The Asia-Pacific region is likely to embrace the emerging trend of catastrophe bond issuance as it increases its efforts to strengthen resilience to disasters.
This is according to rating agency Fitch, which added that the uptake of cat bond issuance is expected to catch on in catastrophe-prone markets such as Japan and China.
It added that another contributing factor is that insurers are on the hunt for alternative sources of funding to reduce their heavy dependence on reinsurers.
According to the rating agency, high catastrophe exposure and a significant gap between insured losses and economic losses means that the region needs better re/insurance protection for its catastrophe losses.
“Another trend of catastrophe funds/pools has also emerged in certain Asian markets. Such initiatives are typically led by the governments or industry associations in the specific market,” said Fitch.
“Thus far, Thailand and China have started the process of implementing such initiatives as part of their national disaster-management schemes, which would help the local re/insurers manage their catastrophe losses.”
So far, 2015 has been a quiet year for catastrophes, excluding the recent explosion at a chemical warehouse in Tianjin, China on August 12, 2015.
So far, the Chinese insurance regulator has not released official statistics about the amount of claims incurred from this event, but the insured losses are likely to be substantial, potentially exceeding $1-1.5 billion according to estimates. Fitch also expects the number of reported insurance claims cases from this incident to surge in the coming weeks.
The rating agency also predicts the operating landscape of Asian reinsurance will be shaped by three factors: new operations established by foreign reinsurers in Asia; start-ups by Asian insurers themselves; and ongoing mergers and acquisitions (M&A) activity in specific Asian reinsurance markets.
This will increase competition and allow the transfer of technical expertise and knowledge from foreign entrants.
Fitch Ratings, Asia-Pacific