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Jan 2022

Asia: More volatility expected for reinsurers as risks evolve

Source: Asia Insurance Review | Dec 2021

Asia-Pacific reinsurers will increasingly price their insured risk on scenarios that have limited history: whether that be policies covering various catastrophe perils or landscape evolution following rapid urbanisation, says S&P Global Ratings (S&P) in a new report. The result will be higher volatility in claims and earnings.This is because risk markets are rapidly evolving. This means some of the data for pricing risk is becoming obsolete.
 
Reinsurers’ earnings volatility is set to increase from more extreme weather events, as well as persistent reinvestment challenges brought about by low interest rates and volatile capital markets, says the global credit rating agency. In S&P’s opinion, the sector will need to review its business models to stay abreast of evolving risks.
 
Rising awareness to protect against uncertainty, including the ongoing COVID-19 resurgence and extreme weather, should boost underlying primary insurance needs. This offers the upside of higher demand for reinsurance protection. At the same time, reinsurers will likely need to invest in stronger risk selection and pricing analysis to safeguard underwriting results.
 
S&P nevertheless sees the credit outlook as largely stable for the Asia-Pacific reinsurance sector. Its analysis of 15 Asia-Pacific reinsurers reveals that many of them are focusing on portfolio optimisation while improving underwriting profitability. COVID-19 related claims have been manageable, and repressed economic activity also led to fewer claims (particularly for motor insurance). Moreover, reinsurers with bigger international exposures saw more volatility. A 
 
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