Foreign reinsurers enticed by Asia market growth

There is increasing interest among foreign reinsurers and other participants to set up or expand their operations in the Asia-Pacific region, according to Fitch Ratings.

The rating agency believes the strong growth momentum of the Asian reinsurance markets is one of the key attractions for foreign participants, along with increasing risk awareness and continued market demand by the cedants, spurred by frequent occurrences of natural catastrophes in the region.

In a special report, Fitch says premium rates for regional reinsurance policies renewed during 2014 have reached a plateau. The softening premium rates are, allegedly, largely attributable to a decrease in the frequency and severity of natural catastrophes in the region since 2011.

An increase in reinsurance capacity in the form of new start-ups, as well as Asian operations set up by global reinsurers, are another factor that has contributed to the weaker premium rates. Several companies have taken advantage of the current situation to expand their reinsurance coverage at a lower cost, Fitch says.

The report notes that the potential financial impact caused by natural catastrophes has led to a review of risk appetite and management strategy for both the insurers and reinsurers. Some of the insurers are on the lookout for alternative diversified sources of funding, to reduce their heavy dependence on reinsurers. During the first half of 2014, several catastrophe bonds were issued in Japan to cover various catastrophes such as earthquakes and typhoons.