The Asia Pacific region has significant exposure to a wide variety of catastrophe perils: within the region lie some of the world’s most active earthquake areas, the northwest Pacific typhoon zone and numerous other localized threats of windstorm, flood, hail, snow, freeze and fire. In fact such catastrophe exposures could be said to be the “greatest” of any region of the world. These exposures generate a clear need for insurance for commercial ventures and for individuals with economic well-being and reinsurance for the insurance company aggregators of this exposure.
Insurance is a discretionary expense, insurance including catastrophe cover more so, and economic conditions for many of the region’s 3.9 billion inhabitants do not permit the ownership of any significant assets, let alone the ability to afford cover. Recent developments in micro-insurance and microreinsurance are going some way to address these issues. Nevertheless the fact remains that there is massive underinsurance in all but a handful of the countries of the region.
Despite economic constraints, Guy Carpenter estimates that around 22percent of the total catastrophe excess of loss reinsurance limit purchased in the world covers countries in the Asia Pacific region. Taking the same split, but using premium spend as the measure, the number is closer to 12 percent.
Within the region the total limit and premium purchased are heavily dominated by the traditional mature markets in Japan and Australia / New Zealand. Insurance markets in these territories are characterized by relatively high levels of insurance penetration and there is an associated significant purchase of catastrophe reinsurance from the international reinsurance markets.
The chapters of this report will show that there has been rapid growth of catastrophe reinsurance in many of the countries in the region over the past ten years. This growth has come for different reasons in each of the territories where it has been experienced. For example, it has come in Japan, the largest buyer, because enhancements to modelling techniques, capital management practices and solvency treatment have resulted in increased demand from insurers, confounding the prediction that the 2000-2002 series of mergers in the industry would result in decreased demand. Growth has also come in the developing economies of the region, notably China, where rapid growth of demand in the original market looks set to continue for some time. China accounts for about 5 percent of the region’s catastrophe reinsurance in 2010. Expect the shares of limit and premium represented by the growth territories to continue to expand in the future.
Reinsurers are drawn to the region; in Japan and Australia and even more so elsewhere they see opportunities for diversifying income that are attractive. The search for this income has led many global reinsurers to set up branches or subsidiaries in Asia. We have also seen increased interest in the creation of new local reinsurers, to be capitalized with Asian capital and run from the region.
Following the reinsurers, and stimulated by the growth of the market, the vendor modelling companies are broadening and deepening their product offering in the region. In the appendix to this report we outline a few examples of the latest developments.
In a wider context 2010 started out poorly for the reinsurance industry after it suffered one of the most costly first half years on record. But at the time of writing, because there has not been any large Atlantic hurricane or Pacific typhoon losses, global catastrophe premiums are likely to exceed losses for the year. As such, capital remains relatively abundant in the industry.
Against such a background, Guy Carpenter’s world Catastrophe ROL index shows that prices softened during 2010 and are forecasted to keep going down in 2011.
The Asia Pacific region has tended to look to the wider world to indicate the direction of rates, if not the quantum of movement. Other than on specific loss affected layers, the market can be expected to go down in line with the global trend.
In the pages that follow, we will review the condition of each major catastrophe prone market in the Asia-Pacific region, helping set the stage not just for the 2011 renewal season, but also for this expanding region as it continues to develop as one of the major growth reinsurance markets worldwide.