Asia-Pacific reinsurers’ ROE surges under IFRS 17: AM Best

Major Asia-Pacific reinsurance companies saw their composite’s return on equity (ROE) surge to 9.2 percent from 0.1 percent under IFRS 17, supported by a more stable investment environment and benign catastrophe activity, according to an AM Best report.

The Best’s Market Segment Report, “Asia-Pacific Reinsurers Achieve Strong Results in Improved Investment Environment”, published September 6, noted that Asian reinsurers, with business profiles characterised by a more traditional property line focus, as well as a relatively large book of proportional treaties, have benefited less directly from global reinsurance rate hardening. 

Nevertheless, the stability of operating performance of Asia’s reinsurers over the years has been notable, and they are working to improve profitability by expanding business overseas, the report said. 

It noted that China still faces distinct challenges, however, as the country’s post-COVID-19 recovery remains weak.

AM Best’s composite of Asia-Pacific reinsurers contains only IFRS 17-reporting companies, and these reinsurers in aggregate posted a combined ratio of 91.6 percent in 2023, a 2.9-percentage-point improvement from the previous year. 

The significantly higher ROE in 2023 was mainly due to the recovery of realised and unrealised investment losses and higher investment income in a higher interest rate environment, except for in China, as well as improved underwriting results.

“Asian reinsurers’ underwriting strategies for 2024 are diverse and depend on their ability to secure retrocession capacity, as well as their ability to manage the underwriting cycle,” said Christie Lee, senior director, head of analytics, AM Best. 

“The large Asian reinsurers have adjusted their catastrophe capacity offerings in their home markets to shrink their catastrophe exposure accumulation, while others have deployed a mature market growth strategy to capture the benefits of material rate increases.”

The capital position of the major reinsurers in the Asia-Pacific composite remains robust, according to the report. Diversification will remain the business philosophy and strategy for Asia’s large reinsurers. In addition to geographic expansion, diversifying their lines of business from traditional property treaties to building liability, life/health and specialty books of business will allow reinsurers to better manage the reinsurance cycle.

“Players are likely to maintain a vigilant approach to risk.”

“Reinsurance renewals throughout the first half of the year have been more orderly than in 2023, generally aligning with market expectations,” said Chris Lim, associate director, analytics, AM Best. 

“Renewed interest has emerged for lower-layer reinsurance coverage in South and Southeast Asia in 2024, reflecting reinsurers’ growing confidence in prevailing rate adequacy. This shift in sentiment underscores the cyclical nature of the reinsurance market. 

“However, reinsurers’ acute awareness of the ongoing challenges posed by climate risks indicates that the players are likely to maintain a vigilant approach to risk assessment and pricing.”

For more news from the East Asian Insurance Congress conference (EAIC) click here.

Did you get value from this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.