Asia-Pacific reinsurers deliver strong results in strengthened investment climate

According to a recent report by AM Best, reinsurance companies in the Asia-Pacific region experienced a sharp increase in their return on equity, rising to 9.2% from 0.1% under IFRS 17, which was driven by improved investment conditions and a relatively calm period for catastrophic events.

According to the report, reinsurers in the Asia-Pacific region, which tend to focus on traditional property lines and maintain substantial portfolios of proportional treaties, have not benefited as much from the global rise in reinsurance rates.

However, their operating performance has remained relatively steady over the years. Many reinsurers in the region are aiming to enhance profitability by expanding into international markets. In contrast, China is still grappling with a weak post-COVID recovery.

AM Best’s composite of Asia-Pacific reinsurers includes only companies reporting under IFRS 17. Collectively, these reinsurers achieved a combined ratio of 91.6% in 2023, marking a 2.9-percentage-point improvement from the previous year.

The sharp increase in return on equity during 2023 was largely driven by the recovery of investment losses, higher investment income due to rising interest rates, and better underwriting performance, with the exception of China.

“Asian reinsurers’ underwriting strategies for 2024 are diverse and depend on their ability to secure retrocession capacity, as well as their ability to manage the underwriting cycle,” commented Christie Lee, Senior Director, Head of Analytics, AM Best.

“The large Asian reinsurers have adjusted their catastrophe capacity offerings in their home markets to shrink their catastrophe exposure accumulation, while others have deployed a mature market growth strategy to capture the benefits of material rate increases.”

The report highlights that the capital position of major reinsurers in the Asia-Pacific composite remains strong. Diversification continues to be a key strategy for the region’s large reinsurers.

Alongside geographic expansion, they are broadening their business beyond traditional property treaties by developing liability, life/health, and specialty portfolios. This diversification helps reinsurers better navigate the fluctuations of the reinsurance cycle.

“Reinsurance renewals throughout the first half of the year have been more orderly than in 2023, generally aligning with market expectations,” added Chris Lim, Associate Director, Analytics, AM Best.

“Renewed interest has emerged for lower-layer reinsurance coverage in South and Southeast Asia in 2024, reflecting reinsurers’ growing confidence in prevailing rate adequacy. This shift in sentiment underscores the cyclical nature of the reinsurance market. However, reinsurers’ acute awareness of the ongoing challenges posed by climate risks indicates that the players will likely maintain a vigilant approach to risk assessment and pricing.”

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