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Asia-Pacific Reinsurers: More Volatility To Come As Risks Evolve


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Asia-Pacific Reinsurers: More Volatility To Come As Risks Evolve

Risk markets are rapidly evolving. This means some of the data for pricing risk is becoming obsolete. Climate-related natural disaster is a key driver of change, as more frequent weather-related events upend historical patterns.

S&P Global Ratings believes Asia-Pacific reinsurers will increasingly price their insured risk on scenarios that have limited history: whether that be policies covering various catastrophe perils or landscape evolution following rapid urbanization. The result will be higher volatility in claims and earnings.

Asia-Pacific's insurance penetration remains low compared with developed economies, and growth in insurance demand for property catastrophe and agriculture insurance has been accelerating. This year in China, for example, flooding caused the largest-ever claims recorded for the country's insurance industry, with the brunt of the claims associated with auto, property, and agriculture insurance.

Newly emerging catastrophic risk put the onus on Asia-Pacific's reinsurers to ramp up risk selection, control, and mitigation. In addition to the rising awareness of environmental, social and governance (ESG), governments and regulators will likely encourage insurers to take on increasing responsibilities to narrow the gap in protection. We therefore expect reinsurers to provide services and products to support the primary insurance's development.

The Region Has Been Comparatively Stable…

We see the credit outlook as largely stable for the Asia-Pacific reinsurance sector. Our analysis of 15 Asia-Pacific reinsurers reveals that many of them are focusing on portfolio optimization while improving underwriting profitability. COVID-19 related claims have been manageable, and repressed economic activity also led to fewer claims (particularly for motor insurance). Moreover, reinsurers with bigger international exposures saw more volatility.

For the 15 reinsurers we surveyed (some of which are rated), the average net combined ratio stood at 103% in 2020, compared to 104.3% in 2019 and 103.6% in 2018 (see table 1). A combined ratio of above 100% indicates underwriting losses.

Table 1

Size And Performance Varies Considerably Across The Region
The 15 reinsurers in this study, ranked by net premiums
Ranking* Companies Jurisdictions Ratings/Outlook NPW (mil. US$) Net Income (mil. US$) NCOR (%) ROE (%)
2020 2019 2018 2020 2019 2018 2020 2019 2018 2020 2019 2018
1 China Reinsurance (Group) Corp. China A/Stable/-- 15,447 12,236 10,678 859.0 962.4 590.3 104.5 102.7 100.9 5.9 7.2 4.8
2 General Insurance Corp. of India India N.R. 5,800 6,208 5,678 439.2 (50.7) 318.5 113.1 115.6 106.2 7.4 (0.8) 4.2
3 Korean Reinsurance Co. Korea A/Stable/-- 5,427 4,789 4,769 127.6 164.2 93.4 99.7 100.7 101.0 6.1 8.1 4.7
4 Toa Reinsurance Co. Japan A+/Stable/-- 2,602 2,513 2,240 25.9 (19.7) (64.5) 101.2 105.5 109.0 1.6 (1.2) (3.8)
5 Taiping Reinsurance Co. Ltd. Hongkong A/Stable/-- 2,173 1,855 1,257 (21.9) 41.0 68.8 104.9 99.8 99.5 (1.6) 3.7 6.6
6 Peak Reinsurance Co. Ltd. Hongkong N.R. 1,544 1,323 1,099 84.6 34.9 19.5 105.8 107.9 103.9 6.6 3.4 2.1
7 PICC Reinsurance Co. Ltd. China A-/Stable/-- 710 729 634 14.6 2.1 (12.6) 105.1 110.1 107.4 2.6 0.5 (3.0)
8 Qianhai Reinsurance Co. Ltd. China N.R. 966 570 559 29.8 7.5 (12.9) 109.3 109.9 105.7 6.9 1.8 (3.0)
9 Central Reinsurance Corp. Taiwan A/Stable/-- 608 519 469 53.9 35.7 34.8 96.6 96.1 95.6 11.9 9.5 9.4
10 PT Reasuransi Indonesia Utama Indonesia N.R. 302 299 295 7.3 15.4 14.2 103.4 101.5 101.7 3.1 7.2 7.0
11 Malaysia Reinsurance Bhd. Malayisa N.R. 319 278 285 32.1 22.2 20.5 99.8 102.6 101.2 7.5 5.7 5.7
12 Thai Reinsurance Public Co Thailand N.R. 131 116 107 7.4 4.2 (31.0) 98.6 106.2 113.1 6.1 3.5 (23.9)
13 National Reinsurance Corp. of the Philippines Philippines N.R. 66 64 49 2.5 3.1 2.8 98.0 104.0 108.0 2.2 3.1 3.0
14 Singapore Reinsurance Corp. Ltd. Singapore N.R. 52 48 37 3.9 7.3 6.4 108.1 105.7 109.4 1.9 3.7 3.4
15 Vietnam National Reinsurance Corporation Vietnam N.R. 60 48 31 12.4 11.5 10.5 99.4 96.9 91.7 10.0 9.7 9.5
*Ranking is based on 2020's NPW. NPW--Net premiums written. NCOR--Net combined ratio. ROE--Return on equity. N.R.--Not rated. Source: Companies' annual reports, S&P Global Ratings.

…But A Curveball Awaits

Asia-Pacific reinsurers' earnings volatility is set to increase from more extreme weather events, as well as persistent reinvestment challenges brought about by low interest rates and volatile capital markets. In our opinion, the sector will need to review their business models to stay abreast of evolving risks.

Health and weather-related crises have confirmed fears that natural and man-made disasters are becoming ever more frequent and larger. Besides COVID-19, in recent years the Asia-Pacific region has endured severe weather and wildfires in Australia, destructive and costly typhoons in Japan and the Philippines, and this year's devasting flooding in Henan province, China, which triggered economic losses of over Chinese renminbi (RMB)133 billion (US$20 billion). (See "China's Extreme Weather Is Testing Its Major Property/Casualty Insurers," published on RatingsDirect on Aug. 10, 2021). Meanwhile, with more electric cars hitting the streets, the risk assessment for auto insurance (a dominant business line for the region) will reshape the underwriting criterions.

While costly claims generally signify price hikes for insurers and reinsurers, this trend has been unevenly felt across the region's insurance markets. Varying development stages and competitive landscapes channel these differences. For example, premium rate hikes in Japan following two consecutive years of costly typhoon hits in 2018 and 2019 didn't reverberate to other regional contracts.

A number of unrated reinsurers, namely Malaysia Re, NAT Re, Thai Re, and Vina Re (see table 1 for full names), made underwriting profits in 2020. That said, the average of unrated reinsurers remain higher than rated reinsurers.

Chart 1


A greater reliance on investment gains

Another driver of volatility will be asset risks. Reinsurers will likely look to investment returns to compensate for underwriting pressure. Given the reinvestment challenges, low interest rates and fluctuating capital markets, increased risk appetite on investments could further heighten Asia-Pacific reinsurers' sensitivity to earnings volatility.

Chart 2


Chart 3


The Dance Between Risk And Reward

Rising awareness to protect against uncertainty, including the ongoing COVID-19 resurgence and extreme weather, should boost underlying primary insurance needs. This offers the upside of higher demand for reinsurance protection.

At the same time, reinsurers will likely need to invest in stronger risk selection and pricing analysis to safeguard underwriting results. In addition to their ongoing portfolio optimization efforts, reinsurers are accelerating their shift to non-proportional business. Expansion in the non-proportional businesses will require stronger technical underwriting and pricing capabilities. They will also need to monitor risk accumulation and mitigate the rising volatility they undertake (i.e., buy themselves more protection--i.e., retrocession coverage). The associated costs could erode reinsurers' margins.

Chart 4


A look at our rated reinsurers' premium to surplus (or shareholders' equity) ratio--used to assess insurance company's capacity to underwrite new businesses—shows underwriting appetites are broadly increasing. Some of this growth was driven by their international expansion. Take China Reinsurance (Group) Corp. as an example. The largest reinsurers in the Asia-Pacific region has expanded in its international property and casualty (P/C) reinsurance streams by 3.6x, on the back of its acquisition of Chaucer Group in 2018.

We believe geographical diversification to mitigate risk concentration remains the primary motivation expanding beyond their shores. (See "APAC's Costly Catastrophes: Reinsurance And More Required," Oct. 21, 2020.)

That said, extreme weather events, COVID-19 related business interruption and event-cancellation losses show that international expansion-related payoffs for regional reinsurers remains to be seen as a sustainable contributor to earnings diversity.

Chart 5


In our view, effective cycle management is a key contributor to adequate underwriting results. Some Asia-Pacific reinsurers want to capture the hardening cycle of premium rate increases (to offset still soft domestic rates). However, intense market competition and excess reinsurance capacity could keep these rate hikes at bay.

Insurance-Linked Securitization To Gain Traction In APAC

Policymakers in the region are seeking to increase sophistication of the regulatory framework for domestic insurance markets and foster economic and financial resilience to shocks (particularly climate change). Examples of these efforts include the Philippine regulator targeting the rollout of its Catastrophe Insurance Facility, and China's renewed push to enhance catastrophe insurance penetration and product offerings.

In China, the regulator published a notice in late September 2021, calling on insurers to consider sponsoring catastrophe bonds in Hong Kong. This supports a means to diversify risk mitigation for natural disaster risk. We consider the regulator's initiative as positive and believe it should encourage mainland insurers to undertake more catastrophe risk with China's large market base. This will also likely gradually support the region's development of insurance-linked securities (ILS).

Increasing weather-related events could transpire to a higher premium rate for catastrophe risk transfer. The issuance of catastrophe bonds will also likely allow the cedant to moderate sensitivities to rate hikes by using non-traditional reinsurance protection. From investors' perspective, catastrophe bonds as investments offer diversification away from asset risk. Last month, China Property & Casualty Reinsurance Co. Ltd. issued a $30 million catastrophe bond, through a special purpose vehicle--Greater Bay Re.

Besides regular issuance from Japanese insurers, other ILS examples in the region include Peak Reinsurance Co. Ltd. launched the reinsurance sidecar in 2018 and IAG sponsored a catastrophe bond in 2019. In 2018 the Monetary Authority of Singapore launched an ILS grant scheme, which aims to fund up to 100% of upfront issuance costs of catastrophe bonds in Singapore.

COVID-19 has woken up regulators and market participants to the region's gap in protection. The development of a more well-rounded insurance marketplace will present opportunities for reinsurers. This will include expanded services and products support for primary insurers' risk mitigation solutions.

Writers: Cathy Holcombe and Lex Hall.

Digital design: Evy Cheung.

Related Research


Central Reinsurance Corp.

(Financial Strength Rating: A/Stable/--; Issuer Credit Rating: A/Stable/--)

Contacts: Wenwen Chen ( and Patty Wang (

We view Central Re as a strong player in Taiwan's reinsurance market. It has close relationships with local life and nonlife insurers, a solid domestic market position, and is the only domestic reinsurance company in the local market. However, it has a small regional and global market presence, and its size is small compared with international peers'.

Central Re is likely to maintain its excellent capital adequacy level, given steady business stream from its solid domestic market position, and a moderate risk appetite over the coming one to two years. We also anticipate underwriting performance to remain stable, with a combined ratio of 96%-97% amid conservative risk retention. The company reported a combined ratio of about 96% in both 2019 and 2020. The good underwriting performance reflects Central Re's prudent control of its loss ratio by actively adjusting and diversifying its portfolio.

A tight relationship with local insurers also enables Central Re to secure quality business. The underwriting performance for its growing overseas business also remained profitable. We expect Central Re to remain prudent in exploring the international reinsurance market.

China Reinsurance (Group) Corp.

(Financial Strength Rating: A/Stable/--; Issuer Credit Rating: A/Stable/--)

Contact: Wenwen Chen (

China Re Group's leading domestic market presence with diversified business segments and its expanding international footprint underpins its very robust competitive advantage. We believe the diversified earning streams will continue to support the reinsurance group's stand-alone credit profile. The group's state-owned status plays an important role in implementing various government initiatives, such as broader internationalization and provision of support in catastrophe-related coverage.

The group's growth momentum will likely resume in 2022, due to reinsurance demand and primary market developments. Such developments include P/C sector's accelerated shift to non-motor business and the life sector's product development following a revision in the definition/assumption of critical illness. Its overseas P/C segment will likely see strong growth following expansion, in addition to an industrywide rise in premium rates. China Re Group's topline contraction this year reflects its increasing focus on insurance margins. While China Re Group's domestic life reinsurance business is the largest driver of the contraction, comprehensive motor pricing reform and the formation of a state-backed agricultural reinsurer have also resulted in topline decline.

China Re Group's holdings of high-risk assets will likely remain higher than those of its international peers, exposing it to counterparty risk and capital market swings. The group's heightened sensitivity toward asset risk will likely narrow its capital buffer over the next two years. Amid rising counterparty risks in China, we expect China Re Group to actively review its investment guidelines and risk control processes. In addition, large losses arising from China and overseas markets in the second half of 2021 and lower reinvestment income will likely temper earnings for the year.

Korean Reinsurance Co.

(Financial Strength Rating: A/Stable/--; Issuer Credit Rating: A/Stable/--)

Contact: Daehyun Kim (

Korean Re's dominant market position in Korea with a long operating history and strong ties with local primary insurers will likely underpin stable revenue growth in its domestic reinsurance portfolio over the next two years. The reinsurer had a market share of approximately 60% in Korea's P/C insurance market in terms of gross premiums written in 2020.

Korean Re will likely maintain largely stable underwriting performances despite COVID-19. This is backed by the reinsurer's tightened underwriting, with reduction of unprofitable accounts and exclusion of event cancellations or business disruptions to manage the pandemic impact. We expect the reinsurer's combined ratio to be 99%-100% over the next two years. The reinsurer's five-year average combined ratio was about 99.5%, largely in line with regional peers'.

Korean Re has low capital and earnings volatility, given its high reinsurance utilization on commercial lines and catastrophe exposures. The reinsurer's commission arrangement associated with loss experience with local cedants also support its earnings stability. That said, its exposure to natural catastrophe events could increase owing to its growing international presence. The overseas business accounted for about 26% of gross premiums written in 2020.

PICC Reinsurance Co. Ltd.

(Financial Strength Rating: A-/Stable/--; Issuer Credit Rating: A-/Stable/--)

Contact: Wenwen Chen (

Established in February 2017, PICC Re plays a very important role in The People's Insurance Co. (Group) of China Ltd.'s internationalization strategy. The reinsurer benefits from business referrals from parent group affiliates. Group-related business accounted for 73.6% of PICC Re's premium income in 2020. We expect this proportion to gradually reduce owing to the reinsurer's targeted growth in third-party domestic and international business.

PICC Re will likely continue to report underwriting losses over the next two years, though with improving underwriting results. This reflects the reinsurer's effort to revamp its portfolio and strengthen risk selection. PICC Re's net combined ratio stood at 105.1% as of Dec. 31, 2021 (2020: 110.1%). We consider PICC Re's underwriting performance as comparable to that of its domestic peers, Taiping Reinsurance (China) Co. Ltd. and Qianhai Reinsurance Co. Ltd. The reinsurer's relatively large net retained catastrophe exposures could expose it to balance sheet volatility.

Taiping Reinsurance Co. Ltd.

(Financial Strength Rating: A/Stable/--; Issuer Credit Rating: A/Stable/--)

Contact: Wenwen Chen (

Taiping Re has a market-leading position in Hong Kong, with an expanding presence in mainland China and overseas markets. Belgium-based Ageas Insurance International N.V. is a strategic investor; we believe Taiping Re will leverage this investor's experience in risk management and governance as it continues its expansion in overseas markets. In addition, the reinsurer's expanded capital base will support its business expansion and weather prospective earnings volatility over the next two years, in our view.

Underwriting results for Taiping Re's P/C reinsurance portfolio will likely remain subdued in 2021 because of losses, particularly in its overseas portfolio. We anticipate the reinsurer will resume thin underwriting profit in 2022, following a proactive revamp of its retained exposures as part of business expansion. Taiping Re's P/C combined ratio stood at 104.9% as of Dec. 31, 2020 (99.8% at Dec. 31, 2019). Further to asset impairment loss amid heightened counterparty risk, the reinsurer registered net loss of HK$170 million in 2020.

Taiping Re's China subsidiary, Taiping Reinsurance (China) Co. Ltd., will likely resume its growth momentum over the next two years, particularly against the backdrop of continuous initiative in life reinsurance exposures. Further to constrained P/C reinsurance underwriting performance, Taiping Re China's life reinsurance segment will likely be in the loss-making phase due to high reserve overheads. We consider Taiping Re China's stand-alone credit profile as weaker than that of Taiping Re.

Toa Reinsurance Co.

(Financial Strength Rating: A+/Stable/--; Issuer Credit Rating: A+/Stable/--)

Contact: Koshiro Emura (

Toa Re's strong foothold in the Japan reinsurance market, good diversification along geographic and business lines, and excellent capital position support its overall credit profile. Toa Re is the only reinsurance group in Japan that serves both the non-life and life sectors in domestic and overseas markets, and it has maintained direct relationships with Japanese clients since its establishment in 1940. Since 2019, Toa Re has been further diversifying its business portfolio internationally, especially in Europe, while remaining slightly behind major European reinsurers in terms of business diversification and market competitiveness.

Although the group's operating performance continued to deteriorate from fiscal 2018 to 2020 (year ending March 31), it is likely to recover from fiscal 2021 in our base case. Its combined ratio (loss ratio and expense ratio) stood at 105.3% in fiscal 2020, exceeding 100% for a third consecutive year. This was caused by a series of unforeseen industry-wide events; such as the pandemic's impact outside of Japan, additional reserve accumulation in its U.S. non-life reinsurance business because of social inflation, and several natural catastrophes. Even under circumstances where any risks are realized, we expect Toa Re's strong capital commitment to work and to take measures to secure levels of capital at the 'AAA' category. The group has publicly set such numerical targets for capital in its medium-term management plan for fiscal 2021 to 2023.

This report does not constitute a rating action.

Primary Credit Analyst:WenWen Chen, Hong Kong + 852 2533 3559;
Secondary Contacts:Eunice Tan, Hong Kong + 852 2533 3553;
Patty Wang, Taipei +886-2-2175-6823;
Daehyun Kim, CFA, Hong Kong + 852 2533 3508;
Koshiro Emura, Tokyo (81) 3-4550-8307;

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