Regulation, mergers and wind storms have assured plenty of activity in this crowded marketplace

Asia-Pac

Three themes have dominated the market: regulation; competition and softening rates; and mergers and acquisitions. Local Asian players have grown their global footprint while international carriers broaden their Asian reach.

At the time of writing, Lloyd’s had granted China Re a licence to convert its special-purpose syndicate with Catlin into a fully fledged syndicate in the 326-year-old market.

Meanwhile, Hong Kong-based Peak Re is understood to be in talks with White Mountains to acquire its reinsurance and Lloyd’s arm Sirius. And earlier this year Swiss-based Allied World opened an office in Sydney and bought the Hong Kong and Singapore operations of UK insurer RSA for an estimated $215m.

Fitch believes there is increasing interest among foreign reinsurers to set up or expand in the region. “The strong growth momentum of the Asian reinsurance markets is one attraction, along with increasing risk awareness and the continued market demand by the cedants, spurred by frequent occurrences of natural catastrophes in the region,” it said.

International players are deploying yet more capacity to a crowded market. Competition for market share and a relatively benign catastrophe experience since 2011 have continued to exert downward pressure on rates.

MARKET VIEWS

‘A big theme of 2014 has been the distribution “awakening”, driven by the opportunity for growth and diversification that regions such as Asia can provide. This inflow of capital, and the distribution landscape deploying it, is profoundly reshaping our industry, especially at the wholesale end.’ - Neil Wray, regional managing director, Tokio Marine Kiln Singapore

‘The emerging leadership vacuum in Asia calls for a new disciplined approach to the future. It is not about ILS, competition or rate adequacy; it is about vision – knowing your strategy and applying it. This holds true for reinsurers and their clients.’ - Chris Kershaw, managing director, global markets, Peak Re

‘A big topic for China was the C-ROSS, the new solvency regime of CIRC. Whilst the focus was on non-life, it is now on life. There was also a much more lively discussion around finally introducing nat cat schemes in various pilots, and the agricultural insurance pool. So I think this time it is for real.’ - Robert Wiest, head of strategy and operations, member of the executive team Asia, Swiss Re

At the 1 April renewals, rate decreases in Japan were greater than expected, while in India original property rates remained soft. This may not be the case for renewals in 2015, given the continued impact of flooding and cyclone landfall in 2014.

Some market commentators believe reinsurance rates will rise in India at 2015 renewals, following 2013’s Cyclone Phailin and recent Cyclone Hudhud. The nation’s general insurance sector received claims of more than $2.43bn and $3.24bn respectively from these.

One factor favouring multiple counterparties in the region is the potential financial impact of natural catastrophes, according to Fitch. This has led to a review of risk appetite and management strategy for insurers and reinsurers. Some insurers are on the lookout for alternative diversified funding sources to reduce their dependence on reinsurers.

During the first half of the year, several catastrophe bonds were issued in Japan covering earthquake and typhoon risks. And in November, Zenkyoren, the largest single buyer of catastrophe reinsurance protection globally, returned to ILS with its Nakama Re issuance. While the activity of alternative capital remains subdued compared with elsewhere, outstanding cat bond limit in the region has more than doubled over 2014 to $1.625bn, said Guy Carpenter.

The shift towards risk-based capital systems in markets such as Malaysia is encouraging consolidation of local insurance markets and leading to a more sophisticated approach to underwriting.

The introduction of solvency laws into the Asian region is also changing the way insurers buy reinsurance, with cedants increasingly viewing the product as contingent capital.

While the region has escaped catastrophes on the scale of 2011, 2014 has offered plenty of reminders of the potential for loss in the shape of Cyclone Hudhud, Pakistan floods and super typhoon Rammasun.