16.12.2022

Asia emerges from Covid with great opportunities ahead

The market in AsiaPac has taken notably longer to emerge from the impact of Covid than in most other regions, but (other than the ongoing and very seriously impactful situation in China) the rest of Asia and Australia/New Zealand has been making significant strides in opening up and this is clearly translating into a growth of business and greater confidence in the Lending and Insurer market.

Insurers have shown more intent and appetite generally, in the region, perhaps in part by seeing the comparatively greater performance of the political and credit risk insurance market growth out of the UK, Europe, Africa and the Americas. That said it is certainly true to say that Insurers in Asia sometimes struggle to make the case for good risk in the region, to their colleagues in Head Office, often the case when writing into a recession or in turbulent times. One wonders sometimes at Insurers’ enthusiasm for countries such as Ghana, in the recent years, compared to their confidence in more substantially viable economies and structures in Asia. We very much hope that greater freedom to travel in the region will also encourage greater awareness and confidence.

We are seeing new entrants into Singapore, from meaningful Insurers such as Everest and HDI Global Specialty, as well as widely held expectations of an imminent MGA expansion, likely to be in first quarter 2023. New liquidity and investment on the ground is naturally welcome, but it is also good to see further growth of support for regional risk from insurers located in Europe and the States.

There is a much wider spread of opportunities from insureds; Project Finance, ESG PF, RBLs, Data Centres/Fibre Projects, Capital Call Facilities, Capital Market Loans, Real Estate Finance, Secured Bonds, Leveraged Finance, Aviation and Transportation Finance and a wide variety of Structured Finance business. Happily, these opportunities are meeting a greater level of engagement and partnership with insurers than they had in recent years. There is a clear and ongoing rebalancing, both in terms of enquiries and appetite, away from traditional commodity finance to this diverse mix of business into the market. This is healthy to see, but we do look forward to a rebuilding of trust and opportunities in Commodity and Trade Finance in region, for which the need for liquidity is so critical for growth. The Singapore Government is working carefully and creatively with Lenders to help rebuild this confidence, in a critical sector.

In addition to this, Asia is seeing a growing number of Political Risk Insurance requests, including Lenders Form, Contract Frustration and Equity risk cover in emerging markets. There is certainly greater awareness amongst credit teams and risk managers of uncertain times and such partnership with insurers is likely to prove more important going forward. In addition to Lenders seeking such cover, Singapore is a natural home to Private Equity, Holding Companies and Family offices with assets across the globe. Political Risk Insurance should prove to be a logical solution, as awareness of the product grows. Our role, together with Insurers, is to effectively raise awareness and understanding of options, in a market in which there is still limited penetration.

It is certainly more difficult to place Chinese risks, other than involving key obligors or SOEs, but we are seeing an increase of enquiries for risks in Australia, Vietnam, India, Indonesia, Taiwan and South Korea. Fears of a global recession, rising inflation, the ongoing war in Ukraine, China’s Zero COVID policy and signs of some unrest paired with watchfulness around the intent of a further empowered President Xi, has impacted supply chains and investment prospects and also meant for a meaningful ripple effect on those Asian economies reliant on tourism, including Singapore.

Higher food and energy prices as well as USDollar strength will be complicated for poorer regional countries. However we would still see that the outlook for Asia is likely to be brightest in comparison to Europe and the Americas. Several banking clients have spoken of increasing capital being allocated to growth in AsiaPac.

With consolidation and a flight to quality in borrowers, we anticipate Lenders seeking further distribution partners to manage aggregate limits on key borrowers and countries, as well as for capital efficiency.

There are a remarkable number of global headwinds, but there are very clear opportunities for the right risks and with the ongoing dedication of our partners. 2023 will not be boring.