tough market to operate in, gain

traction and increase their market share. Established domestic insurers, and the aggressive geographic expansion of the

smaller insurers, are giving the foreign players a run for their money. This, combined with the highly regulated nature of

the market, is forcing foreign insurers to review their business models and re-examine their positions.

With a number of foreign players, who have been in the market some time, failing to generate satisfactory profits, many

are taking a long, hard look at the future feasibility of their relationships with the local partners. Despite the challenges,

foreign insurers are not about to quit the Chinese market. They see China as an underinsured market with huge upside

potential. One area of optimism for existing insurers is the motor market. China’s insurance regulator is considering

whether to open the market for compulsory motor insurance to foreign firms, allowing overseas insurers to boost their

business in the world’s largest car market.

Businesses looking to expand

When talking to foreign insurers about their Chinese strategy, a number have found a mismatch between intention and

action. The credit crunch and resulting economic slowdown has meant that some were distracted by domestic issues –

boards were concentrating on dealing with problems elsewhere and their eye was off the Chinese ball. In the interim,

local insurers have been cementing their positions and growing their businesses – market share that it may be hard for

newcomers to win from them.

Understanding the culture is frequently cited by those talking of moving into new markets, but China is a destination

where this really matters. It is not simply about understanding the language but also the way in which people think.

There is a real need for foreign expertise to help develop the market — and to enhance client understanding of risk

management. With its history of communism, the Chinese population largely expects the state to look after it. If a building

collapses, is burnt down or destroyed by an earthquake, the state will rebuild it — why would anyone need insurance?

Change this culture and the rewards could be substantial.

Another concern that was expressed was the issue of finding the right experience and talent to build a successful

business in China. The relative immaturity of the industry means that there is a not a huge pool of local talent, and

language issues will always be a barrier for staff looking to move to the country. As well as internal demand, a number

of recent circulars have either imposed regulations concerning required roles, appropriate qualifications or new boards

and committees that will drastically increase the need for experienced staff, and further fuel the battle for talent in the

Chinese market.

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Foreign players are taking a long, hard look at their business models in China. However, despite

the challenges they face, they see it as an underinsured market with huge upside potential.

Understanding the culture when moving into new markets is particularly vital in China – it is not just

about the language but also understanding how people think.

Malaysia

Although everyone is talking about China at the moment, it is by no means the whole story in Asia Pacific. Malaysia

is a key economy at the heart of the region. Projections foresee growth in 2011 topping 12% across the Malaysian

insurance industry.

The appeal of Malaysia is twofold. First, as with many other emerging market economies, there is a low insurance

penetration rate in the country coupled with increasing consumer knowledge. This is in addition to growing

bancassurance and takaful businesses.

Secondly, in 2009 the limit on foreign equity participation in conventional Malaysian insurers and takaful operators was

lifted from 49% to 70%. This enabled foreign insurers with an existing minority interest to increase their equity interest in,

and gain majority control of, them. In addition, more operational flexibility for locally incorporated subsidiaries of foreign

insurers and takaful operators has been introduced, with the aim of strengthening the resilience and competitiveness of

the Malaysian conventional insurance and takaful industries.

The Philippines

The Philippines is the world’s twelfth most populous country – home to almost 95 million people. With such a significant

population it is surprising that it often seems to be overlooked – certainly by our survey respondents, but also by

insurance companies already operating in the region. Part of the reason for this may be that it is considered to be less

stable than some of its neighbours. However, like other countries in the region, The Philippines potentially offers insurers

significant increases in written premiums as improvements in wealth levels within a growing middle class population take

place. The country has suffered little impact from the global recession in GDP terms with growth of 6.0% in 2010.

Insurance premium growth rates for last year are estimated to have been 14% for non-life and 20% for life, assisted by

economic growth in 2010 of over 6%.

There are an usually large number of insurance companies operating in The Philippines and the non-life market in

particular has been saturated for some years with too many under-capitalised companies chasing too little business –

another factor that is likely to make foreign insurers considering the market a little wary.

The Philippines Insurance Commission has introduced new capital requirements that may begin a major rationalisation

within the extremely fragmented non-life segment. Over the long-term, such a rationalisation will be essential if the

industry is to grow. At the moment, the lack of local companies with the capital and scale and therefore the ability to

develop new and innovative products is a significant constraint on the development of the entire market.

Thailand

The appeal of Thailand may have been muted by the recent political turmoil and the impact of the world financial crisis

on foreign investment. Nevertheless, Thailand’s insurance industry continues to demonstrate strong growth. Thailand’s

Office of Insurance Commission revealed that insurance business in the first quarter of 2011 grew by 13.52% on last

year’s quarterly figures, with total direct premium in the country now worth Baht 111.783 billion (US$ 3.7 billion). The

country now hosts 72 licensed property and casualty insurers and 25 licensed life insurers registered with the OIC.

Foreign investors are looking for markets in which general economic prosperity will maximise the potential development

of the insurance industry. Maintaining Thailand’s 4% per annual average growth rate – achieved between 2000 and 2008

– will be challenging, but the actions being taken by the Thai government are aimed at providing economic stimulation

with this target in mind. It is implementing further financial stimulus schemes, increasing exports and rapidly developing

industrial activity, in order to boost the national economy. This in turn would be expected to drive up further demand and

the purchasing power of insurance products in Thailand.

Thailand’s insurance sector, though small, when compared to some of its Asian neighbours, boasts many possible

avenues for growth. Much of the country, particularly in the rural regions outside the capital Bangkok, remains relatively

untapped in terms of insurance penetration. This represents an opportunity for insurers to develop niche market

products, such as micro-insurance and takaful coverage options.

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The appeal of Thailand has undoubtedly been muted by recent political turmoil. However, its

insurance industry continues to demonstrate strong growth.

Vietnam

In comparison to other Southeast Asian countries, Vietnam was impacted by three ‘lost decades’ of economic

development due to war, but is now gaining ground on its fellow ASEAN members. Since the 1997 Asian economic crisis,

the Vietnamese economy has boomed due to the Communist Party of Vietnam (CPV) changing its communist policies

and central planning approach, adopted in the late 1980’s, and applying its ‘doi moi’ (renovation) policy. The economic

reforms have enabled the country to become one the fastest-growing economies in Asia, leaving it with the potential to

rival the four “Asian Tigers” of Hong Kong, Singapore, South Korea and Taiwan.

Despite the global economic downturn of 2007 – 2009, the insurance market in Vietnam has been resilient; prompting

many leading multinational insurance companies to increase their presence in this growth market. They will be further

aided in this effort as the Law on Insurance Business has recently been amended (to take effect on 1 July 2011) to align

current insurance legislation with international practices and to codify some of the commitments Vietnam made before

its accession to the World Trade Organisation in 2007. The amended Law is expected to impose more rigorous

regulation of foreign-invested companies and brokers that offer cross-border insurance services.

In the short-term, the growth in the life insurance market is expected to continue and generate significant profits for life

insurers currently active in the Vietnamese market. The medium/long-term prospects are less clear, as a result of

Vietnam’s GDP deficit and possible implementation of austerity measures. However, insurance companies still remain

focused on increasing business levels by taking advantage of the emerging growth in the economy.

There is also significant competition between insurance companies for increased market penetration in Vietnam and

friction between the competitors as they seek consolidation of their presence in the fledgling insurance industry.

Indonesia

Indonesia has a population of 240 million people, achieved an average economic growth rate of 5.6% per year between

2007 and 2009 and has emerged from the economic downturn relatively unscathed. Reforms in the regulation of the

Indonesian financial services industry, expansion of insurance distribution and a broader range of protection products

are forecast to have a positive effect on the Indonesian insurance sector in the coming years to meet the demands of

a population experiencing an improvement in individual wealth.

Nevertheless, a number of concerns have been expressed by foreign investors about the marketplace. The first is that

the industry is relatively fragmented and, while the majority of the market is held by well established local firms, none

has a dominant position in the life or non-life sectors. The market is also small, with product density per capita of US$15

in non-life and US$27 in life products.

Issues such as high levels of unemployment, the very real threat of terrorist attacks and a lack of institutional

transparency create concerns for businesses considering operations in Indonesia.

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The outlook for Indonesia is positive. GDP is forecast to grow 6% in 2011, while Life premiums

are expected to grow 10.9% and non-Life 8.9%. However, a number of concerns remain for

potential investors including the fragmented nature of the insurance market, a lack of

institutional transparency and the very real threat of terrorism.

How fast is the market moving?

Survey results – Time horizon for creating/expanding in Asia

Our respondents were in no doubt that they were looking to move into or expand their Asia Pacific operations sooner

rather than later. The vast majority felt that they would be active in all the Asian countries about which they were asked

within the next five years.

The desire now to take some strategic steps forward is coming from a number of different drivers:

• Ongoing economic issues in mature markets – with growth still sluggish in many major economies, the available

spend for insurance (both at an individual and corporate level) remains under pressure and pricing shows little

sign of hardening. As a result, it is only by seeking out new markets that businesses can continue to grow their

overall income.

• Increasing sophistication in emerging markets – as well as the potential offered by the Asian markets, and the

growth in both population and economic activity, there is also a growing understanding of and desire for risk transfer

products. Individuals are increasingly seeking insurance protection for their lives, property and possessions, as well

as having the disposable income to save for the future. In the business community, there is growing investment in

the natural resource sector – as well as in significant infrastructure projects – all of which require both property and

casualty insurance covers.

• Easing of regulatory controls – overall insurance is one of the most regulated industries in the world. Unlike other

regions of the world, there is no alignment of regulation within the Asia Pacific region, which makes it more complex

to understand each local regulatory environment. There is no doubt that a move towards a more uniform approach

would remove arbitrage between countries and facilitate growth because of the certainty that it would bring.

Governments walk the line between the need to keep regulation light to facilitate growth and protect the market.

Regulators still need to ensure that growth happens in a controlled and sustainable manner, which in itself is likely

to lead to the revision of existing regulation and the implementation of further regulation.

Next one to two years Three to five years Six to ten years

China 57.7% 35.0% 7.5%

Malaysia 63.0% 30.0% 7.0%

Indonesia 54.0% 33.5% 12.5%

Philippines 42.0% 47.5% 10.5%

Thailand 52.0% 28.2% 20.0%

Vietnam 47.5% 33.5% 19.0%

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Individuals are increasingly seeking insurance protection for their lives, property and possessions,

as well as having the disposable income to save for the future. In the business community, there is

growing investment in the natural resource sector – as well as in significant infrastructure projects

– all of which require both property and casualty insurance covers.

What makes different countries attractive?

Survey results – What’s attracting respondents to Asia

(1 - most attractive, 6 - least attractive)

Survey results – Ranking of concerns from respondents about entering / operating in Asian markets:

1. Competition from existing companies

2. Restrictions on foreign investment

3. Ability to find local partner

4. Difficulties in local distribution

5. Political unrest

6. Operating in a different environment

7. Set up process

8. Cost of doing business

9. Lack of acquisition targets

Unsurprisingly, the top factors attracting survey respondents to countries across Asia are the opportunities to grow

their business and develop income. The opportunities in the region are significant but there are a range of issues that

companies need to contend with.

China Malaysia Indonesia Philippines Thailand Vietnam

Part of international

strategy to grow

premium income

1 1 1 1 1 1=

Ability to develop

direct insurance

business in the

local market

2 2 2 2= 2= 1=

Ability to develop

reinsurance business

in the local market

3 3 3 2= 2= 3=

Regulatory

environment4 4 4 4= 4 3=

Tax

environment5 5= 5 6 5= 6

Creation of ASEAN

Free Trade Area

in 2015

6 5= 6 4= 5= 5

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Restrictions

Competition from existing companies and restrictions on foreign investment are the top two concerns for survey

respondents looking towards Asia. In the case of China, despite many years of operations, foreign insurers have

managed to capture only 1.8% of the Chinese non-life insurance market and 4.8% of the life and health markets.

These low percentages are partly a consequence of the restrictions to which foreign-invested insurers are subject.

In Indonesia, under prevailing insurance regulations, foreign ownership of an insurance company must not exceed 80%.

Foreign insurance companies may only invest in a company that operates in the same area of business and any proposed

transfer of shares in an unlisted Indonesian insurance company requires the prior approval of the Minister of Finance.

Insurers looking towards Malaysia encounter fewer restrictions, a significant factor which goes a long way to explain the

country’s more favourable ranking in our survey results. There has been a recent liberalisation of foreign investment

restrictions in Malaysia. In 2009 foreign ownership restrictions on insurance companies were relaxed and the maximum

threshold increased from 49% to 70%. However, investors must still approach Bank Negara Malaysia for in-principle

approval prior to commencing preliminary negotiations or due diligence in connection with a proposed acquisition of an

insurance business.

Insurance companies looking at the Thai market have been encouraged by the fact that the government has approved

an increase in maximum foreign shareholding limits for both life and non-life insurers from a 25% limit up to 49%.

Some of the leading multinational insurance companies are now represented in Thailand, including ACE, Allianz, AXA,

Generali, Manulife, New York Life and Prudential. Several local Thai insurers have also established affiliations with

foreign insurers. However, insurance companies in Thailand are required to be public companies and are subject to

substantial restrictions. At least three quarters of an insurance company’s directors must be Thai nationals and the

number of shares held by Thai nationals and Thai companies must be at least 75% of the total voting shares.

In The Philippines and Vietnam, several insurers are 100% owned by foreigners and Vietnam in particular has made

considerable progress in recent years to make the country a more attractive investment destination.

Regulation

Foreign insurers are following with interest the growing involvement of Asian regulators in global initiatives and their

wider role in affecting insurance regulations. They are very much aware of the need to stay abreast of proposed changes

to local or regional regulations and that they must be able to quickly identify the potential business impact and alter their

strategies accordingly.

Regulatory frameworks across Asia are at different stages of development, and are subject to rapid change. In the near

term, widespread adoption of Solvency II (SII) is unlikely in the region because of the long lead time involved in preparing

the necessary resources and calibrating the risk factors for local countries. Nevertheless, all Asia Pacific regulators will

look towards the SII framework to guide their thinking in areas like Enterprise Risk Management and internal models.

Many foreign insurers have already established an Asian presence and expect their SII experience will bring benefits to

their operations in the region.

Several countries in Asia have implemented risk-based capital (RBC) frameworks, and others are following suit.

Indonesia continues to scale up the levels of RBC that insurers must meet, following delays to the original timetable,

and now will require all insurers to have a minimum of US$11.2 million capital to meet standards being imposed by the

regulatory authority by 2014.

Vietnam is considering amendments and supplements to its Business Insurance Law to heighten the supervisory power

of regulators, and regulators in other countries continue to review regulations concerning the percentage of foreign

ownership of local insurers.

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Foreign insurers are following with interest the growing involvement of Asian regulators in global

initiatives and their wider role in affecting insurance regulations. They are very much aware of the

need to stay abreast of proposed changes to local or regional regulations and that they must be

able to quickly identify the potential business impact and alter their strategies accordingly.

Which lines of business are insurers looking to write?

Survey results – Lines of business respondents interested in writing:

The ranking of classes of business reflects the fact that the respondents were primarily based in the London market, and

are most likely to begin with the lines with which they are most comfortable – and expand from there. This means interest

from the London market is most likely to remain, in the near-term at least, in major areas of the Property market.

Marine was the line of business most respondents are interested in writing, perhaps predictably given the thriving

import/export market – especially in China – and the fact that the region is home to a number of sizeable marine hubs. Last

year, Shanghai saw a 31% increase in marine insurance premiums written in the city. Insurance companies incorporated in

Shanghai are exempt from business tax on marine business prompting a swathe of interest from international players as

well as growing engagement from domestic firms.

The high levels of ongoing construction explain why property ranked second in the survey and the increasing size of the

population indicates opportunities to provide additional health cover.

In most Asian countries, many liability lines of business are not compulsory – thus limiting the ability of insurers and

borers to develop an interest in them. However, as businesses expand beyond their domestic markets into the

international arena, they may find that these types of cover are demanded by their trading and financing partners.

However, local sentiment suggests that there are opportunities across all lines of business. Beyond those lines

mentioned above; motor, in China in particular, is a growing market. Aviation is another line with significant potential,

with a low-cost airline boom in the region being marked by a number of new entrants.

MarinePropertyHealthLiabilityAviation

LifeMotorMicroinsurance

63.0%

58.0%

50.0%

33.0%

29.0%

29.0%25.0%

46.0%

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The ranking of classes of business reflects the fact that the respondents were primarily based in

the London market, and are most likely to begin with the lines with which they are most

comfortable – and expand from there. This means interest from the London market is most likely

to remain, in the near-term at least, in major areas of the Property market.

Microinsurance

The global microinsurance market is estimated to be worth US$40 billion to the insurance industry according to a report by

Swiss Re. Although Asian countries are keen to take advantage of the microinsurance sector, and the issue was raised

specially at the East Asian Insurance Congress held in Bali in October 2010, it does not appear to be an area into which the

London market is looking to expand.

Microinsurance provides significant opportunities across Asia, notably in Vietnam. Distribution is usually through a

microfinance institution, charity or other non-governmental organisation that has relatively easy access to a large swathe

of the population, often located in remote areas. The sector has been innovative in its use of ‘alternative’ channels such

as scratch cards and mobile phones. However, large multinational insurers will struggle to generate significant premium

income in the short-term; this is a business that is all about volume.

Takaful

The worldwide takaful insurance market is projected to grow by 31% in 2011, up to a possible value of US$12 billion.

This represents an important market for multinational insurance companies searching for new sectors and continued

opportunities for growth. Malaysia and Indonesia, countries with prominent Muslim populations, are strong takaful

jurisdictions and each is currently experiencing significant growth in both business volume and customer acceptance of

takaful products, suggesting that this model is poised to grow further.

In the light of this it is somewhat surprising then that only 41.7% of survey respondents said they were interested in

entering the takaful and retakaful markets in Asia.

Although takaful as a business model has been widely accepted by foreign insurers, and a number are exploring

securing licenses in the region, there are several challenges that remain to be addressed. Foremost of these is the

people issue: overcoming a chronic skills shortage, given the limited number of Islamic scholars experienced in finance

and insurance coupled with stiff competition from conventional insurance for limited skilled resources.

A growing band of western insurers – from Allianz and Aviva to Munich Re and Swiss Re – have been establishing UK

Sharia-compliant operations in recent years. Similar to general insurers, the Islamic insurance sector moves in direct

alignment with the performance of the broader economy; so the positive economic outlook for the Asian economy

suggests others may soon join them.

Takaful presents an enormous potential opportunity for the insurance industry – 23% of the world’s population is Muslim.

A lot of sovereign wealth investment is coming out of the gulf states, which is significant for Malaysia and Indonesia.

However, unless you are actually based in these countries this is a very challenging market to operate in and many

multi-national insurers remain a little wary.

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The worldwide takaful insurance market is projected to grow by 31% in 2011, up to a possible

value of US$12 billion. This represents an important market for multinational insurance

companies searching for new sectors and continued opportunities for growth.

Which business models are insurers considering?

Survey results – Business models respondents use / would consider using in Asia

The survey shows that in terms of a business model for operating in Asia, foreign insurers view the option of opening a

local branch as the most attractive. It is understandable that companies want to go down this route as it offers clear

benefits, not least that there is no need to source additional capital. However, in many instances companies will find that

– while this is a nice idea in principle – this path is blocked by regulatory restrictions and they will need to reconsider their

vehicle for investment.

Reinsurance via a local front is an attractive alternative and is a model that has been adopted by a number of large foreign

insurers entering markets across Asia. The attraction lies in the fact that this is simple to set up and easy to withdraw from –

effectively allowing a third party insurer to test the market before making a decision on whether to invest further. However, by

piggy-backing on an established player, it still leaves a foreign insurer a long way to go to become truly local. The model does

not allow for the acquisition and development of underwriting talent, nor does it allow a foreign insurer to establish and build

its brand in the market.

Regulators are also taking a closer interest in the overall risks being written by the insurers for whom they have oversight

– irrespective of any reinsurance that might sit behind it. The result may be higher capital requirements, the cost of which

will be passed along through higher charges.

Establishing a subsidiary or entering into a joint venture (JV) with a local insurer, while having their attractions for our

survey respondents, also pose challenges.

While forming a local company can bring certain tax breaks, it requires the sourcing of local capital and the acquisition of

licences. The latter are vital but often difficult and time-consuming to obtain.

Most multi-nationals are less inclined to take a minority stake or enter into a JV; they expect ownership if they are

required to provide both financial and intellectual capital. While foreign insurers find it difficult to justify a minority position

as a strategic decision – it throws up a range of questions in the minds of investors – they are used to accepting a

minority position where they have to, recognising that they will expand the holding when the regulatory environment

allows. To get the best from this is often as much about mentality as structure – it’s about being an active and equal

partner in spirit, if not in equity.

Setting up a JV also poses well-established challenges such as finding the right partner, negotiating the complexities of the deal

and monitoring business performance. While a JV with a local bank or insurer can see a marriage of foreign expertise and local

capital, restrictions mean there is often a limited pool of partners to work with.

Foreign insurers looking to Asia often consider an acquisition as a way round some of these challenges but this may

again be hampered by restrictions on foreign ownership as well as a lack of suitable targets. Despite survey respondents

remaining seemingly unperturbed by a possible lack of companies suitable for acquisition, experience on the ground

suggests a different picture. In reality there are now very few viable targets, making this an expensive proposition as

acquirers will be required to pay a premium.

Setting up a binding authority via a local entity is the least attractive business model, according to the survey results.

This is unsurprising as any insurer selecting this route to market will need to address issues relating to Solvency II, control

and, in the case of the UK, the Bribery Act. A binding authority will still necessitate a local agent to generate business and the

insurer will not actually be in a position to build the relationships in the market so essential for success in the long term.

Establishment of a branchReinsurance via local frontEstablishment of a subsidiaryJoint venture with local insurerBinding authority via local entity

70.8%

58.3%

54.2%

20.8%50.0%

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Foreign insurers find it difficult to justify a minority position as a strategic decision – it throws up a

range of questions in the minds of investors. To get the best from this is often as much about

mentality as structure – it’s about being an active and equal partner in spirit, if not in equity.

Contacts

John Champion

Partner

Tel: +65 6544 6516

john.champion@clyde.com.sg

Ik Wei Chong

Partner

Tel: +86 21 5877 5128

ikwei.chong@clydeco.com.cn

Gloria Jones

Partner

Tel: +852 2287 2814

gloria.jones@clyde.com.hk

William Tsang

Partner

Tel: +852 2287 2830

william.tsang@clyde.com.hk

Carrie Yang

Partner

Tel: +86 21 5877 5128

carrie.yang@clydeco.com.cn

Tom Palmer

Counsel

Tel: +852 2287 2807

tom.palmer@clyde.com.hk

Kendall Evans

Associate

Tel: +852 2287 2860

kendall.evans@clyde.com.hk

Amanda Li

Associate

Tel: +86 21 5877 5128

amanda.li@clydeco.com.cn

Jennifer Wei

Associate

Tel: +86 21 5877 5128

jennifer.wei@clydeco.com.cn

Andrew Holderness

Global Head of Corporate Insurance Group

Tel: +44(0)20 7623 1244

andrew.holderness@clydeco.com

Michael Cripps

Regional Partner

Tel: +86 21 5877 5128

michael.cripps@clydeco.com.cn

Hong Kong

58th Floor

Central Plaza

18 Harbour Road

Hong Kong

T: +852 2878 8600

F: +852 2522 5907

E: clyde@clyde.com.hk

Shanghai

23rd Floor

Two International Finance Centre

8 Century Avenue

Shanghai 200120

T: +86 21 5877 5128

F: +86 21 5877 9128

E: clyde@clydeco.com.cn

Singapore

21st Floor

Springleaf Tower

3 Anson Road

Singapore 079909

T: +65 6544 6500

F: +65 6544 6501

E: post@clyde.com.sg

12 www.clydeco.com

Worldwide offices

San Francisco New YorkNew Jersey

Caracas

Rio de Janeiro

Nantes ParisLondon & Guildford

Belgrade

Piraeus

MoscowSt. Petersburg

Dar es Salaam

RiyadhDoha

Abu DhabiDubai

Mumbai

New Delhi Shanghai

Hong Kong

Singapore

Clyde & Co officesAssociated offices

www.clydeco.com 13

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acting or refraining from acting as a result of material contained in this summary. No part of this summary may be used, reproduced, stored in a retrieval

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© Clyde & Co LLP 2011

www.clydeco.com

Clyde & Co LLP offices and associated* offices: Abu Dhabi Belgrade* Caracas Dar es Salaam* Doha Dubai Guildford Hong Kong London Moscow Mumbai* Nantes New Delhi* New Jersey New York Paris Piraeus Rio de Janeiro Riyadh* San Francisco Shanghai Singapore St Petersburg*