SIRC: Reinsurance capacity squeeze higher this year for APAC insurers — Gallagher Re

October 30 2023 by

Asia Pacific reinsurance capacity has tightened in 2023 relative to its global peers primarily driven by inflation and higher reliance on reinsurance, a Gallagher Re study said. 

The global reinsurance broker’s Asia Pacific Market Watch report, said in view of these challenges, APAC insurers are optimising their balance sheets and considering new operating models. Retrospective solutions are also gaining popularity as cedants look to divest non-core or legacy liabilities, the study said.

Inflationary pressures were noticed in several Asian countries, where food, energy and commodity prices rose. Also several currencies in the region saw further depreciation while Covid-19 related supply chain disruptions still persist, the study observed. As Asia Pacific insurers rely higher on reinsurance, a relatively small reduction in reinsurance capacity might lead to a material impact on insurer’s results, it said.

“Tougher economic and market conditions will keep pressure on margins and overall profitability, while the cost of capital remains high in the short to medium term. In Asia, developing regulation, which focuses on reserve adequacy and capital allocation is also highlighting underperforming lines. This, in turn, is shaping new business strategies,” Jim Attwood, chairman, strategic solutions APAC at Gallagher Re, said.

The study also noted that rising interest rates have helped boost investment income and somewhat counterbalance the underwriting results impacted by inflation.

Mark Morley, managing director of APAC at Gallagher Re, said: “The primary challenge in this richly diverse region remains a lack of insurance coverage, with penetration rates in certain regions still less than half that of the US/Europe. However, despite the adverse economic situation, the fast-moving emerging markets that slowed during the pandemic now appear to be rebounding.”

Morley added: “This is a region with huge potential. We hope that this report will prove helpful to those who are interested in APAC’s specific markets, as well as some of the broader themes experienced collectively across the non-life insurance market in the region.”

In another recent report, Gallagher Re noted that 2023 is on track to become the sixth year since 2017 to exceed US$100 billion in annual insured nat cat losses globally, according to Gallagher Re’s Q3 nat cat update. This would be sixth time in the past seven years this would have happened. Of the total global nat cat insured losses so far this year, 15% of them were in Asia, with economic losses at 29%. Gallagher Re noted that the protection gap in Asia is 94% and gap in Oceania is 37%.

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