(From THE WALL STREET JOURNAL)
By Atsuko Fukase
TOKYO -- Munich Re, the world's largest reinsurer, is bolstering its presence in Japan despite a slowing economy and an aging and dwindling population, even as opportunities beckon in the faster-growing economies of Asia.
Earlier this week, the German reinsurer opened its first branch office in Tokyo, expecting Japan's reinsurance market to grow as fast as those in China and India in the next five years. Japan's growth will come from demand from insurers for diversified services and capital management, several of the company's top executives said in an interview.
"The reinsurance demand doesn't automatically depend on the growth or decline of the primary insurance volumes," said Joachim Wenning, a member of Munich Re's management board. He said demand for reinsurance can grow even as the primary market shrinks.
The role of reinsurers is to share risk covered by insurers. By spreading the risk, reinsurance allows individual companies to take on clients whose coverage would be too great for a single insurer to carry alone. Reinsurers also provide services such as risk management.
Since September 2008, Munich Re has provided more than $1 billion of capital in Asia to help life-insurance clients navigate the financial crisis.
While the company already has a service center in Tokyo, the new branch office will further provide tailor-made consultative and capital-management services for Japanese insurers, Mr. Wenning said.
The Munich-based firm has fewer than 40 people in Tokyo. But Japan representative Patrick Sallin said it plans to hire an additional 10 for its life-insurance business by the end of next year.
Demand for reinsurance services may differ depending on the region, said Daniel Cossette, Asia chief executive for life insurance.
In developed and mature markets such as Japan and some Western countries, "there is a growing demand for services that help primary insurers optimize their capital structure and their processes."
In emerging markets such as China and India, the reinsurer benefits from the momentum of the high growth rate, he said.
Munich Re expects its revenue in Asia to continue growing at double-digit rates over the next five years. In 2009, more than 10% of total reinsurance premium income of about 2.6 billion euros ($3.29 billion) came from Asia. Income from Asia is expected to rise to 15% in the coming years.
Munich Re has more than 500 life-reinsurance employees in the region, a more than threefold rise in less than five years.
Mr. Wenning said the possibility of economic recession or a financial crisis could have a negative impact on the reinsurance industry due to lower demand from insurance firms.
But at the same time, life insurers could face capital issues, and that could lead to business opportunities in offering capital relief structures, risk assessment assistance and assistance in managing capital more efficiently.
"Risk is our business," Mr. Wenning said.
Mr. Cossette added: "We help our clients when the market really deteriorates and they need to replenish their capital base."
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