Asian reinsurers repositioning amid CAT losses and pandemic

(Re)insurers in Asia are likely to put renewed emphasis on ensuring the adequacy and appropriateness of their existing (re)insurance protection, following significant catastrophe losses in 2019 and first half of 2020 and in expectation of the tougher times following the pandemic, according to Fitch Ratings.

A new report "Asian Reinsurance Markets: Reinsurers Grappling with Catastrophe Losses; Downturn to Slow Premium Growth Amid Pandemic" by Fitch Ratings said, “The Asian reinsurers' losses related to the coronavirus pandemic appear to be on a manageable scale thus far due to tight measures to curb the spread of the virus. In addition, they entered the crisis well-capitalised.”

The report says Asian reinsurers are refocusing on capital management to enhance their risk-adjusted capitalisation to build buffers against a potential increase in claims and investment losses. However, business growth will be slow as the economy and direct insurers' premium growth will likely decelerate. Some Asian (re)insurers have also taken up catastrophe reinsurance/retrocession cover in excess of the minimum regulatory requirements to improve risk mitigation.

Ongoing economic uncertainty and the risk of market turmoil are among the challenges that may curb M&A activities. Fitch believes that reinsurers will find it more difficult to position themselves strategically and competitively to withstand the uncertainties in the business environment triggered by the coronavirus outbreak.

The issuance of insurance-linked securities (ILS) in Asia continues to increase. Fitch believes the continued expansion of the ILS market in Asia will expand reinsurers' capacity and diversify their sources of capital. The growth of the ILS market will hinge on investor interest stemming from favourable catastrophe loss experiences.

Regulators in several Asian markets have amended or are in the process of amending (re)insurance related regulations to reflect market changes. These changes will push reinsurers to develop the necessary internal capabilities and risk-management frameworks to manage the impacts.

Source: Asia Insurance Review

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