Asian reinsurers to refocus existing protection amidst pandemic

They are re-emphasising on capital to build buffers against claims and losses.

Asian reinsurers will likely place renewed emphasis on ensuring the adequacy and appropriateness of their existing protection, according to a Fitch Ratings report, after catastrophic losses in 2019 and H1 2020 and bumpy times ahead due to the pandemic.

So far, pandemic-related losses appear to be manageable due to tight measures against the virus, coupled with adequate pre-pandemic capital. Asian reinsurers are refocusing on capital management to bolster risk-adjusted capitalisation to build buffers against a potential increase in claims and investment losses.

However, business growth will slow as the economy and direct insurers' premium growth decelerate, Fitch warned. Some have also begun catastrophe reinsurance/retrocession cover in excess of the minimum regulatory requirements to reduce risks.

Mergers and acquisitions (M&A) may be dampened by the economic slump and market turmoil risks as reinsurers will have a hard time placing themselves strategically and competitively to survive uncertainties.

On the other hand, the expansion of the insurance-linked securities (ILS) market in Asia will grow reinsurers’ capacity and diversify their capital sources, the report said. It will revolve around investor interest coming from favourable loss experiences.

Regulators in several markets have amended or are in the process of amending (re)insurance related regulations to reflect market changes. These changes will force reinsurers to develop necessary internal capabilities and risk-management frameworks to manage the impacts, Fitch concluded.