“We believe reinsurers can maintain profitability through rigorous risk selection and disciplined pricing amid rising competition, regulatory changes, climate impact and economic risks,” said Fitch
Jakarta: The APAC reinsurance market’s pricing in 2024 is stable due to adequate capacity, a shift from the hard market conditions of 2023, which were characterised by interest rate increases and tighter renewal terms, Fitch Ratings said.
However, reinsurers’ growing appetite for catastrophe risk, driven by an orderly retrocession market, could lead to greater exposure to potential losses, said the rating agency.
“We believe reinsurers can maintain profitability through rigorous risk selection and disciplined pricing amid rising competition, regulatory changes, climate impact and economic risks,” said Fitch.
Climate change poses a significant threat in APAC due to the region’s vulnerability to natural disasters.
“We expect the rising frequency and severity of extreme weather events to increase reinsurance claims, potentially disrupting recent pricing stability. Fitch anticipates reinsurers will adopt a cautious approach to natural catastrophe protection by enforcing strict limits and maintaining prudent underwriting standards,” the rating agency cautioned.
Asian reinsurers’ capital remains aligned with their business profiles, supported by rising shareholders’ equity from retained earnings.
Reinsurers in Japan, South Korea, China and Hong Kong have implemented IFRS 17, showing stable-to-improved returns on equity due to better underwriting and investment gains.
In addition, Fitch expected a rise in insurance-linked securities (ILS) transactions in Asia, driven by investor interest and climate change efforts.
The ILS hub in Hong Kong is likely to boost market growth and stability, although challenges such as the need for further developments and increased Asian investor participation remain.