Brought to you by:

Capacity crunch hits Asia Pacific insurers harder: Gallagher Re 

A shortage of reinsurance capacity is particularly concerning for insurers in the Asia Pacific region, Gallagher Re’s new Asia Pacific Market Watch report says. 

Reinsurance market hardening is expected to continue, it says, creating “prolonged challenges for APAC insurers”.  

“The tightening supply of capital relative to demand could be particularly acute for APAC operators,” the report said.  

“There is a sense that supply dynamics will continue to be challenged into 2024, with no quick return to the historic oversupply.” 

The report notes climate-related losses resulted in “outsize” reinsurance losses, leading to reinsurers taking a conservative view of future trends and losses. That led to the withdrawal of capacity for higher-frequency events, coupled with higher pricing.  

Globally, reinsurers are now taking a more cautious approach in deploying their capital. This year’s renewals revealed a strong emphasis on price and contract conditions across all areas and lines of business, and rising interest rates hit investments and limited capital.  

This drive to generate better returns on deployed capital “will put pressure on cedants to pass on price increases to the primary market and enhance their risk management practices, not least because of the expectation that reinsurance market hardening will continue,” Gallagher Re said. 

In Australia, headwinds for insurers are persistent inflation, climate change and catastrophes, the hardening reinsurance market, and insurance affordability. 

“Looking ahead, insurers are facing a combination of challenges, including claims cost inflation in home insurance, limited margin improvement available in motor insurance due to competition, lower reserve releases, and weather-related claims uncertainty,” Gallagher Re said. 

“The Australian insurance industry in total incurred a three-year weather bill exceeding $12 billion. Rising reinsurance costs and high natural disaster claims put an upward pressure on insurance premiums by about 10%. 

“Against this backdrop of more frequent loss events, insurance affordability continues to be an acute issue.”  

Supporting local insurers are positive pricing trends and underwriting discipline, reduced uncertainty around covid losses, high interest rates and digitalisation and market modernisation, it said. 

The Australian market experienced strong premium growth in 2021 and 2022, with non-life gross written premium up 11% last year, versus rate changes of 12%.   

“Commercial insurance rates hardened as insurers sought to remedy years of historical underpricing and respond to significant natural catastrophe losses, diminishing investment returns, and a deteriorating legal environment,” the report’s section on Australia said. 

The net loss ratio in the Australian market improved 10% as commercial lines benefited from strong premiums and covid business interruption reserve releases. Personal lines experienced strong growth in premiums in response to claims inflation. 

There are 90 private insurers in the Australian non-life insurance market, and IAG, Suncorp, QBE and Allianz dominate with combined market share of around 60%. 

See the report  here