Macau: Most of Typhoon Hato losses were reinsured
Source: Asia Insurance Review | Mar 2018
The Macau non-life insurance industry’s ability to withstand 2017’s Typhoon Hato (Hato) shows that despite the market’s small size, it remains a healthy one, helped by strong capitalisation and earning capabilities as well as reinsurance plans, according to an A.M. Best briefing.
The Best’s Briefing, titled “Typhoon Hato Shows Macau’s (Re)insurance Models to be Robust,” states that the vast majority of insured losses associated with Hato were ceded to the international reinsurance market, with only a very small portion retained in the local market. As a result, the net retained losses from Hato, which made landfall in August 2007 as the strongest typhoon to hit Macau in more than half a century, are manageable for local insurers.
High capital requirements
In addition, Macau’s insurance regulator takes a conservative approach by requiring a minimum solvency margin for non-life business. Under these high capital requirements, local insurance companies tend to focus on the bottom line in order to deliver their shareholders an expected return-on-equity (ROE).
As a result, the earning capabilities of the top three non-life insurers in Macau, which represent 70% of the market share, are considered strong, with five-year ROEs ranging from 9% to 24%.
Overall, A.M. Best believes the net retained typhoon loss is an earnings event rather than a capital event, as the market is well-capitalised and well-protected by reinsurance. Non-life insurers have experienced stable and profitable performance in the past, and A.M. Best expects these companies will recover their losses from Hato in a couple of