Natural calamities, pandemic push Asian reinsurers’ growth

Climate change and the COVID-19 pandemic presents vast potential for the reinsurers’ to transform.

Climate change and the pandemic is highlighting the importance of Asian reinsurers as bridges of the region’s protection gap, reports Fitch Ratings.

The gap between economic losses brought about by the increasingly severe impact of natural disasters and insured losses presents a vast potential for reinsurance growth, says Fitch. However, Asian reinsurers face challenges in enhancing their risk mitigation capability and managing premium pricing adjustments amid the frequent catastrophe losses. 

The pandemic is also playing a role in pushing the importance of reinsurance, the ratings agency added.

“The COVID-19 pandemic has dampened Asia’s economic growth and development, but it has also raised the importance and demand for reinsurance. The rapid transformation during the pandemic has fuelled demand for adequate insurance protection for emerging risks such as cyber-attacks,” Fitch said in a report.

The health crisis has also re-emphasised the need for life insurance, Fitch added. “These give rise to the potential to accelerate reinsurance growth and encourage reinsurers to manage comprehensive risk assessment to determine policy coverage, rates and premiums,” the ratings agency said.

Asian reinsurers’ current money at hand is enough to retain the health of their business profiles. Their capital remains commensurate with their business profiles, based on available statistics for selected reinsurers, according to Fitch.

Reinsurers’ current capital management is centred on the reduction of non-essential expenses and setting aside appropriate capital buffers to back up business growth amid economic uncertainty. 

There is also room for mergers and acquisitions in the sector, with the recent regulatory relaxation of foreign shareholding limits to increase overseas investors’ interest in Asian reinsurers across markets.

Meanwhile, the insurance-linked securities (ILS) market is notedly gaining more traction and is expected to see more activity in the medium term. More recently, seven catastrophe bonds were issued using Singapore-domiciled vehicles up to July 2021.

Across markets, Hong Kong was particularly noted as possibly becoming one of the regional hubs for the insurance-linked business after it finalised legislative preparations for ILS in early 2021.