SINGAPORE–(Business Wire)–The challenges from COVID-19 continue to evolve for the Asia-Pacific reinsurance sector, with the related macroeconomic and investment impacts pressuring profitability, according to a new report from AM Best.
In its new Best’s Market Segment Report, “Global Reinsurers Maintain Equilibrium Through COVID-19 Turbulence,” AM Best notes that the Asia-Pacific region remains an important growth and diversification play for international reinsurers. The entrance of new domestic participants in the region and the increased capacity of international reinsurance players are among the key factors that have led to prolonged weak pricing trends.
Aside from grappling with the volatility brought on by COVID-19, the issue of deteriorating underwriting profitability continues to be a challenge faced by reinsurers in the Asia-Pacific region. AM Best notes in the report that the operating performances of Asia-Pacific non-life professional reinsurers have deteriorated over the last few years due to increasing underwriting losses, and this trend of declining technical results has accelerated in 2019 and 2020.
“With falling interest rates in many economies, reinsurers will need to refocus on underwriting discipline in order to meet their cost of capital,” said Christie Lee, senior director, analytics. “We believe that reinsurers in the Asia-Pacific region will likely have to accept lower and more volatile investment yields, or take on higher asset risks, at least over the near term. In light of this, reinsurers may choose to revisit the management of their core business to deliver more profitable technical results, which will serve to reduce the pressure on meeting investment return targets.”
Based on AM Best’s research, only a few non-life reinsurance companies in Asia-Pacific managed to achieve a combined ratio below 100% in fiscal-year 2019, despite many smaller reinsurers in the region not being materially impacted by the Japan catastrophe losses in 2019 and loss creep from 2018 events. “The average combined ratio of Asia-Pacific reinsurers exceeded 100%, due to a high frequency of large-scale natural disasters, heavy agricultural losses in China and India, as well as inadequate pricing as a result of intense competition due to abundant capacity,” said Myles Gould, director, analytics.
With the economic fallout from the pandemic potentially worsening, the question remains of what may happen to the supply and allocation of capacity across market segments in Asia-Pacific if reinsurers are to face greater challenges in producing results that meet, or exceed, their cost of capital.
To access a copy of AM Best’s annual market segment report on the global reinsurance industry, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=300732.
AM Best will hold a market briefing on Tuesday, Sept. 22, 2020, from 3:00-4:30 p.m. (CEST) to discuss the global reinsurance sector and its outlook. More information and registration can be found at http://www.ambest.com/conferences/rmbzurich2020.
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.
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