When China stumbles

China, the world's largest economy, has slowed down its growth, thus triggering panic and concern around the globe. A concern fully justified as the Middle Kingdom, whose GDP went twentyfold in as many years, has managed to grant itself a gigantic economic area.

Due to its leading role as the driving force of growth, China may eventually trigger turmoil in many emerging countries whose economies are closely involved in its business. Brazil, Russia, Argentina, Australia and the Gulf states are among the most exposed countries.

Slowdown, correction, repositioning, adjustment, whatever the term used by experts, reinsurers are also assessing the indirect fallout of a possible deterioration of the crisis.

In terms of technical results, the Chinese slowdown will have no effect on reinsurers whose loss ratio is more sensitive to a natural catastrophe than to the macroeconomic framework.

Financially, reinsurers are theoretically protected by the principle of congruence between commitments and investments. The rules of good management stipulate that the assets of a country shall cover only the commitments made in that country. Moreover, the Chinese market, highly protected by the authorities, has little incidence on the portfolios of foreign reinsurers whose 2015 results will be slightly impacted.

Nevertheless, the spread of the crisis to the BRIC will affect life and non life turnover generated by reinsurers. A shrinking premium volume combined with low interest rates would lead to a significant deterioration of results, thus pushing some investors to quit Asia for other regions such as Africa, the last unexplored area.