Asian reinsurers grappling with cat losses; slow premium growth amid pandemic, finds Fitch

Analysts at Fitch expect Asian reinsurers' business growth to slow down as the coronavirus pandemic takes its toll on economic growth and financial market stability, which will reduce the premium growth of direct insurers.

Fitch believes that although their pandemic-related losses appear to be "manageable" due to tight measures to curb the spread of the virus, the business growth is likely to slow as the economy and direct insurers' premium growth decelerate.

"The pandemic may affect claims development, but we have not yet seen widespread, significant pandemic-related losses for Asian reinsurers. The tight measures to curb the spread of COVID-19 likely helped to limit the possibility of a sharp spike in related claims," said Siew Wai Wan of Fitch Ratings.

The report suggests that Asian reinsurers are now refocusing on capital management to enhance their risk-adjusted capitalisation to build buffers against a potential increase in claims and investment losses.

Some have also taken up catastrophe reinsurance/retrocession cover in excess of the minimum regulatory requirements to improve risk mitigation. The issuance of insurance-linked securities (ILS) in Asia has also increased.

Fitch believes that 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."

Furthermore, the regulatory changes in several Asian markets will push reinsurers to develop the necessary internal capabilities and risk-management frameworks to manage the impacts.

Overall, Fitch expects the reinsurers to find it more difficult to position themselves strategically and competitively to withstand in the business environment triggered by the coronavirus outbreak, given the ongoing economic uncertainty and the risk of market turmoil that may curb M&A activities.