Despite a notable rise in catastrophe losses occurring beyond the region and facing a challenging investment landscape, leading reinsurance companies in Asia-Pacific achieved a robust year-over-year net premium growth of 8.1% in 2022, as per a recent AM Best report.
Titled “Operating Performance, Retro Cost Drive Asian Reinsurer Strategies,” the report is part of the credit agency’s comprehensive examination of the global reinsurance industry, coinciding with the Rendez-Vous de Septembre in Monte Carlo.
According to the report, which evaluates the operational performance of a selection of Asia-Pacific-based reinsurers ranked among the top 50 globally, the reinsurers managed to sustain stable operating and combined ratios in 2022.
Although the composite’s net income dropped to US$166 million in 2022 from US$688 million in 2021, and the return on equity also experienced a significant decline to 1.8% in 2022 from 7.0%, the combined ratio of Asia-Pacific reinsurers in the composite showed a slight improvement, reaching 100.8 in 2022 compared to 101.1 in the preceding year, which was lower than the five-year average of 101.0.
“With a higher cost of capital and a challenging investment environment in 2022, Asia-Pacific reinsurers maintained their underwriting discipline in 2023 renewal to ensure a reasonable profit margin and adjust pricing in proportional treaties to improve performance,” AM Best head of analytics and senior director Christie Lee said. “Primary insurers also followed this rule, aligning with reinsurance pricing, terms and conditions, which is expected to lead to better revenue and underwriting results for reinsurers.”
Despite a 9.5% year-over-year drop in the absolute level of shareholders’ equity for Asia-Pacific reinsurers in the composite, this performance fared much better compared to the 38% capital decline observed in the European ‘Big Four’ composite, partly due to ongoing monetary easing in some Asian countries.
“Going forward, AM Best expects shareholders’ equity levels to show a one-time movement in 2023 as most reinsurers in the composite start adopting the new IFRS 17 accounting standard,” AM Best analytics associate director Chris Lim said. “The magnitude of change will vary by company depending on business profile mix, investment classifications and actuarial assumptions.”
Overall, major reinsurers in the APAC composite continue to maintain a strong capital position, with global expansion contributing to diversification benefits that help mitigate their exposure to domestic natural catastrophe risk accumulation. However, a potential lack of aggregate excess-of-loss retrocession capacity availability could lead to increased underwriting volatility for reinsurers in future active catastrophe years.
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