Reinsurance demand is expected to grow significantly in Asia due to accounting reforms, large infrastructure projects, and technology, while considerable opportunities and challenges remain in closing the region’s vast protection gap, according to a new report by Fitch Ratings.
Fitch noted that the implementation of IFRS 17 – new international accounting standard – in 2021 is likely to intensify Asian insurers’ need for reinsurance products that spread underwriting risk and for specific reinsurance structures that support coverage of asset-liability mismatches.
The new standards are likely to affect the systems, processes, and control management of insurers’ business models, and Fitch expects reinsurers to benefit greatly as these changes emphasise their solutions for managing risk volatility.
Additionally, non-life reinsurance business growth over 2018 is expected to be driven by large infrastructure projects such as those currently being undertaken in China, Malaysia, and Thailand, which will particularly benefit credit guarantee, marine, and catastrophe lines.
For example, Swiss Re recently estimated that China’s Belt and Road Initiative could contribute US $28 million in commercial industry premiums by 2030, and Fitch expects this high potential premium to directly result in more premiums being ceded to reinsurers.
Meanwhile, Indonesia doubled its infrastructure spending to $29.8 billion from 2015 to 2017, and in Thailand the government has committed to huge public infrastructure projects as part of its flagship Eastern Economic Corridor (EEC) development policy.
Fitch expects that demand for reinsurers’ products in these regions will rise significantly following the new infrastructure projects and other governmental stimuli.
Furthermore, the development of digital technologies, such as telematics, autonomous driving, and advanced driving assistance is likely to boost overall sales of automobiles, driving demand for re/insurers’ protection products in Asia’s growing motor industry.
Fitch added that significant opportunities and challenges remain for reinsurers in closing the protection gap in Asia, given that many countries have among the lowest levels of insurance penetration in the world despite the frequency of natural catastrophe events in the region.
Economic losses from 2017 disaster events in Asia, which included Typhoon Hato and flooding and landslides in Sri Lanka, reached $31 billion, of which just $5 billion was covered by insurance, according to data from Swiss Re.
Fitch suggested that this gap represented an opportunity for reinsurers to extend their reach, but cautioned that it may be challenging given that many countries still suffer from coverage inadequacy.
It recommended that raising awareness of reinsurance products, service improvement, and collaboration among reinsurance-related entities would all be valuable approaches for narrowing the protection gap in Asia.
