Adequate capacity leads to stable Asia Pacific reinsurance pricing, says Fitch

According to Fitch Ratings, adequate capacity has led to stable reinsurance market pricing for the Asia Pacific (APAC) region throughout 2024.

Fitch notes that Asia’s premium-pricing rates signalled stable pricing in 2024 renewals, in comparison to 2023, according to various different brokers.

A key example is from insurance and reinsurance broker Aon, who said that the Japanese catastrophe reinsurance market revealed increasing capacity and competition, which ultimately led to stable pricing and small risk-adjusted reductions.

Additionally, Fitch highlights how the Korean reinsurance market was stable at the April 1, 2024 renewal of coverage, with more than adequate capacity for property catastrophe risks and stable pricing and terms.

The agency explained that it thinks reinsurers’ increased appetite for catastrophe risk could wind up resulting in higher exposure to potential losses, dampening their financial performance.

“The pressure on reinsurers to maintain market share in a competitive market may prompt them to take more risks, leading to a challenging business environment with reduced profitability, increased competition and heightened exposure to catastrophe risk,” Fitch said.

Adding: “Still, we expect reinsurers to maintain discipline in underwriting and risk selection despite the increasingly competitive market. Fitch estimates the average combined ratio of selected Asian reinsurers improved to around 95% in 2023 from 99% in 2022, helped by the absence of Covid-19-related health policies in 2023, more disciplined underwriting and faster premium growth. We believe reinsurers will maintain exposure limits for catastrophe losses to maintain profit and capital adequacy.”

Furthermore, Fitch flagged up how climate change continues to present a growing and substantial threat across APAC,
due to the region’s vulnerability to natural disasters.

Readers will recall that several natural disasters took place across Asia in the first half of 2024, resulting in substantial economic losses.

The Noto earthquake in Japan in early 2024 was the most costly, with estimated economic damages reaching USD17.9 billion. Notably, the earthquake was the sole event added to the CRESTA Industry Loss Index (CLIX) database for Q1’24, with an initial insured loss estimate of $1.9 billion.

Fitch added, that climate change is increasing both the complexity of predicting and pricing risk, and that insurers and reinsurers expect to respond to the rising frequency of catastrophes and the subsequent economic losses by developing sophisticated and reliable catastrophe models.

In fact, the agency sees a “robust and accurate catastrophe model” as crucial for reinsurers to support pricing and capacity decisions, which would ultimately affect their profitability.

Moving forward, Fitch also explained that it anticipates a gradual increase in insurance-linked securities (ILS) transactions in Asia, supported by rising investor interest and emphasis on climate change mitigation.

“We expect the establishment of an ILS hub in Hong Kong in 2021 to bolster market growth and stability, although challenges persist, including the need for further development and increased participation from Asian investors,” analysts said.

Switching attention towards cyber, the agency also sees cyber reinsurance as an area of potential growth for APAC.

In particular, ransomware attacks and cybersecurity incidents, including the CrowdStrike outage in July, have become one of the predominant cyber threats to organisations globally.

However, Fitch states that it believes that reinsurers’ ability to manage the systemic nature of cyber risk has not been established, due to their reserving and pricing policies remaining untested by catastrophic cyber events.

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