Underwriting loss and poor investment return dragged down the operating profits of large Asian reinsurers in 2022, AM Best said in a briefing on the Asian market at the Singapore International Reinsurance Conference (SIRC).

However, according to Christie Lee, senior director, analytics—Northeast Asia at AM Best, the decline in large Asian reinsurers shareholders’ equity was much smaller than that of their global peers over the year, along with a decrease in retro capacity that suppressed Asian reinsurers’ capacity offering.

Earlier this month AM Best reported that Chinese insurers’ investment trends remain conservative, as insurers continue to focus on deriving strategic value from long-term equity investments.

Looking at South and Southeast Asia, Chris Lim, associate director AM Best, said that 2022 was a year of high global insured catastrophe losses. However, there were relatively more subdued catastrophe claims in this region, although the area was still impacted by the 2022 floods in eastern Australia.

Lim said that recent renewals had to deal with inflationary pressures, the withdrawal of property reinsurance capacity, a shortage of proportional reinsurance capacity, rate increases tightening terms and higher retentions.

However, the rating agency highlighted the rising cost of secondary perils in the wake of events such as the Jakarta floods in 2020, the “Black Summer” bushfires in Australia over 2019/20, the South Indian floods of November 2021, the eastern Australia floods of February/March 2022 and the Auckland floods of January/February 2023.

A better combined ratio

AM Best said the market has responded with a greater emphasis on pricing and risk selection, enhanced accumulation management and controls, non-property diversification, the use of managing general agents and geographical diversification.

According to AM Best, based on the operating performance of a group of selected Asia-Pacific-domiciled reinsurers that rank among the top 50 largest reinsurance groups globally, reinsurers sustained the ability to deliver stable operating and combined ratios in 2022.

The composite’s net income fell to $166 million in 2022 from $688 million in 2021, while return on equity also declined significantly, to 1.8 percent in 2022 from 7.0 percent. However, the combined ratio of reinsurers in the Asia-Pacific composite improved slightly to 100.8 in 2022 from 101.1 in the previous year, lower than the five-year average of 101.0.

Looking at what’s next for the region in terms of challenges, AM Best said the impact of global reinsurance market conditions, climate risk appetite, cost of capital, rate adequacy and emerging risks could lead to a more orderly renewal season ahead.

Greg Carter, managing director at AM Best, talked about the rating agency’s national scale ratings. Egypt, India, Indonesia, the Philippines and Vietnam have received these so far and the rating agency will consider more in future.