AM Best’s report on a select group of Asia-Pacific reinsurers, reveals that some players have pivoted towards non-property lines of business as appetite for catastrophe-exposed property risk has diminished on the back elevated catastrophe activity in the region.
Various reinsurers in the region cut their participation in both domestic and overseas property cat business, with some actively seeking alternative sources of premium and improved earnings diversification in areas such as health reinsurance and other specialty lines of business.
“In some cases, this has been achieved by leveraging the use of managing general agents (MGAs) that have specialised expertise in niche segments overseas, to gain access to profitable business that would offer little to no correlation to their existing portfolios,” says the ratings agency.
Although, AM Best does warn that while there is some promise in such a strategy, proper distribution and channel management and control will be key to achieving underwriting success in the long run.
All in all, AM Best describes the cohort of APAC reinsurers as strong and resilient, with growth being sustained in spite of tough market conditions.
The composite delivered strong growth in 2022, with P&C net premiums written up by 8.1% year over year, compared with 6.4% in 2021.
The results demonstrated ongoing efforts to diversify business and the benefits of both primary rate and reinsurance rate increases.
When compared with the US and Bermuda, APAC reinsurers enjoyed a less immediate positive benefit from excess-of-loss rate hardening, which AM Best attributes to the fact domestic proportional treaties account for a relatively large proportion of their books.
AM Best’s report also reveals that a decline in retrocession capacity suppressed reinsurers capacity offering, while a lack of excess-of-loss retro availability may lead to higher underwriting volatility for firms.
Christie Lee, Senior Director, Head of Analytics, AM Best, said: “With a higher cost of capital and a challenging investment environment in 2022, Asia-Pacific reinsurers maintained their underwriting discipline in 2023 renewal to ensure a reasonable profit margin and adjust pricing in proportional treaties to improve performance.
“Primary insurers also followed this rule, aligning with reinsurance pricing, terms and conditions, which is expected to lead to better revenue and underwriting results for reinsurers.”
Chris Lim, Associate Director, Analytics, AM Best, added: “Going forward, AM Best expects shareholders’ equity levels to show a one-time movement in 2023 as most reinsurers in the composite start adopting the new IFRS 17 accounting standard. The magnitude of change will vary by company depending on business profile mix, investment classifications and actuarial assumptions.”
