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Huge disaster losses burden Asia-Pacific's reinsurance industry

Publication Date : 06-09-2012


International credit rating agency Standard & Poor's says steep insured catastrophe losses in the Asia-Pacific region last year will continue to push up reinsurance prices and tighten terms and conditions in the region's key local markets in 2012.

In a report released in Tokyo Wednesday, the agency estimated the insured catastrophe losses at more than US$60 billion. That was enough for most reinsurers to reassess their regional exposure and then restructure reinsurance programmes to primary markets as they up for renewal.

At the same time, market dynamics have changed. "A few reinsurers and Lloyd's syndicates withdrew from the market and some new players have emerged," it said.

"Poor underwriting results and the weakened capitalisation of loss-affected insurers and reinsurers could put an end to a soft pricing cycle, particularly in markets such as Thailand, New Zealand, Australia, and Japan," credit analyst Reina Tanaka said.

"However, markets such as China and Malaysia remain competitive in the absence of major loss events, continued growth and ample reinsurance capacity," she added.

According to the report, losses related to last year's floods in Thailand and earthquake in New Zealand have "tested participants in both markets on risks that have not been modelled or are inadequately priced."

The floods in Thailand "forced Japanese insurers to restructure their reinsurance programmes related to Japanese interests abroad, and prices went up considerably," Tanaka said.

"Reinsurers are looking for more transparent information on catastrophe exposures, including contingent business interruption risk exposures of such interests. We expect the renewal rates in 2013 to reflect the change in approach to underwriting information. Overall, we expect insurers to maintain or increase their appetite for reinsurance, but this won't come cheap."

Standard & Poor's estimated total gross losses at $16 billion to $18 billion. "Regional reinsurers were hit hard mainly due to lower-than-estimated exposure and the reinsurers' small scale relative to the losses incurred.

"While the total losses for insurers and reinsurers are still evolving, we believe the final loss figures will be even higher than the publicly reported figures. And this could put further pressure on reinsurers' credit profiles," the agency said.


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