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Member, Beacon International Group, Ltd.
The cumulative impact of the spate of earthquakes, flood and typhoons that have hit Asia in the past two years has affected the underwriting practices of reinsurers operating in the region, Fitch Ratings Ltd. said in a research note Wednesday.
The events have prompted reinsurers to take stock of their existing portfolios and re-evaluate their underwriting approaches and risk appetites, the New York-based ratings agency said.
“The agency believes that reinsurers in the region are becoming more risk-focused to better brace themselves for the next Asian calamity after their financial performance had been battered by several loss events to varying degree,” the note states. “Given the increasing frequency and severity of catastrophes in Asia, reinsurers have taken a hard look at their existing underwriting practices with a view to tightening them.”
Fitch says this increased selectivity on the part of underwriters was evident during the recent renewals, as many reinsurers began imposing event limits to policies that they underwrote.
“Reinsurers are taking a more proactive stance to monitor and evaluate their risk accumulation exposure in the various Asian markets, particularly the catastrophe-prone markets,” the note states. “For instance, in the Thai market, reinsurers are likely to limit the level of flood coverage to less than 100% of total loss. Business renewals are also more carefully screened to weed out unprofitable accounts.”
Ultimately, this improved underwriting discipline will improve the sector’s bottom line, Fitch predicts.
“While the shift in underwriting approach may result in a reduction in top-line premium growth for the reinsurers, Fitch believes this could improve their overall profitability,” the agency said in its note.