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Asian infrastructure boom opens doors for reinsurers: Fitch

Stable domestic consumption, increased government infrastructure spending and expansion of the insurance market will drive reinsurance activity in Asia, according to a report by Fitch.

The emergence of cyber insurance may also offer modest upside in the near to medium term, while benign low interest rates and overcapacity provide the backdrop for mergers and acquisitions activity.

Fitch expects China’s regional infrastructure projects to lift reinsurance demand, with its One Belt, One Road initiative expected to involve more than $US900 billion ($1.13 trillion) of spending across more than 60 countries.

Insurance premium from current projects may reach $US7 billion ($8.79 billion), of which $US5.5 billion ($6.91 billion) will go to Chinese reinsurers.

Indonesia plans to increase infrastructure spending by 22% this year to more than 350 trillion rupiah ($33.02 billion), while Thailand has raised infrastructure spending to about 896 billion baht ($33.88 billion) for the year.

“These large-scale projects will have to be covered against substantial risks and catastrophes throughout their construction and operating cycles,” Fitch says.

“[Primary] insurers are unlikely to have the capacity to underwrite such exposures alone and reinsurers will have opportunities to step in and address this gap.”

Fitch says catastrophe-prone countries show signs of improving coverage, with Japan seeing higher earthquake insurance penetration among residents, while domestic reinsurers in Indonesia have taken up catastrophe retrocession cover in excess of regulatory requirements.

Reinsurance premium rates continued to decline in the first half and Fitch expects the softening to continue for the rest of the year. This follows increased capital and competition, as established reinsurers look to build in the region and start-ups seek a foot in the door.

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