Not immune to global rate pressures, but regulatory matters and technological disruptions also dominate discussions in Asia
While the global reinsurance markets are reeling from the recent hurricane losses and negotiating rate hikes, Asia has not seen major catastrophe losses this year and the dynamics are very different. Competition remains fierce while regulatory change and the influence of disruptive technologies on the markets are also hot topics, as Philip Chung of S&P Global Ratings explains to SIRC Today.
How will the dynamic around renewals in Asia differ from elsewhere?
Global reinsurers will be looking for some payback after the significant third quarter losses from North America. Asia, on the other hand, hasn’t experienced major catastrophe losses this year.
There remains a lot of capital chasing risk in Asia. While some reinsurers with tighter risk tolerances have reduced participation or walked away from thinly priced business, there seems to be an abundance of other companies willing to take its place.
Are there markets in Asia where you see global re/insurers seeking growth—or retracting from?
We think global reinsurers are facing significant competition in Asia. While it might seem like retracting, we believe it is a reflection of global reinsurers being more selective in doing business. Intensifying price competition has seen some global reinsurers walking away from business.
How are regulatory changes shaping the reinsurance markets in the region?
Some markets in the region have seen regulatory changes that encourage higher in-country retention of premiums. Regulators in some jurisdictions require insurers to hold more capital for using offshore reinsurers. In other instances, cedants are required to place business with local reinsurers before seeking offshore capacity.
While maximising local retention could somewhat benefit the local economy, this may need to be balanced with the increase in the cost of doing business for reinsurers. With rates under continuous pressure, any additional cost could make a thinly priced business even more unattractive.
Are you observing any changes to re/insurers’ strategies within this region?
The most notable is perhaps P/C reinsurers considering expansion into life reinsurance, given the significant growth in the sector and the strong competition on P/C reinsurance. We are also seeing more multiyear and sliding scale contracts. Regional reinsurers are also participating more in global business.
Agricultural insurance has also contributed to significant growth for re/insurers. Facing significant competition and potential disruption from technology, we see re/insurers paying closer attention to digital strategies and exploring partnerships with technology firms.
How prevalent is ILS in Asia? Is this changing?
Insurance-linked securities (ILS) in Asia have predominantly focused on Japanese and Australian perils, given the appetite for protection within these markets and the requirement for sophisticated catastrophe model coverage in these regions.
China Re issued the first Chinese catastrophe bond in 2015, but we have not seen additional issuances since. The Indian and Philippines governments have reportedly been looking at issuing catastrophe bonds, although nothing has materialised to date.
While ILS promoters continue their efforts to educate the Asian market on risk transfer alternatives, we expect ILS/cat bond issues from Australia and Japan to dominate Asia-Pacific ILS activity in the near term.
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