Stability returns to APAC market: Fitch

The Asia-Pacific reinsurance market is set for stable pricing in 2024, supported by adequate capacity, according to Fitch Ratings, writing in an October 14 non-rating commentary titled “APAC Reinsurers’ Stable Pricing in 2024 Backed by Adequate Capacity”.

“Reinsurers can maintain profitability through rigorous risk selection.”

This marks a shift from the hard market conditions of 2023, when interest rate hikes and stricter renewal terms defined the landscape. However, growing appetite for catastrophe risk, spurred by an orderly retrocession market, raises the spectre of higher exposure to potential losses.

“We believe reinsurers can maintain profitability through rigorous risk selection and disciplined pricing amid rising competition, regulatory changes, climate impact and economic risks,” analysts at Fitch noted.

Despite the stabilisation in pricing, reinsurers face mounting challenges. Climate change poses a significant threat in Asia-Pacific due to the region’s vulnerability to natural disasters. Fitch anticipates Asia’s exposure to climate-driven losses to rise, “potentially disrupting recent pricing stability”. The agency expects reinsurers to respond with a cautious approach to nat cats by enforcing strict limits and maintaining prudent underwriting standards.

Capital strength across Asia-Pacific remains aligned with business profiles, bolstered by increased shareholders’ equity from retained earnings.

Markets such as Japan, South Korea, China, and Hong Kong, which have already adopted IFRS 17, are showing “stable-to-improved” returns on equity through better underwriting performance and investment gains.

Additionally, the market could see an uptick in insurance-linked securities (ILS) transactions in Asia, as climate change drives investor interest in risk transfer mechanisms. Hong Kong’s emerging status as an ILS hub is expected to contribute to this trend, although the region still faces hurdles, such as the need for greater investor engagement and infrastructure development.

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