Asia-Pacific reinsurers face mounting downside risks

The Asia-Pacific reinsurance sector will contend with increasing downside risks amid global headwinds, according to a report by S&P Global Ratings.

The report, titled Asia-Pacific Reinsurance Sector Update: Volatility Ahead For Risks And Returns, found that underinsurance, anticipated rate hikes, and diversification will lead to moderate growth prospects for premiums.

S&P said that reinsurers’ earnings face pressure from weakened underwriting results and declining investment margins. Despite this, healthy capital levels should remain intact amid market swings and the impact of fair value losses on shareholders’ equity.

While catastrophe risk in Asia-Pacific remains lower for regional insurers compared to their global counterparts, increased frequency of natural disasters due to climate change is expected to push up costs and demand for catastrophe protection.

“Proactive capital management will be key to further reinforcing capital buffers, which have diminished over the past two years from volatile capital markets and pandemic-related strain,” said Trupti Kulkarni, insurance analyst at S&P Global Ratings. “About 67% of our rated insurers in Asia-Pacific maintained capital adequacy at or below the ‘AA’ confidence level in our risk-based capital model in 2021. The drop in asset valuations will weigh on capital in the short-term amid rising interest rates and volatile equity market swings.”