Government intervention and regulatory support can influence the development of insurance and reinsurance markets, but the actual impact varies across markets in Asia, says A.M. Best.
In its Best’s Special Report, titled, “Impact of Government and Regulatory Support for Local Reinsurers Varies in Asian Markets,” the international credit rating agency states that the desire to support social stability with a greater level of fiscal certainty is one key motivation for using (re)insurance as a policy tool. However, the impact of government initiatives can vary significantly by country and over time.
Where government intervention does accelerate premium growth, it needs to be matched by strengthened enterprise risk management capabilities; otherwise, there could be a higher risk of earnings and capital volatility.
Initiatives that favour cessions to local reinsurers do not address line of business or geographic centration risk issues those reinsurers face. Especially in smaller, catastrophe exposed markets, it could increase the risk of reinsurers coming under stress from the same events as their cedants, says the report.