Asia-Pacific Reinsurers Show Strong Results Amid Improved Investment Conditions

Major reinsurance companies in the Asia-Pacific region have seen a significant boost in their return on equity, climbing to 9.2 percent from 0.1 percent under International Financial Reporting Standard (IFRS) 17, according to AM Best's recent market report. This improvement has been driven by a stable investment environment and relatively low catastrophe activity.

The Best's Market Segment Report, "Asia-Pacific Reinsurers Achieve Strong Results in Improved Investment Environment," notes that while the region's insurers benefit less directly from global reinsurance rate increases, their operational stability remains strong. Additionally, many companies are expanding internationally to boost profitability, although China continues to face challenges due to a weak post-COVID recovery.

The report notes that AM Best's composite of Asia-Pacific reinsurers, which includes only IFRS 17-reporting companies, saw a combined ratio of 91.6 percent in 2023—an improvement of 2.9 percentage points over the previous year. Much of the rise in return on equity was attributed to the recovery of investment losses, higher investment income, and improved underwriting results, except for in China.

"Asian reinsurers' 2024 underwriting strategies vary based on their access to retrocession capacity and their ability to manage the underwriting cycle," said Christie Lee, senior director and head of analytics at AM Best. Large reinsurers are adjusting their catastrophe coverage to reduce exposure, while others pursue growth in mature markets to capitalize on rate increases.

Capital positions in the Asia-Pacific reinsurance sector remain strong, with a focus on diversification through geographic expansion and the addition of liability, life/health, and specialty business lines. This strategy helps reinsurers navigate the reinsurance cycle.

Chris Lim, associate director of analytics at AM Best, said, "Reinsurance renewals have been more orderly in 2024 than in 2023, aligning with market expectations. Interest in lower-layer coverage has grown in South and Southeast Asia, reflecting confidence in current rates. However, the ongoing challenges of climate risks ensure that reinsurers remain cautious with risk assessment and pricing."

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