According to an S&P Global Ratings report based on analysis of 15 Asia-Pacific reinsurers, slower growth and subdued underwriting margins signal increasing downside risks for the sector.
The report observes that Asia-Pacific (APAC) reinsurers’ underwriting performance will remain pressured by the higher frequency of loss occurrences, increasing costs, and pricing challenges owing to competition and un-modelled risks.
It adds that renewals in 2023, influenced by the global rate hike trend, will partially determine the extent of respite from subdued underwriting results for the reinsurers.
S&P’s report also notes that Global headwinds should reduce investment returns over the next 12–24 months for most APAC reinsurers, who are highly dependent on investment returns to cushion underwriting shortfalls, as compared with the top 21 global reinsurers.
The firm forecasts premium growth for rated Asia-Pacific reinsurers to be in mid-single digits, as they benefit from underinsurance within the region and the hardening of global rates amid macroeconomic headwinds.
Catastrophe risk also remains lower for the region compared with global reinsurers, suggests the report, however, increased frequency should push up costs and demand for catastrophe protection.
S&P writes, “We expect reinsurers to evolve risk management to facilitate profitable underwriting. The still wide natural catastrophe protection gap in Asia-Pacific will facilitate growth amid rising demand on catastrophe cover. Rated Asia-Pacific reinsurers will likely more actively review their retained exposures and recalibrate their risk appetite.”
Healthy capital levels should remain intact amid market swings and the impact of fair value losses on shareholders’ equity, adds the report.
