Natural catastrophes continue to drive the growth of Asian reinsurance markets, according to a report on the sector by Fitch Ratings in Hong Kong.

Catastrophes have attracted a number of new local and foreign reinsurers to the market, thereby flattening premium rates, it says.

The economic cost from natural catastrophes in Asia last year was $US62 billion ($66.5 billion), but insured losses were only $US6 billion ($6.4 billion).

However, there has been a drop-off in the number and severity of natural disasters in recent years.

“The softening premium rates are largely attributable to a decrease in the frequency and severity of natural catastrophes in the region since 2011,” Fitch says. “An increase in reinsurance capacity in the form of new start-ups, as well as Asian operations set up by global reinsurers, are another factor that has contributed to the weaker premium rates.”

Fitch says Japanese earthquake and wind/flood policies were renewed in April at 10-20% discounts, reflecting a benign catastrophe environment last year and strong reinsurance capacity.

In Australia, property catastrophe policy renewals in January were generally offered at 5-10% discounts, according to the report.

“The full impact of the premium price negotiations for the July renewals is not yet known, but Fitch expects some rate declines as the reinsurance pricing cycle stays at the trough.”

After re-rating their risk appetites, some insurers are considering alternatives to reinsurance, to reduce their dependence on it.

“During [the first half of this year] several catastrophe bonds were issued in Japan,” the report says. “These bonds cover various catastrophe risks such as earthquake and typhoon risks.”

One market facing higher reinsurance premiums is Asian aviation, following a disastrous start to this year.

Insured losses on two Malaysia Airlines aircraft and a Taiwanese regional airliner are still being calculated, Fitch says. The recent loss of an Air Algerie flight will add to rising premiums.

“The losses from each of these incidents… are likely to cost the reinsurance industry at least $US1 billion ($1.07 billion) in aggregate.”