The Asia Pacific re/insurance market accounted for two-thirds of the world’s insured catastrophe losses during the first three-quarters of 2011 according to a new report from Guy Carpenter. It’s a record share of the world’s insured losses and demonstrates both the exposure to catastrophe events in Asia Pacific and the growing value at risk in the region as insurance and reinsurance penetration grow.
The record share of insured catastrophe losses amounts to more than $50 billion up to the 30th September. Given the events currently playing out in Thailand and neighboring countries affected by severe flooding we could see quite a leap in this number by year-end.
The report from Guy Carpenter says that these losses have contributed to challenging times for insurers and reinsurers operating in the Asia Pacific region.
Demand for catastrophe reinsurance in the region has expanded rapidly in recent years and it’s expected to continue to grow. The report says that the recent catastrophe losses are likely to stimulate this trend further as the value of reinsurance becomes more apparent. Underlying macro-economic factors such as the rapid growth in countries such as China and India and the increasing sophistication of insurance organizations in the region are helping to drive the growth.
James Nash, CEO of Asia Pacific Region, Guy Carpenter & Company, said; “An unprecedented series of events, of which the ongoing Thai floods are yet another chapter, reminds us of the need for increased understanding of catastrophe risk in the Asia Pacific region. Due to economic constraints, there remains much underinsurance of catastrophe risk in many countries. Yet as the region’s economies grow, so does the demand for catastrophe insurance and reinsurance support. Catastrophe reinsurance is designed to protect insurers from severe losses when they occur. Despite the significant loss activity in the region, capital in the global reinsurance market remains strong, emphasizing the effectiveness of catastrophe reinsurance as a tool for hedging risk.”
Despite accounting for two-thirds of the losses, the Asia Pacific region only accounts for around a quarter of the excess of loss catastrophe limit purchased in the world and the share of global catastrophe excess of loss premiums is slightly less, at just under 15%. The share of premiums however is double what it was in 2007, demonstrating the quick growth Asia Pacific is experiencing.
As reinsurance take-up increases, particularly in China, India and Southeast Asia we are likely to see Asia contribute a much higher proportion of global premiums. This will also encourage the use of risk transfer tools such as catastrophe bonds to hedge insurers and reinsurers risks in the Asia Pacific region.
You can request a copy of the full report from Guy Carpenter here.