Competition has driven rates to a plateau
The growth potential of the reinsurance market in Asia is enormous given the relatively low insurance penetration compared with the more established markets of the US and UK, Siew Wai Wan, senior director, insurance, Fitch Ratings, told EAIC Today.
“There is increasing risk awareness and continued demand for reinsurance protection by the direct insurance companies in the region, especially in the wake of multiple natural catastrophes that have occurred in recent years,” Wan said.
“The growing Asian economies with increasing spending power/wealth affluence of the population fuels further demand for insurance protection.”
In terms of rates for regional reinsurance policies renewed during 2014, Wan said they have fallen to a plateau.
“The softening rates were largely attributable to a decrease in the frequency and severity of natural catastrophes in the region since 2011, and to plentiful reinsurance capacity through new start-ups and Asian operations set up by global reinsurers.
“Several companies have taken advantage of the current market to expand their reinsurance coverage at a lower cost,” Wan said.
Fitch also believes that reinsurers in Asia continue to face the problem of limited data availability to more accurately model and manage their catastrophe risks, while they grapple with the aftermath of the catastrophes. Compilation of more comprehensive statistics should improve as the markets evolve.
But despite these challenges there are also pockets of business where market conditions are a lot more positive. Aviation reinsurance rates look set to increase during the next renewal period, Wan said, although the size of the increase is unclear.
Wan pointed out that at least four aviation mishaps have happened so far in 2014, two Malaysian Airlines planes, one TransAsia Airways plane, and one Air Algerie flight. The losses from each of these incidents are still being calculated but are likely to cost the re/insurance industry at least $1 billion in aggregate, Wan said.
Wan added that there is increasing foreign interest in setting up operations in the region. “The growth momentum of the Asian reinsurance markets is strong, with increasing risk awareness and continued market demand by the cedants, spurred by frequent occurrences of natural catastrophes in the region.
“Many Asian markets offer vast growth potential, including the relatively untapped Chinese and Indonesian markets,” Wan said.