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OCTOBER 19, 2020 03:24 PM (EDT)

Best’s Market Segment Outlook: Southeast Asian Reinsurers Look to Life and Health for Growth

 Tran Nhat Trung
Financial Analyst
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Doniella Pliss
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Christopher Sharkey
Manager, Public Relations
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Jim Peavy
Director, Communications
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SINGAPORE - OCTOBER 19, 2020 03:24 PM (EDT)
Although many reinsurers operating in Southeast Asia recorded underwriting losses last year from perennial challenges such as pricing inadequacy and large catastrophe-related claims, the region still offers significant growth potential given the hardening market conditions and greater demand for health coverage amid the pandemic, according to a new AM Best report.

A new Best’s Market Segment Report, titled, “Southeast Asian Reinsurers Look to Life and Health for Growth,” states that many domestic reinsurers in Southeast Asia posted solid premium growth in 2019, although these increases generally did not translate to favorable underwriting results. However, there are signs that the reinsurance market in the region may improve. The exit of several reinsurance underwriters from the region and tightened underwriting practices of global reinsurers amid the COVID-19 pandemic has reduced capacity and increased rates. At the same time, the ongoing COVID-19 pandemic has accelerated the growth trend in the life and health insurance segment, as demand for coverage has risen as consumers have become increasingly aware of the benefits. Given that the penetration of health insurance remains very low, AM Best expects the growth in this segment to continue to outpace other classes of business in the region.

While the rapid expansion of the health line of business will lead to heightened underwriting risks, AM Best expects the balance sheet strength of the domestic reinsurers to remain solid. The robust risk-based capitalisation levels of these companies can support such an increase in underwriting risks. In addition, the life and health business typically has no exposure to catastrophic risk and tends to be more stable than the traditional property/casualty businesses, and therefore is subject to lower capital requirements as compared with the commercial business lines.

Overall, this rise in demand for life and health insurance has helped domestic Southeast Asian reinsurers to counter the strong competition from global reinsurers. AM Best views domestic reinsurers as having cultural advantages and a better understanding of customers’ needs than their foreign counterparts. In addition, the margins in the retail health and life segment are often too slim to attract enough interest from global reinsurers.

However, challenges remain for local reinsurers to grow this segment further. The retention level of life and health products is significantly higher compared with the property/casualty insurance segment. As direct insurers accumulate capital and develop better analytical capability, they will be able to retain even more business and this may reduce opportunities available to local reinsurers. To mitigate this, reinsurance companies have focused their resources toward product innovation and marketing strategies to help their cedents penetrate new sub-segments. Reinsurance companies have also strived to lock in business with direct insurers for an extended period. Strategies such as these should not only help reinsurers strengthen their relationships with primary cedents, but also enhance the efficiency and profitability of the life and health insurance segment over the medium term.

To access the full copy of this market segment report, please visit .

AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.