Reinsurance in Asia will enjoy rapid growth
Robust development of insurance in Asia coupled with the region's low contribution to global reinsurance premiums written and strong economic growth means huge growth potential for reinsurance in the region, according to Fitch Ratings.
In a special report titled Asian Reinsurance Markets: Fall in Regional Natural Catastrophes; Huge Growth Potential, Fitch said that many Asian markets have low insurance penetration, in particular the untapped Chinese and Indonesian markets.
“Asian economies constitute a significant component of the global economy (33 percent of global GDP), along with 59.2 percent of the world’s total population in 2012,” said Fitch in the report.
“However, the total insurance penetration rate in Asia was 5.73 percent in 2012, compared with 8.03 percent in the US and 11.27 percent in the UK. In particular, three of the most populated emerging markets in Asia: China, India and Indonesia, had relatively low penetration rates (from 1.77-3.96 percent). These markets, with rising household income and rapid industrialisation, contain 68.6 percent of Asia’s population.”
The report also observes that although Asia has been affected by an increase in the frequency and severity of natural catastrophes in recent years, there have been fewer events since 2011. Also, premium rates for regional reinsurance policies renewed during 2012-2013 have reached a plateau, except for some marginal rate increases for selected policies written on catastrophe-prone areas within Asia.
Demand for reinsurance is likely to benefit from an evolving regulatory environment as regulators strive to improve the overall financial health and risk management capabilities of insurers, according to Fitch, which believes that as direct insurers review their risk management strategies and appetites in line with tighter regulatory initiatives, insurers may transfer more risk to reinsurers.
Fitch envisages a trend of new Asia-based reinsurers being set up to tap the extensive reinsurance business potential in the region. The latest entrant is Peak Reinsurance (Peak Re), which was set up in January 2013 in Hong Kong. Peak Re was initially capitalised at $550 million; it focuses on underwriting property and casualty reinsurance business across Asia, particularly the emerging Chinese market.
