Asian reinsurers in catastrophe-prone countries remained profitable over 2017 despite continued market softening thanks to effective risk management, favourable loss-reserve development, and limited catastrophe events, according to a new report by Fitch Ratings.
Fitch found that big reinsurers in China, Japan and Korea recorded favourable profitability with return on equity (ROE) of 5-9%, although Indonesian reinsurers fared better with average ROE of 23% due to strong underwriting performance and steady investment returns.
Over the past five years, the average combined ratio for Indonesian reinsurers remained around 88%, reflecting prudent underwriting, while investment yield was steady at an average of 7% over 2013-2017.
Fitch said it believes steady premium growth and investment returns with an emphasis on bottom-line profitability will support the Indonesian reinsurance industry’s operating performance going forward.
The rating agency also noted that rates have fallen at a slower pace during 2018 reinsurance renewals when compared with the two previous years, with renewals in Australia even recording rate increases of up to 2.5% due to claims from Queensland’s 2017 Tropical Cyclone Debbie.
Pricing for loss-free excess of loss property catastrophe programmes in China were typically renewed in January 2018 at the same rates as in 2017, while south-east Asia loss-free rate was up to 0.4% as the 2H17 increase in global catastrophes was offset by intense competition.
Fitch observed that insurance companies attempted to negotiate price discounts, while reinsurers competed for placements, resulting in oversubscription for them.
At the same time, international companies were competing with local reinsurers by undercutting on price and agreeing to risk-adjusted rate reductions.
Fitch said that it expects reinsurance renewal rates to continue to soften due to abundant reinsurance capacity as providers looks to strengthen their presence in Asia, while supply in the market remains plentiful due to the lower level of losses in Asia over 2017.
