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AM Best: COVID-19, Catastrophes Continue to Shape Asia-Pacific Reinsurance Markets

Low interest rates, regulatory developments and digitalization also are playing key roles in the region's development, analysts say.
  • David Pilla
  • January 2022
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COVID-19, catastrophe losses and competition are among the major issues shaping Asia-Pacific reinsurance markets now and in the near future, according to AM Best analysts.

Low interest rates, regulatory developments and digitalization also are playing key roles in the region's development, said analysts in an AM Best market briefing at the virtual 17th Singapore International Reinsurance Conference.

COVID-19 has become the catalyst of digital transformation in the (re)insurance industry, said Christie Lee, senior director, analytics - North East Asia. She said it forced (re)insurers to speed up the digital agenda. Most reinsurers are seeking to improve operational efficiency and the digital customer experience while others are exploring new capabilities and partnering with insurtechs, she said.

COVID-19 is projected to be a $40 billion loss for the industry, down from initial $100 billion estimates and a sizable but manageable loss, said Greg Carter, managing director, analytics. AM Best doesn't see major rating changes from COVID-19 but issues such as business interruption are complex and may take time to resolve, he said.

On the life side, mortality related to COVID-19 is lower than initially expected but will continue to develop, he said.

AM Best is maintaining a stable outlook for the global reinsurance market, said Carter. He said the rating agency sees improved performance across the market.

Claims uncertainty, COVID-19, secondary perils and social inflation are among the headwinds for the reinsurance market, said Carter. He also noted risk modeling issues, new capital coming into the market, low interest rates and the risk for a smaller role for insurers and reinsurers in an evolving economy. The rise in importance of secondary perils is a significant trend in recent years as are the rising cyber losses, reflecting the increasing interconnectivity of economies, he said.

On the plus side, the reinsurance industry is seeing good pricing trends and increased underwriting discipline, said Carter. Reinsurers are starting to meet their cost of capital; there is a disciplined limited impact from new entrants; the segment remains well capitalized and has greater input and convergence with the insurance-linked securities sector, which he said the market no longer sees as a threat; and reinsurance is one of the most innovative segments of the industry.

Related: COVID-19 Disruption to the Global Supply Chain Could Continue to Challenge Insurers for Some Time

The list of the top 10 reinsurers in both the nonlife and life segments has remained fairly stable in recent years, according to AM Best's ranking. But Carter noted in the nonlife segment, the Asia-Pacific region recently saw representation by Korean Re and China Re, which are now ranked eighth and ninth, respectively, in the Top 15 Global Non-Life Reinsurance Groups ranking. General Insurance Corp. of India is No. 10.

Capacity in recent periods has outpaced demand among players in the Southeast Asia reinsurance market, said Kanika Thukral, senior financial analyst.

Domestic reinsurers in Southeast Asia have demonstrated technical unprofitability in the past five years, with 2017 the only exception, said Thukral.

She said Southeast Asian reinsurers did well compared with international reinsurers in relation to the COVID-19 pandemic due to lower business interruption claims experience supported by exclusions put in place after the 2003 SARS outbreak. In 2020, reinsurers also benefited from improvement in claims experience of the region's primary insurers in lines such as travel, motor and workers' compensation due to COVID-19 restrictions.

Reinsurers in Northeast Asia have been diversifying in recent years to minimize the impact of natural catastrophes on their books, said Lee. The reinsurance markets in Japan and South Korea are mature, while those such as China are developing.

Lee said China Re has grown quickly to sixth place in the AM Best Top 50 Reinsurer ranking, benefiting from strong growth on the life reinsurance segment in the past few years.

Northeast Asia reinsurers have collectively had better underwriting results than the AM Best Global Top 50, said Lee. They have had relatively small losses related to COVID-19 than their international counterparts, but have seen increasing large risk losses in Taiwan, Japan and South Korea in the past two years.

Christie Lee

Other headwinds for these reinsurers included hard retrocession rates and lower capacity, low interest rates and regulatory developments, she said.

On the plus side are positive pricing trends, opportunities to raise capital via hybrid instruments and supplementary bonds and increasing ILS use. She said regulators in Singapore and Hong Kong are encouraging ILS development.

An interesting issue in the China market has been the rapid development of the agricultural reinsurance market, in which premium levels in 2020 reached $12.5 billion, said Lee. China Agricultural Reinsurance Co. Ltd., which began operations at the end of 2020, has registered capital of $2.5 billion and 20% compulsory cession for subsidized policies, she said.

AM Best currently has a mix of stable and negative outlooks for Asia-Pacific markets, said Myles Gould, head of analytics – South East Asia, Australia and New Zealand.

The outlook is negative for the India nonlife segment because of several persistent headwinds and the economic fallout from COVID-19, he said. Gould said this environment is expected to worsen underwriting results and the investment outlook for this sector.

Competitive market conditions and poor pricing in core business lines also contribute to the negative outlook, he said.

The Indonesia nonlife segment also has a negative outlook on weaker-than-expected economic recovery amid mobility restrictions due to COVID-19, claims escalation in credit insurance and higher investment risks and low interest rates, said Gould.

Malaysia's nonlife outlook is stable despite an expectation of muted economic growth prospects due to COVID-19 and low interest rates, said Gould.

The Philippines nonlife segment has a stable outlook despite significant natural catastrophe exposure, a near-term economic slowdown due to COVID-19 and competition in fire insurance, he said. Long-term growth prospects for the country are a key positive consideration.

Related: The View to 2022: Insurers Face New Year With Cautious Optimism

For Vietnam, the nonlife outlook is stable despite short-term social and economic consequences from COVID-19 and low interest rates, said Gould. Long-term growth prospects related to a digital transformation in distribution, regulatory advances and a potential rise in foreign shareholding are positive trends.

A recent Best's Market Segment Report, Market Segment Outlook: Vietnam Non-Life Insurance, states AM Best expects Vietnam's nonlife insurance segment to continue expanding, albeit at a modest pace in view of the challenging economic backdrop over the short term. Health and personal accident insurance are likely to remain the primary growth drivers as the COVID-19 pandemic raises public awareness on health and mortality risks. However, this could be offset by a deceleration in group health insurance as domestic industries and businesses implement cost-cutting measures.

In Japan, AM Best has a stable outlook for nonlife despite a slowdown in economic activity related to COVID-19, said Lee. Premium growth and rate increases are supported by fire insurance, she said. Insurers in Japan had low net exposure to business interruption and event cancellation losses.

On the downside, Lee said Japanese insurers have potential rate cuts in voluntary motor insurance rates and higher reinsurance costs for natural catastrophe coverage.

In South Korea, AM Best revised its outlook to stable from negative on automobile rate hikes, improved loss experience and an interest rate rebound, said Lee.

The AM Best outlook for China nonlife is negative on premium pressure from motor reform, higher investment risk and execution risks from rebalancing of business and investment portfolios, she said.

Those factors were partly offset by health and agricultural insurance premium growth, a quick economic recovery from COVID-19 and strong regulatory involvement, she said.


Following is an excerpt from the Best's Country Risk Report.

  • The Country Risk Tier (CRT) reflects AM Best's assessment of three categories of risk: Economic, Political, and Financial System Risk.
  • India, a CRT-4 country, has moderate levels of financial system risk and high levels of economic and political risk.
  • GDP contracted 8% in 2020 and is projected to grow by 12.5% in 2021. India was already facing a growth slowdown before the global COVID-19 pandemic and has been hit particularly hard by both the initial outbreak of the pandemic and the emergence of the delta variant.
  • Inflation in 2020 was 6.2%, and is expected to be 4.9% in 2021. Inflation was high despite weak demand in 2020 owing to currency depreciation.

Economic Risk: High

  • India’s growth outlook for 2021 has been damaged by the emergence of the delta variant of COVID-19 and a slow vaccine rollout, which have suppressed consumer spending. Consumption accounts for over 70% of GDP and may take some time to fully normalize, since the government aimed to fully vaccinate the population by the end of 2021.

Political Risk: High

  • With his Bharatiya Janata Party (BJP) winning a significant majority in the 2019 elections, Narendra Modi is serving a second term as prime minister. The next parliamentary elections are scheduled for 2024. Until then, the BJP’s focus will be on economic growth and job creation, with a particular emphasis on boosting India’s rural economy; however, these initiatives have been hampered by the outbreak.

Financial System Risk: Moderate

  • The insurance industry is regulated by the Insurance Regulatory and Development Authority (IRDA).

Vital Statistics 2020

Nominal GDP USD bn 2708.77
Population mil 1378.6
GDP Per Capita USD 1,965
Real GDP Growth % -8.0
Inflation Rate % 6.2

United Nations Estimates

Literacy Rate % 74.4
Urbanization % 34.5
Dependency Ratio % 9.5
Life Expectancy Years 69.7
Median Age Years 28.4

Insurance Statistics

Insurance Regulator Insurance Regulatory and Development Authority of India (IRDAI)
Premiums Written (Life) USD mil 81,251
Premiums Written (Non-Life) USD mil 26,741
Premiums Growth % 0.1

Regional Comparison

Country Risk Tier
India CRT-4
China CRT-3
Indonesia CRT-4
Kazakhstan CRT-4
Russia CRT-4

Sources: IMF, UN, Swiss Re, Axco and AM Best

David Pilla is news editor. He can be reached at

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