Inflation and natural catastrophes are set to moderately increase pricing and squeeze underwriting margins in the Asian reinsurance market, says Fitch Ratings.
According to Guy Carpenter, risk-weighted prices rose by 1%-5% in Japan for programmes covering the country’s 2021 windstorm, with the average price for typhoon risk reaching a 25-year high. Risk-weighted prices for earthquake risk also moved up by 1%-4% during the year.
Persistent inflation will squeeze reinsurers’ underwriting margins and pressure reserving, says Fitch, highlighting the importance of adequate risk-management practices.
The report notes that these risks will be offset somewhat by the short-tailed nature of insurance products in most Asia-Pacific markets, while higher-running yields should support margins.
The ability of primary reinsurers to appropriately re-price policies will also depend on external factors, says Fitch, such as the extent of market competition, insurance affordability and political headwinds.
Fitch expects reinsurers to maintain underwriting discipline amid the economic volatility.
Asia’s average reinsurance combined ratio remained below 100% in 2021. Meanwhile, the combined ratio for China’s overall P&C reinsurance business improved to 99.39% in 2021, from 102.11% in 2020, following significantly stronger underwriting results from overseas segments, optimised business structures and active risk management, says the report.
However, China Re recorded a slight deterioration in the underwriting margin of domestic P&C reinsurance amid comprehensive motor insurance reform.
The combined ratio of its domestic P&C business rose by 0.17pp to 99.95% in 2022. China Re’s domestic P&C reinsurance premiums were up by 5% YoY in 2021, reaching CNY35bn.
The solvency of Asia’s reinsurance sector is healthy, affirmed the report, with the aggregate comprehensive solvency ratio of China’s reinsurance sector standing at 319% at end-2020 and 311% at end-2021, more than the 100% regulatory minimum.
The capitalisation of Thai Reinsurance Public Company Limited was also sound at above 250% at the end-2021, against a minimum requirement of 140%.