The robust development of insurance in Asia, coupled with good economic growth, has attracted global investor interest in the region, according to a report by Fitch Ratings.
The report, Asian Reinsurance Markets: Fall in Regional Natural Catastrophes; Huge Growth Potential, explains that many Asian markets—including the relatively untapped Chinese and Indonesian markets—have low insurance availability and offer good growth opportunities.
The contribution of Asian reinsurance premiums globally is low and not in line with population size and economic growth, suggesting a huge potential for growth.
According to the report, the frequency and severity of natural catastrophes has increased. But while Asia has been one of the worst hit regions, occurrences have lessened since 2011.
Fitch believes that the rising occurrence of natural catastrophes will heighten the awareness of the importance of reinsurance protection and risk management.
“This will prompt direct insurers to adopt appropriate risk transfer and capital preservation strategies, and reinsurers to press for higher premium rates that better reflect their claims experience,” said the report.
“This will propel the growth of direct insurance and reinsurance businesses, supported by the increasing affluence and generally stable economic conditions in the Asian Markets.”
Many reinsurers in the region have also started to tighten their underwriting conditions to exclude free catastrophe coverage and impose event limits on selected property policies in response to the unexpectedly massive losses arising from the Thai floods.
Fitch believes it is important for insurers to enhance their risk management practices and increase their catastrophe-modelling sophistication to better prepare for future disasters.
The report explains that: “Many industry players in markets such as Thailand and Indonesia have also started to look into developing a more comprehensive flood-risk statistical model for better risk assessment during the underwriting process.”
Finally the report highlights the positive evolution of the regions regulatory landscape in recent years.
According to Fitch, regulators in the region continue to enhance regulations to monitor adequacy of capital resources in an effort to contain unforeseen volatilities. This means direct insurers will continue to employ reinsurance as a means to transfer their underwriting risk and reduce the strain on capital requirements.
“Fitch is positive on the various regulatory initiatives that have been implemented to boost the overall financial health and transparency of the reinsurance market,” said the report.
“These regulations are likely to propel the demand for technical expertise, risk transfer, and reinsurance capacity by direct insurers to meet the higher regulatory requirements.”
Fitch explains that jurisdictions such as Thailand and South Korea have moved away from a one-size-fits-all solvency margin regime to a risk-based capital (RBC) regulatory framework.
To read the report in its entirety visit the Fitch Ratings website.
