The performance of major Asian reinsurers showed improvement in 2023, driven by reduced catastrophic events and favorable investment returns, according to Christie Lee, senior director and head of analytics at AM Best, and Chris Lim, associate director of analytics.
Speaking at the 20th Singapore International Reinsurance Conference, the analysts compared the region’s reinsurers with global players while discussing key trends and regulatory changes.
Lee highlighted that AM Best’s annual Asia reinsurance composite showed 8.8% growth in insurance service revenue under IFRS 17 in 2023. Combined ratios improved from 94.5% to 91.6%, while return on equity rose significantly from 0.1% in 2022 to 9.2%. The improved performance was attributed to lower catastrophe activity and strong investment income.
“If you want to compare that with the global reinsurance players, if we look at past five years, the global reinsurers do have more volatile results in some years,” Lee said in an AM Best report. “While for Asian reinsurers, because the business profile is slightly different, they're more focused on proportional treaties and so their returns are more stable.”
Lim pointed out that reinsurers in Singapore, South Asia, and Southeast Asia benefited from robust interest income generated by elevated interest rates stemming from monetary tightening since mid-2022.
“Underwriting results also benefited in 2023, as well. This is supported by lower insured catastrophe losses during the year and also due to better underwriting discipline, as well as a more favorable pricing environment as a result of the hardening market conditions,” Lim said.
Looking ahead, Lee said AM Best expects the positive performance trends for reinsurers to continue in 2024. She noted that AM Best recently revised its global reinsurance market outlook from stable to positive, citing stronger profit margins, higher attachment points, and better terms and conditions.
“The US recently had some hurricanes losses, and so we're expecting that will add some underwriting pressure in the fourth quarter for global reinsurers,” Lee said. “We don't expect the recent hurricanes will drive further rate hardening for 2025 renewals given these kind of incidents are already priced in.”
In Southeast Asia, Lim observed renewed optimism during the January 2024 renewals, particularly for lower layers of coverage. Reinsurance treaties saw oversubscription, and reinsurers demonstrated a greater willingness to deploy capacity compared to the previous year.
“This has been helped and supported by stricter underwriting terms and conditions within the reinsurance contracts themselves,” Lim said. “Reinsurance companies have also improved the quality of their underwriting, their catastrophe accumulation management and this has, in general, all supported an improvement in overall market conditions.”
For the 2025 renewal season, Lim expects capacity to remain available, though treaties affected by recent catastrophe events could face additional scrutiny.
“If we look forward to the upcoming renewals in general, the sentiments are that the capacity will likely remain. There will still be a willingness to deploy capacity – however, there will still be different pockets within the market that will be subject to different considerations,” Lim said.
The adoption of IFRS 17 accounting standards is changing the presentation of financial statements for reinsurers, though it does not alter underlying business fundamentals, Lee explained.
“Most large Asian reinsurers have adopted IFRS 17. The exception would be India, Taiwan and Japan and non-listed Chinese companies. From our perspective, we see that IFRS 17 implementation, it's just an accounting standard change. It will change the financial numbers presentation,” Lee said.
Lee noted that IFRS 17 introduces differences in performance measures such as combined ratio and return on equity, which now have varying components. The combined ratio for reinsurers has generally decreased, primarily due to the discounting effect.
Lim added that while non-life reinsurers have seen minimal impact from the transition to IFRS 17, life reinsurers have experienced more significant changes in their financial statements.
“In terms of the impact themselves, the nonlife reinsurance companies in general would see a more muted impact as a result of this transition, given the nature of the business,” Lim said. “However, we do see a greater level of change, particularly for the life reinsurance companies in terms of the impact on the financial statements.”
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