A new report from financial services ratings agency, AM Best explores how the challenges from COVID-19 are expected to continue evolving for the Asia-Pacific reinsurance sector.
In the report, “Global Reinsurers Maintain Equilibrium Through COVID-19 Turbulence,” it notes that the Asia-Pacific region remains an important growth and diversification play for international reinsurers.
There are many key factors that have led to prolonged weak pricing trends, including the entrance of new domestic participants in the region and the increased capacity of international reinsurance players.
Aside from the struggle with the volatility resulted from COVID-19, the issue of deteriorating underwriting profitability continues to be a challenge faced by reinsurers in the Asia-Pacific region.
In the report, AM Best noted that the operating performances of Asia-Pacific non-life professional reinsurers have deteriorated over the last few years. This is partly due to increasing underwriting losses, which has lead to a trend of declining technical results that has risen in 2019 and 2020.
Based on AM Best’s research, only a few non-life reinsurance companies in Asia-Pacific managed to achieve a combined ratio below 100% in fiscal-year 2019, despite many smaller reinsurers in the region not being materially impacted by the Japan catastrophe losses in 2019 and loss creep from 2018 events.
With the economic fallout from the pandemic potentially worsening, the question remains of what may happen to the supply and allocation of capacity across market segments in Asia-Pacific if reinsurers are to face greater challenges in producing results that meet, or exceed, their cost of capital.