2011 CAT losses in Asia continue to push reinsurance rates up

Last year’s huge insured CAT losses in Asia Pacific will continue to push reinsurance prices up and tighten terms and conditions in the region’s key local markets this year, said Standard & Poor’s in a recent report.

The insured CAT losses, estimated at more than US$60 billion, were large enough for most reinsurers to reassess their exposure in Asia Pacific and then restructure several reinsurance programs as they came up for renewal, said S&P. Market dynamics also changed, with a few reinsurers and Lloyd’s syndicates withdrawing from the market and some new players having emerged.

Ms Reina Tanaka, a credit analyst at S&P, said that poor underwriting results and the weakened capitalisation of loss-affected insurers and reinsurers could put an end to a soft pricing cycle, especially in markets like Thailand, New Zealand, Australia, and Japan. She added that markets such as China and Malaysia would remain competitive.

The reinsurance capacity market in Australia and New Zealand was tested from late 2010 through 2012 after several Nat CATs led to record claims on the reinsurance and insurance markets.

Reinsurance pricing in the rest of Asia shot up following insurers’ flood-related losses in Thailand. S&P’s estimated total gross losses in Asia were between US$16 billion and US$18 billion. Regional reinsurers were hit hard mainly due to lower-than-estimated exposure and their small scale relative to the losses incurred.