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Asia: Regulatory reforms shaping competitive dynamics in reinsurance

Source: Asia Insurance Review | Oct 2016

Various regulatory initiatives in Asia could lead indirectly to greater demand for reinsurance, as direct insurers rethink risk management strategies and appetite, said Fitch Ratings in a report released last month. Asian regulators have implemented – or are in the process of implementing – a range of measures that would alter the operating and business climate in the region.
Among them, legislative changes in Indonesia, Vietnam and India are trending towards more protectionism, with attempts to increase the percentage of insurance business to be placed with domestic reinsurers. Local reinsurers are being constantly challenged in their ability to improve their risk management sophistication and controls, to keep up with the upcoming surge in premium volume. The increase in protectionist measures will affect opportunities for business growth and participation of foreign reinsurers in these markets.
   As for China, Fitch believes that the new solvency system – China Risk-Oriented Solvency System (C-ROSS) implemented in January – is likely to prompt greater placement of reinsurance in the local market rather than overseas because of the different capital charges imposed on reinsurance receivables from local reinsurers and overseas reinsurers. Fitch also expects market competition to intensify with several new local reinsurers being set up in China since last year.
   Meanwhile, the gap between insured losses and total economic losses arising from natural catastrophes improved in 2015, but Fitch believes it is still far too wide. Many Asian markets have low insurance penetration, which Fitch believes will provide solid business growth potential.
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