Page 38 - WTW Asia Insurance Market Report
P. 38

Construction                                                                Launch of Megaprojects

In 2016, the construction market continued to soften with        The Silk Road Economic Belt and the 21st-century
an ever increasing amount of capacity available. Major           Maritime Silk Road is a large-scale initiative by the Chinese
showpiece and large infrastructure projects are seen as          government to improve connectivity across China with the
attractive risks for construction underwriters and rates         rest of Eurasia through building a network of infrastructure
fell by up to 20% due to the heavy competition and a             facilities and expanding existing trade routes. The South
perceived lack of significant losses in the sector to date.      Asia and South East Asia wings of the project encompass
A dearth of financing resulted in a number of projects           220 projects, valued at USD 339.6 billion. Three projects
coming under review by lenders; many developers and              rank at the top of CG/LA’s “Strategic 100” list, namely the
governments are eager for these projects to begin. Despite       Kuala Lumpur-Singapore High Speed Rail, Singapore Tuas
this, Asia is still viewed as a growth engine for construction,  Terminal Phase 1 and Kuala Lumpur Mass Rapid Transit,
which is why Lloyd’s syndicates and Berkshire Hathaway           Line 2 for which construction is already underway.
have been adding new capacity into an already saturated
market. AIG increased capacity on major projects by 35%          Such megaprojects are gaining popularity with insurers
and other major insurers have increased their ability to         due to their scale, duration and complexity. However,
write much bigger lines than a few years ago.                    this poses a challenge as well because megaprojects no
                                                                 longer equate to “mega premiums” in the same way as they
The current competitive market conditions are expected to        once did. As the market continues to soften, the fear of
continue on into 2017. However, the question being asked         missing out on such prestigious projects is fuelling fierce
by an industry that has seen two reasonably benign CAT           competition. Insurers can try to differentiate themselves by
years, is when the downward spiral of pricing will plateau.      providing enhanced coverage for such projects.
This question looms larger than ever. For many developers,
a positive change in the financial markets is needed in          Increase in Capacity from Chinese Insurers
order to put lenders at ease and for delayed projects to
receive much needed funding. The opportunities posed by          Chinese insurers such as PICC, Ping An and CPIC have
the One Belt One Road project and developments along             been increasing their capacity for international projects. As
the Mekong Delta belt are expected to fuel construction in       Chinese contractors look to Latin America and Africa for
Asia in the coming years. In some of the more developed          new business opportunities, they bring with them Chinese
countries such as Hong Kong and Singapore, infrastructure        financing as well as Chinese insurers to insure their risks.
investment, which has been the back bone of many                 This in return adds to the ever-growing insurance market.
insurers’ income for the past couple of years, may only
continue at the same pace in the short term.                     Renewable Energy

                                                                 With global protocols and impending deadlines to
                                                                 meet green energy quotas, there has been a trend for
                                                                 governments to fast track renewable sources of energy in
                                                                 an attempt to achieve a level of environmental sustainability.
                                                                 In 2016, investment into sectors such as solar, wind and
                                                                 geothermal energy in Asia was particularly strong.

                                                                 For the first time last year, developing economies surpassed
                                                                 developed countries in terms of total new renewable energy
                                                                 investment. This has resulted in more and more insurers
                                                                 turning to this sector to provide their own products, which
                                                                 naturally results in further pricing competition.

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