Reinsurance News

Fitch highlights impact of inflation & nat cats on Asian reinsurance market

31st August 2022 - Author: Kane Wells

Inflation and natural catastrophes are set to moderately increase pricing and squeeze underwriting margins in the Asian reinsurance market, says Fitch Ratings.

asia-globeAccording 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.

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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%.

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