Source: asiainsurancereview.com

COVID-19 pandemic-related claims are likely to linger for the remainder of this year, says Fitch Ratings. However, the global credit rating agency expects claim severity to subside as the world continues to adapt.

In its report, “Asia Reinsurance Market 2022”, Fitch also says that the risks posed by persistent inflation could dampen the profitability of the reinsurance market, while weather-related catastrophe losses are likely to climb as the climate continues to change. “We believe prolonged high inflation could raise claims and reserve deficiency of reinsurance. It could also slow business growth as purchasing power is eroded, leading reinsurers to focus on price adjustments and underwriting discipline,” said Fitch.

Climate risk

Reinsurers are also boosting risk mitigation capability to help manage the complexity and uncertainty surrounding climate change. For example, Asia-Pacific reinsurers face weather-related catastrophe losses from flooding and drought, such as the major floods in eastern Australia and China in 2022. Reinsurers are reassessing risk modelling and catastrophe management frameworks to help quantify potential natural-hazard losses for underwriting, pricing and capital setting.

Greater awareness of environmental, social and governance (ESG) issues, particularly extreme weather and natural catastrophe exposure, has led reinsurers to adjust policy terms and conditions. More overseas retrocessions are also refining their underwriting positions on fossil fuels, making ESG a higher priority for Asian reinsurers’ underwriting risk assessments.

CAT bonds

Fitch expects continued market momentum for catastrophe bonds, with two catastrophe bonds issued in Singapore so far this year. Hong Kong also issued the second insurance-linked securities catastrophe bond sponsored by Peak Reinsurance to cover industry losses inflicted by typhoons in Japan.