November 2nd, 2016

Asia Pacific Catastrophe Report 2016: Executive Summary

Posted at 1:00 AM ET

bromo-volcano-east-java-indonesia-smIn the Asia Pacific region, purchases in original currency terms of total catastrophe treaty reinsurance limit grew year on year. Increased purchase in Japan largely drove the growth, with lesser growth experienced in India and China. Changes in pro rata arrangements at some Australian cedents reduced the overall catastrophe excess of loss requirements from Australia; these movements were not large enough to push the overall region-wide purchase backwards.

Since September 2015, the regional currencies that form the overall capacity and premium numbers in U.S. dollar terms strengthened. The Japanese yen is particularly influential in this calculation due to the large amount of catastrophe reinsurance purchased by Japanese cedents. In total, these currency movements account for an additional USD 4 billion of increased capacity required year on year on a U.S. dollar-to-U.S. dollar basis. The increase is not large enough to cover the reverse currency movement that occurred in 2015.

Average rates on line (ROLs) decreased, primarily due to reduced rates but also because the increased limit purchased was generally executed at the low ROL, top end of existing programs. The premium decline occurred because the average ROL for capacity fell at a rate faster than the rate at which capacity purchased grew. Buyers benefited from the ability to purchase more limit at a lower cost, but reinsurers could take some comfort from the fact that the exchange rate movements meant they could book more premium overall, once converted to U.S. dollars. This situation is tenable only as long as business is profitable.

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In the region, the level of loss activity increased slightly in the last year. While there were no major catastrophes, smaller attritional losses increased the catastrophe loss ratio for the region to approximately 25 percent; this number is likely to change as loss amounts from more recent events become clear. Assuming there are no major disasters for the rest of the year, 2016 will be the fourth consecutive year of healthy profits for treaty reinsurers of catastrophe risk in the Asia Pacific region.

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