Inflation, war, natural hazards to hinder APAC reinsurance growth

“Increase in cost of claims due to high inflation is adding pressure on reinsurers’ profitability,” said Deblina Mitra, senior insurance analyst at GlobalData. “To reduce this, reinsurers are limiting coverage on loss-making lines, raising premiums, and pushing for higher deductibles by insurers. This, in turn, will prompt insurers to increase premium prices and retention levels to make a reserve for higher deductibles. For instance, Australian insurer IAG, in its January 2023 renewal of catastrophe reinsurance programs, increased retention by 75% compared to July 2022.”

Asia-Pacific’s top five reinsurance markets in terms of ceded premiums are Japan, China, Australia, Hong Kong, and South Korea. These markets held a combined 84% share for the region in 2021.

Vulnerable lines include aviation, marine, cyber, political violence, and trade credit insurance, which are anticipated to remain susceptible to losses from the ongoing Russia-Ukraine war in 2023. GlobalData also said that insurers in the APAC region are struggling to find suitable coverage for war risks for shipment of goods and natural gas supplies around the conflict zone, as traditional reinsurers are exiting this line of business.

However, several regulatory developments in Asia-Pacific can soften the blow of the negative factors, the report said.

One such development is the implementation of higher capital standards for insurers in Japan by 2025. GlobalData said this is expected to create demand for reinsurance by putting pressure on life insurers to increase reinsurance to reduce asset risks. Japan accounted for 35.2% of Asia’s ceded premiums in 2021 and is forecast to grow at a CAGR of 4.1% from 2021 to 26.

In China, reinsurers are expected to benefit from reduced entry barriers. The loosened regulations give preferential treatment to foreign reinsurers, if their solvency regulatory system is recognised in China. Reinsurers are now taking advantage of this, as shown by MAPFRE Re establishing a China subsidiary in 2022. China accounted for 25.6% share of Asia-Pacific ceded premiums in 2021, with China’s reinsurance premiums expected to grow at a CAGR of 12.4% until 2026.

“In 2023, reinsurers in APAC will focus on risk management and limit their loss exposure due to the ongoing Russia-Ukraine conflict and high inflation,” Mitra said. “The long-term growth, however, will remain stable due to favourable regulatory developments, which will create new business opportunities for reinsurers.”