REINSURANCE
AM Best: Asian Reinsurers Show Resilience in 2023, Outpace Previous Year
SINGAPORE //BestWire// - Christie Lee, senior director, head of analytics, and Chris Lim, associate director, analytics, both of AM Best, said the improvement was attributed to reduced catastrophic events and favorable investment returns. Both spoke with AM Best TV at the 20th Singapore International Reinsurance Conference.
Chris LimView the video version of this interview here.
Following is an edited transcript of the interview.
Q: How did the performance of the major Asian reinsurers compare with that of the global market in 2023?
Lee: At AM Best, we compose the Asia reinsurance composite every year and this is composed by major Asia reinsurance domiciled here. In 2023, we observed an insurance service revenue growth under IFRS 17 of 8.8%. In terms of combined ratio, it has improved from 94.5. to 91.6. Return on equity saw substantial improvement from 0.1% in 2022 to 9.2% in 2023. This is attributed to low cat activities in 2023, as well as favorable investment returns.
If you want to compare that with the global reinsurance players, if we look at past five years, the global reinsurers do have more volatile results in some years back then they do recorded returns lower the cost of capital. While for Asian reinsurers, because the business profile is slightly different, they're more focused on proportional treaties and so their returns are more stable. Over the past five years, the results are remarkably stable, but in 2023, the ROE return would be slightly lower than the global players.
Lim: Reinsurance companies in Singapore, South and Southeast Asia reported healthy overall earnings in 2023, supported by robust investment income, as well as strong underwriting results. They have reported healthy interest income from their fixed income instruments, supported by the elevated interest rates that we see as a result of the monetary tightening since the middle of 2022. As a result, they have benefited from higher interest income.
Underwriting results also benefited in 2023, as well. This is supported by lower insured catastrophe losses during the year and also due to better underwriting discipline, as well as more favorable pricing environment as a result of the hardening market conditions.
If we look at the Offshore Insurance Fund in Singapore, the profits for the OIF have actually grown by 23% in 2023 to S$1.1 billion (US$742.7 million). This is the third consecutive year that it has been making very healthy profits. The improvement that we see is largely driven by improvement in the results of property reinsurance, which is the largest line of business, making up more than half of the reinsurance OIF.
Q: We would like to know, looking rationally, what trends are you seeing in North Asia in 2024 and your outlook for 2025 renewal?
Lee: For 2024, we see that the positive trend of operating performance extends. In June of this year, AM Best revised the global reinsurance market segment outlook from stable to positive. This is citing robust profit margins in the global reinsurance market, higher attachment points, as well as better terms and conditions. We think the global reinsurers, including Asia, reinsurers will hold on the underwriting discipline in the 2025 renewal.
The U.S. recently has some hurricanes losses, and so we're expecting that will add some underwriting pressure in the fourth quarter for global reinsurers. However, that being said, the overall full-year result will still remain going to be robust. We don't expect the recent hurricanes will drive further rate hardening for 2025 renewals given these kind of incidents are already priced in. In addition, we think this kind of catastrophe loss perhaps will support the upcoming renewal for not letting the rate to soften really quickly. Overall, we think both global reinsurers and Asian reinsurers will hold on to underwriting discipline.
Q: What about Southeast Asia?
Lim: If we review what has happened during the 1 January 2024 renewals, we have seen that there has been optimism that has returned to reinsurance renewals, particularly more for the lower layers. We see that there have been a level of oversubscription for the reinsurance treaties, as well as a general willingness to deploy capacity as compared to the year before that.
This has been helped and supported by stricter underwriting terms and conditions within the reinsurance contracts themselves. Reinsurance companies have also improved the quality of their underwriting, their catastrophe accumulation management and this has in general all supported an improvement in the overall market conditions.
In terms of what has happened then, we have seen that there has been a greater usage of multi-year agreements, as well as named-peril coverages for their retrocession protection. If we look forward to the upcoming renewals in general, the sentiments are that the capacity will likely remain. There will still be a willingness to deploy capacity—however, there will still be different pockets within the market that will be subject to different considerations. There would be considerations of treaties that have been more impacted by recent cat events and this will likely be part of the consideration in terms of the trends of the future.
The upcoming reinsurance renewal, but by and large, we do expect that the availability of capacity as well as a more orderly renewal.
Q: We can see there are still some uncertainties in the outlook?
Lim: Particularly in the areas/pockets where they have been affected by recent catastrophes.
Q: As IFRS 17 has become more widely adopted, how is that affecting Asia-Pacific reinsurers?
Lee: Most large Asian reinsurers have adopted IFRS 17. The exception would be India, Taiwan and Japan and non-listed Chinese companies.
From our perspective, we see that IFRS 17 implementation, it's just an accounting standard change. It will change the financial numbers presentation. However, the business fundamental has not changed. For users of the financials, including financial analysts like us, we need to understand the key differences between IFRS 4 and IFRS 17, especially in interpreting performance measures such as combined ratio ROE.
They have the same name, but they have different components. It's important for us to understand the changes in the numerator and the denominator. Overall, we observe that like the combined ratios for reinsurers have some decrease and that's the general trend that's the main driver is because of discounting effect.
Lim: In general, we do not see an underlying change in the economics of the companies. However, the importance of doing peer comparison given the change then becomes a consideration more on our part. In terms of the impact themselves, the nonlife reinsurance companies in general would see a more muted impact as a result, of this transition, given the nature of the business. However, we do see a greater level of change, particularly for the life reinsurance companies in terms of the impact on the financial statements.
View this and other interviews at http://www.ambest.tv
(By Staff Report, bestday_news@ambest.com)