Pricing is set to continue to harden across South and Southeast Asia at the upcoming 1 January renewals, amid concerns around the projected rise in loss costs associated with increased exposures, according to Peak Re’s Jasmine Miow.
Miow, who serves as Peak Re’s director for South and Southeast Asia, told The Insurer the rate increases seen during the 2022 and 2023 renewal seasons were not sufficient to drive substantial improvements to technical profitability, with prudent property catastrophe exposure management expected at upcoming renewals.
Certain markets, such as Malaysia and the Philippines, are already seeing a reduction in reinsurer appetite for property catastrophe exposures, Miow said.
The push for further rate increases comes on the back of a significant hardening of the region’s reinsurance markets in 2023, driven by global macroeconomic and geopolitical challenges, such as the war in Ukraine and rising inflation.
This marked a continuation of the shifting dynamics in South and Southeast Asia, which had seen reinsurance markets begin to firm in 2021 following a prolonged period of intense price competition.
Miow said market corrections in 2023 were reflected in rate adjustments, higher retentions and a tightening of terms and conditions, often resulting in lower reinsurance commissions.
“This evolving landscape required reinsurers to adapt and navigate a market characterised by increased discipline, heightened risk awareness and a focus on performance optimisation,” she said.
Markets to have seen significant corrections include Malaysia, with loss-impacted programs in the country facing adjustments ranging from 20-30 percent up to 100 percent.
“In addition, there have been risk-adjusted rate increases, typically in the range of 10 to 15 percent, even on loss-free programs,” Miow said.
“The hardening of the global reinsurance market has also significantly reduced reinsurers' appetite to underwrite property catastrophe risks in the Philippines,” she said
“Non-life insurers in the region have struggled to secure proportional reinsurance programs. As a result, there's been a notable shift towards gross excess of loss programs, which has had a direct impact on non-life insurers increasing their retentions.
“This structural change has led to a significant increase in the cost of reinsurance for insurers in the Philippines.”
Lower retentions
Miow said XoL programs in the region typically maintain lower retentions than in more developed reinsurance markets.
“This phenomenon is primarily due to two key factors – the relatively limited capital base of insurance companies operating in the region and their preference to cede a greater share of risk to reinsurers,” Miow said.
She said a notable trend had emerged at recent renewals towards offering multi-year agreements for the lower layers of XoL programs, driven by insurers’ desire for price stability and reinsurers’ desire to cultivate long-term partnerships.
“Such arrangements allow reinsurers to gain a deeper understanding of the risks they underwrite and provide the flexibility to develop tailored reinsurance solutions to meet the specific needs of their clients,” she said.
“This trend reflects the evolving landscape of reinsurance practices in the region, driven by a desire for stability, predictability and enhanced risk management.”