APAC reinsurers ‘outperforming’ global peers

Diversity is almost a byword for the Asia-Pacific reinsurance market, but one thing reinsurers in the region have in common is that as a group they have “outperformed” their global peer group in the past five years, according to Greg Carter (pictured), managing editor, analytics, EMEA & AP, at AM Best.

Carter said that although it is a challenge to describe Asia-Pacific as one market, when the reinsurers are grouped together their performance, relative to their global peer group, is better by between 2 and 3 percent in terms of return on equity over the last five years.

“Considering Asia-Pacific is a market that’s been very competitive from a reinsurance perspective, results over the course of the last five years generally have been better than those of the global peer group. That sounds a little counterintuitive, given the competitive nature of the reinsurance markets in Asia-Pacific,” he told Intelligent Insurer.

The underlying reason for this is that the global peer group has a higher exposure to some of the more extreme cat events that have happened in recent years, he added.

“This has had an impact on the global group’s underwriting performance and therefore return on equity. When you look across Asia-Pacific, yes, underwriting is competitive but with a slightly lower cat exposure overall and generally buoyant investment markets across the Asia-Pacific region.”

Cat exposure is not uniform across the region, however. Carter said that the Northeast Asian markets are typically more mature primary markets and therefore more mature reinsurance markets with generally lower growth rates. However, exposure to wind storms and typhoons over the last five years has driven higher pricing, particularly in Japan.

“I’d say we’re probably still in a bit of a payback period in terms of reinsurers collecting premiums from primary insurers for the losses that emerged from some of those larger typhoon activities.

“We’ve probably seen higher pricing generally, particularly across Japanese cat, and that’s been maintained as other rates are rising around it.”

In contrast, the Southeast Asia markets have some significant cat exposures, he said, with typhoons and wind storms, particularly in the Philippines, and an earthquake risk across a large area of the region.

“In the Southeast Asia markets we see different market dynamics. We see longer-term and more rapid growth, and there are still markets with lots of growth potential. From a primary perspective, you’re seeing markets that are underinsured, particularly when it comes to catastrophe exposures.

“Primary markets are growing, which is leading to growing reinsurance demands and an expectation of higher growth rates across Southeast Asia than probably anywhere else in the world over the next few years,” Carter explained.

The potential for growth in the region is clear. But as to whether Asia-Pacific reinsurers could sustain current underwriting trends in the face of soaring inflation and volatile capital markets, Carter called it “the $64,000 question”.

“That issue is affecting pretty much every market we’re looking at across the globe. You also have to bear in mind that some of the Southeast Asian markets have historically lived with relatively high inflation, particularly in countries such as Indonesia, where inflation rates have been higher in the past and Vietnam as well, to some extent,” he concluded.