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Reinsurance sector faces increasing downside risks amid global headwinds

The reinsurance sector in the Asia-Pacific is facing increasing downside risks amid global headwinds, says S&P Global Ratings.

In a report titled "Asia-Pacific Reinsurance Sector Update: Volatility Ahead For Risks And Returns" released yesterday, S&P made the following observations:

• Underinsurance, anticipated rate hikes, and diversification lead to moderate growth prospects for premiums.

• Reinsurers’ earnings face pressure from subdued underwriting results and declining investment margins. This is due to ongoing market volatility, rising inflationary pressures, and ever-rising natural disaster claims that will dent earnings potential over the next two years.

• Healthy capital levels (Total Asset to Capital) should remain intact prospectively amid market swings and the impact of fair value losses on shareholders’ equity.

• Catastrophe risk remains lower for the region compared with global reinsurers; however, increased frequency should push up costs and demand for catastrophe protection.


Based on S&P's analysis of 15 Asia-Pacific reinsurers, slower growth and subdued underwriting margins signal increasing downside risks for the sector.

Almost half of the analyzed reinsurers reported higher combined ratios and lower returns on equity at the end of 2021. The stable outlook for the majority of S&P-rated reinsurers (i.e. four of six) typically reflects strong dominance in home markets and generally healthy capitalization, amid likely contraction in earnings over the next two years.



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