Reinsurers can manage impact of Asia Pacific’s CATs

The impact on the overall financial profiles of global reinsurers with operations in Asia Pacific as a result of a series of natural disasters, between September 2010 and June 2011, can be managed, says Standard & Poor’s.

Underwriting results for a number of global reinsurers with operations in Asia Pacific were hit by the disasters, which included an earthquake and tsunami in Japan, two major earthquakes in New Zealand, and floods and a cyclone in Australia. However, outside Japan, regional domiciled rated reinsurers have limited or manageable exposure to the region’s CAT events as they write mostly domestic business. “As a result, we have not taken rating action or changed the outlook on reinsurers incorporated in Asia Pacific recently,” says S&P.

Insured claims from these Asia Pacific events could amount to as much as US$51 billion, according to information from AIR Worldwide. “Prospectively, we could see higher property catastrophe reinsurance premiums and tighter terms and conditions — especially in Japan, Australia, and New Zealand — as international reinsurers attempt to claw back some of the losses,” says the report.

The rating agency says that reinsurance pricing in the rest of Asia outside Japan is uncertain, reflecting the counteracting effects of shrinking global reinsurance capacity and the competitive but rapid growth of primary insurance in the region. Nevertheless, soft reinsurance pricing is likely to continue in some parts of Asia markets, especially in those markets not prone to catastrophes, such as Singapore, Malaysia, and Thailand.

Local reinsurers see the current renewal period as a potential tipping point for wider price increases, especially for catastrophe — prone markets such as New Zealand, Australia, the Philippines, Indonesia, and China. Whether the market hardens will depend on factors such as demand from primary insurers, and the availability of new capacity, says S&P.