South, Southeast Asian reinsurers improve underwriting but challenges remain - AM Best

KUALA LUMPUR, Sept 20 (Bernama) -- Reinsurance companies in South and Southeast Asia (S/SEA) posted an improved combined ratio in 2021, although underwriting performance remains pressured with a continued reliance on investments to achieve bottom-line profitability, according to global credit rating agency, AM Best.

The new Best’s Market Segment Report, “Meeting Cost of Capital Elusive for South and Southeast Asian Reinsurers Despite Improved Underwriting Performance,” is part of AM Best’s month-long look at the global reinsurance industry ahead of Rendez-Vous de Septembre in Monte Carlo. 

According to the report, S/SEA reinsurers recorded an overall combined ratio of 108 per cent in 2021, a five-percentage-point improvement from the recent high in 2019.

Despite the improvement in technical performance, AM Best notes that overall return on equity declined to 3.4 per cent in 2021 due to low investment yields amid a prolonged low interest rate environment in most S/SEA markets.

“Even with rate improvements in the past two renewal seasons, the pricing increases may not be enough to see significant improvement in technical profitability given expected increases in loss costs should higher inflation persist.

“Reinsurers will need a prudent investment and retrocession strategy, along with continued underwriting discipline,” said director, analytics, AM Best, Michael Dunckley.

Meanwhile, AM Best senior financial analyst, Kanika Thukral said: “Although investment returns are expected to increase over the near term alongside a recovery in interest rates, rising inflation in the region is likely to pose challenges in meeting the cost of capital prospectively.”

According to a statement, AM Best still expects the segment to see stable growth, supported by the expansion of primary insurance markets with economic recovery and increased insurance penetration.

The report notes that reinsurers in the region have approached 2022 renewals with focus on achieving technical profitability, due to the expectations of a challenging investment landscape and an inflationary environment.

More details at www.ambest.com.

-- BERNAMA