Rating Agency Fitch has predicted a continued trend of softening reinsurance premium rates for the remainder of 2017 in Asia, as competition intensifies with both established reinsurers expanding operations in the region and increasing numbers of start-ups joining the playing field.
Capital abundance has brought further declines to Asia’s reinsurance premium pricing, but rate of softening has slowed this year, Fitch said; “Overall, the loss-free rate declines in Asia-Pacific during early 2017 were broadly less severe compared with 2016.
“This may be attributed to an uptick in 2016 catastrophe losses after several years of below-average losses, higher reinsurance demand as pricing becomes attractive to marginal market participants and rising inflation expectations in major economies, which adds to reinsurers’ claims inflation and reserving risks.”
Casualty loss-free pricing is a segment highlighted by Fitch as having fast rates of decline; in the April renewal season in Japan, for instance, catastrophe loss-free pricing rates dropped by 7.5% for earthquake and wind perils.
However, pricing levels remained stable in Australia for low-level catastrophe and loss-affected layers as well as for aggregate cover – with reinsurers’ showing limited appetite for these risks.
The liability segment also showed abundant capacity, although appetite increased for cyber liability, Fitch said.
With insurance penetration being amongst the lowest anywhere in the world there’s ample opportunity for growth in the Asian market, and many in the industry feel the emerging markets of Asia hold the greatest potential for increased insurance, reinsurance, and also insurance-linked securities (ILS) participation.
To answer to this demand, the region’s seen an influx of traditional and new, global, foreign, and local industry players flood the market with offers for insurance coverage – resulting in pricing pressure and softening rates.
To improve the resilience of Asian countries and the wider economy against the increasing threat of natural catastrophe events and to improve financial sustainability, regulatory advances and schemes to boost insurance penetration levels are taking shape throughout the continent, although the developments do still look to favour domestic players.