Publicity July 2015

New frontiers bring new risks

Expert solutions required for Japanese firms

One of Lloyd’s emerging risk reports

One of Lloyd’s emerging risk reports

Japan is experiencing a new wave of outward investment. As Japanese corporates look to new markets for growth, they encounter new risks with which they have little or no familiarity. But, rather than allowing such risks to stifle progress, they need to understand and manage them, so that business growth can continue.

Risk managers are seeking expert insight into emerging and specialist areas of risk as well as trusted forums in which to discuss these issues. Lloyd’s is at the centre of that debate worldwide, sharing knowledge through research and providing innovative solutions to help manage risk.

Specialist risk solutions

Globally, Japan is the fourth-largest source of outward foreign direct investment, the outlays last year having reached ¥14.83trn. That marks a 287% increase over the figure for a decade earlier.

Japanese firms are increasingly seeking new routes to overseas markets through acquisitions. M&A deals involving Japanese firms in 2014 had a combined value of ¥8.1trn, up 16.3% over the previous record, set in 2008.

In 2013, to provide protection and peace of mind to Japanese firms in these transactions, Lloyd’s Japan started offering warranty and indemnity insurance. Lloyd’s Japan is now recognised as the leading provider of such cover in Japan.

While entering new markets offers opportunities, it can also bring unfamiliar legal and regulatory frameworks, different customer expectations, unknown trading partners or supply chain networks and other new risks. The danger for Japanese firms is that their ability to manage these risks may lag behind their ambitions for business growth.

International trade raises risks that Japanese firms may never have considered insuring at home in Japan, such as terrorism, political risks, contract frustration, kidnap and maritime extortion. In addition, the different characteristics of standard property, casualty and marine risks in overseas territories may also not be fully appreciated.

For example, the 2011 flooding in Thailand revealed aggregated risk exposures across auto, manufacturing and electronic business supply chains, causing significant disruption to production. It became clear that firms need a deeper understanding of their business interdependencies to manage such risks effectively.

Expert knowledge

As the world’s leading specialist insurance and reinsurance market, Lloyd’s has a well-founded reputation for expertise and innovation in the provision of international risk solutions.

The library of emerging risk reports produced by Lloyd’s makes fascinating reading and is a valuable reference resource, not just for risk managers but also for anyone with an interest in understanding more about the major emerging risks facing the world today.

For example, a food security stress-test scenario found the combination of an El Niño phase, the spread of wheat rust, and warmer temperatures could result in a 7% fall in wheat and rice production. This would result in a 500% increase in rice prices and could severely impact financial markets, with European stock markets dropping 10% in value, while their US counterparts could lose 5%.

Meanwhile, Lloyd’s research on behavioural risk found that groups can make more extreme decisions than individuals. When managing risk, an organisation’s attitudes—such as risk ethics, internal communications, the behaviour of senior managers and rotation of staff—are critical.

Lloyd’s in Japan

As Japan’s international trade ambitions show no sign of slowing, there is a need for corporate risk managers to understand the new risks that such expansion may bring, as well as the options available to them to better protect their businesses. Lloyd’s can help.

To find out more, or to discuss your own specialist risk protection needs, contact the bilingual Lloyd’s Japan team.

Iain Ferguson, president and chief operating officer: 03 5656 6926

Mineyuki Yokota, underwriting services director: 03 5656 6954