Asian reinsurers to focus on discipline and price amid inflation, climate change & ESG trends: Fitch

In Asia, persistent inflation is a threat to the profitability of the reinsurance market and is happening at a time of elevated weather-related losses for carriers, a trend Fitch warns could accelerate as a result of the changing climate.

Analysts at ratings agency Fitch believe that prolonged high inflation could lift both claims and reserve deficiency of reinsurance, while also serving to slow business growth amid an erosion of purchasing power.

As a result, Fitch expects reinsurers in the Asia region to remain focused on underwriting discipline and price adjustments.

While carriers navigate the inflationary landscape, Fitch notes that they are also bolstering their risk mitigation capabilities in an effort to manage the uncertain and complex nature of climate change.

“For example, Asia-Pacific reinsurers face weather-related catastrophe losses from flooding and drought, such as the major floods in eastern Australia and China in 2022. Reinsurers are re-assessing risk modelling and catastrophe management frameworks to help quantify potential natural-hazard losses for underwriting, pricing and capital setting,” explains Fitch.

As in other parts of the world, reinsurers in Asia now have a greater awareness of environmental, social and governance (ESG) issues, which has led to firms adjusting policy terms and conditions notably around extreme weather and natural catastrophe exposure.

“More overseas retrocessions are also refining their underwriting positions on fossil fuels, making ESG a higher priority for Asian reinsurers’ underwriting risk assessments,” adds Fitch.

Interestingly, Fitch also says that it expects to see continued market momentum for catastrophe bonds in the region, building on the two issued in Singapore so far in 2022, and also the emergence of Hong Kong as an insurance-linked securities (ILS) domicile. “We expect the capital positions of Asian reinsurers to remain commensurate with their business profiles, based on available statistics for selected reinsurers. The quality of shareholders’ equity is sound, consisting of capital stock and retained earnings,” concludes the rating agency.

Source: Reinsurance News,

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