The continuing and often accelerating expansion of Asian economies, as well as the growth of their domestic insurance markets, are anticipated to be the two key drivers of reinsurance demand in the Asian region, according to Fitch Ratings.
Citing a “robust expansion” of Asian economies and their local insurance markets, Fitch Ratings expects that we will see some increasing demand for reinsurance in the region as a result of a variety of structural factors.
Reinsurance activity will be spurred on by economic activity, while other factors such as increased spending on infrastructure adding impetus, with projects likely to require insuring and so stimulating additional reinsurance demand.
New line-of-business opportunities, such as cyber insurance, are also expected to stimulate some demand for reinsurance in Asia, Fitch notes, which the rating agency says will offer additional “modest near- to medium-term upside.”
Fitch said that it expects the cyber segment’s reinsurance arrangements will become increasingly important as it expands.
Asian insurers underwriting cyber risks are likely to tap into reinsurers for capacity and diversification, as well as to gain underwriting expertise and plug coverage gaps. This is likely to benefit global reinsurance players with experience and insight gained from European and U.S. markets, the rating agency says.
Insurance penetration is seen as too low in Asia, with the catastrophe loss toll suffered in the region highlighting the work that needs to be done to increase protection to more people in Asia.
The region accounted for almost half of economic losses but only 16% of insured losses, showing the scope for penetration to increase which will require additional backing from reinsurance markets.
One other factor increasing reinsurance demand is of course the soft market and the fact that reinsurance pricing is now at levels where it is much more accessible for some countries in Asia, where insurers may have previously found it an expensive option and so only bought the minimum amount necessary.
Fitch warns Asian countries that have established protectionist measures as a way to expand their reinsurance market to be cautious.
These measures could benefit domestic markets in the long term, but may also limit interest from foreign reinsurers, reducing knowledge transfer and minimising risk diversification in the near term, particularly in catastrophe-prone countries.
Reinsurance is designed to disperse and diversify risks and while the increasing need for reinsurance in Asia is a positive, for both local and international markets, if the region becomes over-protectionist it could end up hindering market development and concentrating losses within the affected countries.
