On Going Global

 

Shuzo Sumi, Chairman of Tokio Marine and architect of their international expansion

Shuzo Sumi, Chairman of Tokio Marine and architect of their international expansion

The Japanese fiscal year drew to a close at March end with all three major insurers posting stronger 2013 earnings. This despite a weaker contribution from domestic non-life business hit hard by the February snowstorms. No surprise therefore that the stand-out performance was from Tokio Marine whose profitability increased by 42% largely on the back of executing a more aggressive investment strategy internationally compared to its peers. That differentiator might not last long; the lure of offshore profit streams is attracting the other two Japanese giants to step up expansion overseas in order to reduce their dependency on a stagnant local market: last month Sompo, part of the NKSJ Group, completed the acquisition of Lloyd’s underwriter Canopius in a deal just shy of $1 billion.

Such is the unrelenting pace of economic globalization; commercial insurers will lose out if they are not in a position to service clients beyond the borders of their home territory. Building, acquiring or even renting an international network is increasingly becoming a must-have for any underwriting business attracted to customers beyond the SME and mid-market audience. Tough therefore for RSA who out of financial necessity are doing the reverse of the Japanese in selling off this year a number of overseas businesses: the first their Baltics subsidiary in April. RSA‘s other assets under the hammer in Europe and Asia are unlikely to be especially large or profitable (those were sold the last time the company was in trouble) but as insurance portals contributing to a broader proposition for globally inclined firms, the company will sorely miss them.

All the more interesting, therefore, is the international strategy emerging out of Lloyd’s in 2014. First in February was the decision to open an underwriting platform in Dubai, a ‘hot potato’ with certain London-centric brokers, but suggesting a renewed desire to engage with multi-national customers in a few more corners of the world. Then last week, at odds in tone to his Chairman’s support last year for the yes/no referendum, a public reminder by Lloyd’s Chief Risk Officer Sean McGovern that it was in fact very much in the market’s interest for UK to be part of the EU.

Put together, there is a sense that after a brief lull the Lloyd’s market is now steering with more vigour down the path of international expansion. This might not be popular with die-hard London based traders but companies like Sompo, Mitsui, Tokio Marine and other corporate investors in the market will surely endorse such an approach if it provides more responsive servicing options to their broader commercial multi-national client base.

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