Insurers in Australia and Japan have the greatest exposure to weather-related losses among major APAC markets, while solid capital buffers and adaptive underwriting will help mitigate rising risks.
According to a report by Moody’s Ratings, titled ‘Capital strength and adaptive underwriting mitigate rising weather-related risk’, as insurance penetration rates in P&C lines are “generally low in major APAC markets”, except Australia and Japan, most insurers’ exposure to weather-related losses will be limited.
“Over time, however, more frequent and severe Nat CAT, rising insured asset values driven by urbanisation and economic growth, and greater insurance uptake will increase insurers’ exposure to physical climate risks,” the report said.
At the same time, insurers in major APAC markets maintain risk-based solvency ratios “well above minimum requirements”, with the report noting that insurers are expected to retain earnings and adopt disciplined capital management, while managing retained CAT exposure as insurance penetration rates rise.
“Reinsurance is a key mitigant of earnings and capital volatility, particularly for insurers in Australia, Japan and Taiwan,” the report said.
APAC insurers’ ability to reprice risks will help preserve profitability as weather-related losses increase, as well, the report stated, saying, “Greater use of geospatial analytics, hazard maps and predictive modelling will strengthen risk selection, while investment in technology and data analytics will improve loss prevention, helping reduce claims severity and earnings volatility”.
Lastly, the report cited policy support and regulatory development as factors that may enhance insurability of CAT risks.
“Governments are providing reinsurance capacity, premium subsidies and public-private risk-sharing mechanisms to help insurers expand insurance coverage,” the report said.
“Regulatory support for the issuance of insurance-linked securities will also attract private capital into the catastrophe-risk market, expanding insurers’ risk-transfer capacity and diversify their reinsurance capital.