Global reinsurance capital is projected to reach a record $705b in 2026.
Asia-Pacific reinsurers are seeking growth overseas as abundant capital increases competition and puts pressure on prices at home, prompting firms to pursue expansion whilst remaining selective about the risks they take.
“Asian reinsurers will continue to look for diversification overseas,” Chris Lim, director of analytics at A.M. Best Company, Inc., told Insurance Asia via Zoom. “They will be looking at selective opportunities when they arise.”
Asia-Pacific reinsurers retain strong positions and longstanding relationships in their home markets, but competition among primary insurers is putting pressure on premium growth and demand for reinsurance, he said.
Christie Lee, senior director and head of analytics at AM Best, said dedicated global reinsurance capital is projected to reach a record $705b this year, supported by traditional and third-party capital.
“So this means globally, it’s not a lack of capacity,” she said in the same Zoom call. “It’s more about where the reinsurers are deploying the capital.”
Gallagher Re estimated global reinsurance capital reached $688b in the first half, up 5% from a year earlier, whilst major reinsurers recorded a 19.9% return on equity.
Its July renewal review also found price reductions across many insurance classes and regions as reinsurers became more willing to provide coverage.
AM Best expects overseas expansion to remain an important source of additional premiums and profit for Asia-Pacific reinsurers.
Many have dominant positions in their home markets, where much of their business comes from agreements under which reinsurers take a fixed share of an insurer’s premiums and claims, Lee said.
“We’re expecting the premium growth will be in line with the industry premium growth for the domestic book,” she said. “The overseas book is their growth engine.”
Overseas expansion can also reduce reinsurers’ dependence on markets exposed to typhoons, floods, and earthquakes and give them access to potentially more profitable business.
Lim said reinsurers would not expand simply to increase premiums.
“Underwriting discipline as well as underwriting profitability are always the key areas of concern for many of the reinsurance companies as they expand overseas,” he said.
More reinsurance capacity also gives primary insurers opportunities to obtain greater coverage and better terms, Lakshitha Fernando, general manager at Solarelle Insurance, said.
“Increased capacity and more competitive pricing allow us to look beyond simply reducing the cost of reinsurance and focus instead on how we can improve the overall quality and relevance of protection we provide to our clients,” he said in an emailed reply to questions.
Lee said prices could rise again if several major natural disasters produce repeated losses or investment losses reduce reinsurers’ capital.
Lim expects competition to persist, with reinsurers becoming more selective about which risks and markets they enter.