Aon Sees Catastrophes, Consolidation, Regulation in Asian Re Market

Aon Benfield launched a market update for the key Asia Pacific reinsurance hubs of Australia/New Zealand, Japan, Singapore and China at the recently concluded East Asian Insurance Congress (EAIC) in Bali.

The announcement gave the following details for each of the regions:
Australia/New Zealand – 2010 has seen the region affected by the Melbourne and Perth storms (insured losses circa A$1.1 billion [US$1.09 billion] each) coupled with the Christchurch earthquake.

Aon noted that, “while the insured earthquake losses are still uncertain, we believe any reinsurance rate impacts will be mild and will impact only reinsurance programs with New Zealand earthquake exposure.

“The mild and localized impact will be similar to the reinsurance market impact of this year’s Chilean earthquake where few new reinsurer lessons were evident from the event and abundant competitive capacity existed after the loss.

“Reinsurers’ appetites remain healthy for Australian and New Zealand business with the June renewals seeing flat/small reductions for loss free Australian programs. Loss affected layers reflected experience-based increases of up to 30 percent. Loss free New Zealand programs saw rate reductions.”

Japan – Consolidation has resulted in three insurers occupying more than 90 percent of the Non-Life insurance market.

Aon explained that the “initial management focus is upon reducing expense ratios, exploring synergy opportunities and developing international growth strategies. Insurers are rethinking capital management due to proposed changes to FSA-driven solvency regimes and the future introduction of IFRS.

“While the consolidated reinsured perils have risen, it is unlikely that the budget for reinsurance purchases will rise accordingly despite reinsurance being the most accretive form of capital available to Japanese insurers.

Singapore – Insurers will continue to benefit from the significant surplus of excess of loss capacity over demand that drives healthy competition in the Singapore market.

The report noted that the “immediate effects of the Padang Earthquake and Typhoon Ketsana appear to be short lived and single digit rate reductions are expected in Indonesia, Philippines and Taiwan. Intense insurer competition has driven the rate reductions in the original insurance business to out-pace the recent reinsurance rate decreases.

“Indian insurers remain focused on proportional treaty capacity as the original rates continue to decrease, although they are showing first signs of stabilizing. Loss activity appears to be limited but recent flooding in the north west of India could impact the catastrophe excess of loss programs.”

China – Strong economic growth combined with an improving legislative framework, ongoing liberalization and easing of investment rules provides scope for growth for both domestic and foreign insurers.

“During the first half of 2010, primary property and casualty premiums grew by 33 percent,” said the report. “In the absence of a large event loss, insurers have been looking for rate reductions with unchanged terms and conditions while major reinsurers sought for rate improvement to reflect the continued increase in exposures.”

Malcolm Steingold, CEO of Aon Benfield Asia Pacific, commented: “There is an interesting dynamic across the Asia Pacific market where clients have access to a very competitive reinsurance market that provides very efficient underwriting capital.

“The market appears, barring any significant losses before year-end, to be set to become an even more accretive source of capital for insurers. Abundant efficient reinsurance capacity helps our clients deal with the evolving regional challenges from catastrophes, consolidation and increased regulation.

“We are constantly working with our clients and reinsurers to address these challenges by providing state of the art analytics, access to global markets and timely updates on the evolving issues that could impact on their reinsurance purchase.

“This matters more than ever as we approach renewals season. For example, we are developing a clearer picture of the devastating Pakistan floods. Agriculture took the brunt of the insured claims but initial figures hinted at little insurable interest. However, there are now indications that losses will reach the mid to lower half of programs as flood waters recede and the true extent of damage is revealed and quantified.”

Will Gardner, head of Aon Benfield Analytics Asia Pacific, added: “Our key focus in the upcoming 1/1 renewals is to use our integrated broking and analytics teams to assist our clients – size their exposure, structure, negotiate, and place optimal reinsurance programs that continue to provide accretive underwriting capital. Our new pan-Asia typhoon model for the first time captures client potential occurrence losses across multiple territories.”

Source: Aon Benfield