Despite many reinsurers in Southeast Asia recording underwriting losses last year, the region still offers significant growth potential given the hardening market conditions and greater demand for health coverage, according to AM Best.
Despite reduced capacity and increased rates, AM Best says the COVID-19 pandemic has accelerated the growth trend in the life and health insurance segment, as demand for coverage has risen as consumers have become increasingly aware of the benefits.
Given that the penetration of health insurance remains very low, AM Best expects the growth in this segment to continue to outpace other classes of business in the region.
While the rapid expansion of the health line of business will lead to heightened underwriting risks, AM Best says the balance sheet strength of the domestic reinsurers to remain solid.
The robust risk-based capitalisation levels of these companies can support such an increase in underwriting risks.
In addition, the life and health business typically has no exposure to catastrophic risk and tends to be more stable than the traditional property/casualty businesses, and therefore is subject to lower capital requirements as compared with the commercial business lines.
Overall, this rise in demand for life and health insurance has helped domestic Southeast Asian reinsurers to counter the strong competition from global reinsurers.
AM Best views domestic reinsurers as having cultural advantages and a better understanding of customers’ needs than their foreign counterparts. In addition, the margins in the retail health and life segment are often too slim to attract enough interest from global reinsurers.
However, challenges remain for local reinsurers to grow this segment further. The retention level of life and health products is significantly higher compared with the property/casualty insurance segment.
As direct insurers accumulate capital and develop better analytical capability, they will be able to retain even more business and this may reduce opportunities available to local reinsurers.