APAC reinsurers prioritise profit amid slower premium growth: AM Best
November 1 2024 by InsuranceAsia News
Reinsurers in the Asia Pacific are expected to see slower premium growth in 2024 than in previous years due to a shift in strategy, emphasising a more profit-oriented underwriting approach, said Christie Lee, senior director and head of analytics at AM Best.
This change includes proactive portfolio reviews and the downsizing of unprofitable business lines.
“Underwriting results and net income generally have improved noticeably, partially attributed to benign catastrophe events in the region,” Lee added.
The net combined ratio under IFRS17 of AM Best’s Asia-Pacific reinsurance composite improved to 91.6% in 2023 from 94.5% in 2022, with the reported return on equity rising significantly to 9.2% from 0.1% in during the same period.
“The positive trend extends in first-half 2024 results, attributed to the recovery of realised and unrealised investment losses, higher investment income in a higher interest rate environment – excluding China – and improved underwriting results.”
The positive operating performance is also aided by the benign natural catastrophe activities in major Asian insurance markets, she added.
In response to the challenging retrocession market conditions in the past two years, many Asian reinsurers have restructured their retrocession programs, leading to adjustments in catastrophe capacity offerings to cedents and a reduction in catastrophe exposure accumulation, particularly in peak zones, often their home markets, or markets where retro costs are not economical.
“Maintaining a balanced portfolio between life and non-life, as well as property and casualty, can help reinsurers mitigate losses during a catastrophe-active year by benefiting from profits generated by other uncorrelated lines.” Christie Lee, AM Best
“Those who have secured retro capacity from past good experiences have greater flexibility to implement growth strategies and capture business opportunities,” she said.
Compared to global renewal rates, which are unlikely to see decline due to hurricanes Helene and Milton, Asian rates are expected to remain stable thanks to increasing capital size and capacity from onshore and Asia-Pacific regional reinsurers, driven by the formation of new reinsurers and the conversion of branches into subsidiaries.
“As local and regional reinsurers are not heavily impacted by US catastrophe losses, their strong support for small to medium-sized cedents provides a relatively stable rate environment.”
In order to reduce underwriting volatility and optimise operating performance, reinsurers are advised to have diversification across business classes and geographic regions.
“Maintaining a balanced portfolio between life and non-life, as well as property and casualty, can help reinsurers mitigate losses during a catastrophe-active year by benefiting from profits generated by other uncorrelated lines.
“However, expanding underwriting to less-familiar lines or geographic locations requires good underwriting expertise to ensure prudent risk selection,” said Lee.
Lastly, in light of higher weather-related losses, reinsurers are exercising increased caution in assessing their risk appetites for catastrophe risk and closely monitoring their risk accumulation. The rising cost of retrocession is prompting reinsurers to increase their retro retention levels and eliminate aggregate covers.
“Consequently, this also motivates reinsurers to reduce their exposure to frequency risks from their cedents to manage their own retention level effectively.”
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