Asia-Pacific reinsurance buyers benefit from market conditions: Guy Carpenter

Current reinsurance market conditions underlined by excess capacity, a benign loss environment and fierce competition, has seen buyers in the Asia-Pacific region benefit from favourable pricing, according to reinsurance specialist Guy Carpenter (GC).

Buyers of reinsurance across the Asia-Pacific region have experienced favourable pricing throughout 2015, says GC, along with favourable terms and conditions as the wealth of capacity in the sector continues to exceed demand across the Asia-Pacific.

According to the global risk and reinsurance specialist, buyers in the area took advantage of the plentiful, more efficient reinsurance capital during 2015 by increasing protection levels.

In fact, according to GC’s recently published ‘Asia-Pacific Catastrophe Report 2015,’ “the regional catastrophe limit purchased increased by exactly 10% year-on-year and conversely the GC Asia Pacific Rate on Line (ROL) index tracking down by 9.9%”

The firm explains that the 2015 underwriting year for Asia-Pacific business is expected to follow suit with 2013 and 2014, returning a regional cat loss ratio of below 20%.

And, this is predicted to occur despite “continued depreciation of some key zone currencies against the U.S. dollar,” rising losses from the recent chemical explosion in Tianjin, China, and “deterioration of prior year losses from New Zealand and Japan,” explains GC.

“Once again, the Asia-Pacific region has claimed many of the global industry headlines in 2015, from outbound M&A by Asian insurance groups to the Tianjin explosion in China. As evidenced in our report, despite a number of market losses, the Asian 2015 regional catastrophe loss ratio is currently below 20%,” said Chief Executive Officer of GC’s Asia Pacific Region, James Nash.

Adding; “It is therefore unsurprising that we continue to see interest from both new and old capital providing buyers a choice of products and selection of counterparties with which to transfer their catastrophe risk.”

A notable avenue made available to players in the Asia-Pacific region during 2015 to access some diversified, Chinese risk, was the launch of Panda Re Ltd. (Series 2015-1), the first ever catastrophe bond focused on Chinese risks, providing $50 million of protection against Chinese earthquakes.

In fact, according to GC, outstanding cat bonds covering Asia Pacific exposures have increased by 22% since September 2014, with appetite for “regional primary catastrophe premium from alternative capital providers remaining high and although a key component of the functioning market, penetration on programs remained low relative to other territories.”

Throughout 2015 the Asia-Pacific region’s vulnerability to a host of natural catastrophes and rising protection gap has been a hot industry topic, with public and private sector entities noting the challenges and opportunities the region’s lack of insurance and reinsurance penetration presents.

But the increased use of insurance-linked securities (ILS), including cat bonds, collateralized reinsurance and the establishment of sidecars and similar in the region, should spark greater interest from the wider risk transfer industry as the acceptance and understanding of such structures, and their benefits, are realised by those that operate across the Asia-Pacific.

Looking forward, and what the trends across the Asia-Pacific’s reinsurance and ILS sector signals for GC, Nash said; “Our role continues to be to guide our clients through this ever-changing landscape and ensure that they are able to secure tailored protections to meet evolving risk management needs.”

Absent a significant loss event, with some in the space now warning that a single large loss might not be enough to turn the market, it’s likely that the supply of reinsurance capital will continue to outpace demand across Asia-Pacific, meaning that buyers in the region will most likely continue to experience favourable pricing and terms and conditions, as sellers look to see off the competition.