While government initiatives and regulatory support can in general influence the development of insurance and reinsurance markets across Asia, the actual impact varies across markets, according to ratings agency A.M. Best.
A report from A.M. Best states that the desire to support social stability, alongside a greater level of fiscal certainty, is one key motivation governments across Asia utilise re/insurance as a policy tool.
However, A.M Best says the impact of government initiatives to support local re/insurers can vary significantly both by country and over time.
“Because the implementation, effectiveness, and sustainability of government schemes can be subject to delays, funding pressure, and shifts in political priorities (especially as more stakeholders are involved), the impact of government initiatives on reinsurance varies significantly by country and over time,” says A.M. Best.
Where government intervention does accelerate premium growth, it needs to be matched by strengthened enterprise risk management capabilities; otherwise, there could be a higher risk of earnings and capital volatility, warns the ratings agency.
A.M. Best highlights throughout the report how the impact of both government support and regulatory support varies across Asian Markets, underlining that in some instances, government regulators also intervene and restrict cessions to foreign reinsurance companies.
While such initiatives can help boost local reinsurers’ business growth over the short term, it does little to address the business line or geographic concentration risk issues those local reinsurance entities face.
“In smaller markets with significant catastrophe exposure, exposures to local reinsurers that are exposed to the same events can easily become problematic for primary insurers. Substantial retrocession to the international market helps mitigate related risks, and low insurance penetration means that the claims impact of catastrophes is often limited,” continues the ratings agency.
While, this and other moves across certain Asian markets looks to control access, A.M. Best notes there is no clear trend of protectionism in Asia. And while there are some limits on using foreign reinsurance protection, there are none for the use of retrocession capacity.
